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Sub Chapter S Corporations

If you are incorporating your business, you are going to need to know about an S Corporation because it is one of the choices that you will have when choosing the right corporation style for your business. An S corporation is similar to an LLC, but it also shares many of the same characteristics of the corporation. The one thing you don’t want to think is that the S Corporation is the same thing as an LLC because they have quite a few differences, just as if the corporation does.

One of the benefits of an S Corporation is that they protect your personal assets from any business debts or liabilities that the business incurs. This protection will stay in effect unless you have signed a personal guarantee, such as a personal line of credit for the business. Another benefit to forming an S Corporation is that the S Corporation allows for pass through taxation. This is not offered in C Corporations, so it is a huge benefit because it allows the shareholders to benefit from the losses of the corporation on their personal tax returns.

Another positive thing about S Corporations is that even though you must pay a franchise fee each year it is waived for the first year. This allows S Corporations the advantage of saving money during the incorporation process, and depending on where you are incorporating the amount can be quite a bit. For example, in CA you must pay a franchise tax of 1.5% on your net income or $800, whichever one is greater.

The one thing that you need to know about forming an S Corporation is that in order to become an S Corporation you must first register your business as a C Corporation. You also must wait a specific amount of time before you can elect to form an S Corporation.