What is a S Corporation?
Home
FAQs Corporate Library What is a S Corporation?
What is a S Corporation?
2009.04.09
Named after the IRS code section "Sub chapter S", the S corporation is a flow-through corporate entity. The corporation is not treated as a distinct entity for tax purposes. Profits and losses flow through to the shareholders as in a partnership. In general, S corporations do not pay any income taxes. Since the profit and losses flow through to the shareholders, each are required to report the income or loss on their own individual income tax returns.
- Advantages of a S corporation
The owners (shareholders) of an corporation are not personally liable for any business debts, claims, or other liabilities. A corporations existence is considered perpetual, although it can be terminated voluntarily by its owners. Obtaining fringe benefits is another advantage provided through use of a corporation. While these benefits can be provided by all business entities, a corporation allows for a greater range of benefits. Last but not least, corporate tax advantage. The S Corporation does not have a separate tax status from its owners (shareholders). With a "Pass-Through Taxation" status, income is allocated to the personal income proportional to his or her ownership interest.
- Disadvantages of a S corporation
A corporation unlike an LLC has more extensive record keeping requirements. Corporations typically require more ongoing paperwork than most other business entities. Requirements include holding and documenting annual meetings of shareholders and directors, and keeping the minutes of important corporate meetings. This is required in order to stay in compliance with the law and to maintain a good corporate status. Another disadvantage that comes with an S Corporation is that it cannot have more than 75 individual (not entity) shareholders. S Corporations must have shareholders who are U.S. Citizens or U.S. Residents. Finally, an S Corporation may only have one class of stock.
- Ownership rules
Most states allow one-shareholder corporations; some require at least two.
- Non US resident facts
S Corporations are only available to U.S. Citizens and U.S. Residents.
- Bylaws of a S corporation
The bylaws of a corporation is a document that contains the internal rules for holding corporate meetnigs and carrying out other formalities according to state corporate laws.
- Stock's "par value"
Par Value is a nominal value that is given to shares of a corporation when it is first formed. The par value can be used for different things. Typically it is used to set this nominal price or maybe what's viewed as a minimal price for shares. Par value can also be used to determine franchise taxes in some states. Some states do not require a par value and generally when a state does not, it will not be requested during the formation process.
