When starting a business, many start out as sole proprietors.
In order to protect yourself and your personal possessions many business owners will structure their business as a corporation. One type of a corporation is an S Corp.
The Law Offices of Page, Lobo, Costales and Preston would like to share some valuable information about the pros and cons of forming an S Corp for your business.
Pros of forming an S Corporation:
- You are protected from liability – As an owner of an S Corporation, your personal assets are separate from your business’s assets and are protected in case any judgments occur against the business.
- You have the ability to have investors invest in your business – As an S Corporation you have the ability to have up to 100 shareholders.
- An S Corp can eliminate double taxation – Profits and losses are passed through to shareholders in an S Corporation and taxes are only paid once. It does, however, depend on what state you are in.
Cons of forming an S Corporation:
- You have rules and fees – C Corps and S Corps both are required to file official state and federal documents including Articles of Incorporation and corporate minutes. They also must hold regular shareholder meetings and pay the required government fees.
- Restrictions are set for shareholders – If your S Corp has shareholders, they will be taxed for any income the company has even if they did not receive any portion of the income. S Corps are also only allowed to issue one class of stock which may discourage some investors.
- You must take a salary – The IRS requires all owners of an S Corp to make a salary even if the company is not yet making a profit.
If you would like more information on forming an S Corporation for your business, contact Jonathon Preston at The Law Offices of Page, Lobo, Costales and Preston.