S Corporation

About S Corporations and Tax Status

All S Corporations begin as a C Corporation (general or standard corporation) when Articles of Incorporation are filed with the state. If the owners wish to apply for a special tax status allowing company profits or losses to be reported on the shareholders' personal returns, then additional paperwork is required. Form 2553 (Election by a Small Business Corporation), from the IRS, must be signed by all shareholders and submitted within the strict time limits allotted by the federal government to apply for S Corporation status.

An S Corporation (or S Corp), unlike a general corporation, is not taxed on its profits. The profits and losses are allocated based on the owners' proportionate shares, also known as distributive shares, in the S Corporation.

All aspects other than the different tax treatment by a Subchapter 'S' election are the same for an S Corporation as a general corporation. If an S Corporation ceases to meet the eligibility requirements to maintain their special tax status, the corporation will lose its S Corp status and revert back to a C Corporation.

Advantages of Forming an S Corporation

  • Company profits can be reinvested without paying taxes on that amount.
  • Owners of an S Corporation have limited personal liability for the debts of the company.
  • Earnings are reported on the individual shareholders' tax returns.
  • Owners of an S Corporation can use corporate losses to offset income from other states.
  • An S Corporation is not a separate taxable entity; therefore, there is no double taxation threat.
  • Owners of an S Corporation can take profits as distributions, thus providing a more favorable tax status.

Characteristics of an S Corporation

  • S Corporations are limited to one type of stock offering.
  • S Corporation shareholders must be legal residents or citizens of the United States, unlike C Corporations or Limited Liability Companies.
  • No companies of any kind may be shareholders in an S Corporation.
  • S Corporations are limited to a maximum of 100 shareholders.
  • S Corporation profits and losses are allocated based on the owners' proportionate shares.
  • S Corporations must obtain an Employer Identification Number (EIN) for tax reporting purposes with the IRS.

Costs to Form an S Corporation

CorpAmerica has corporate formation packages for as little as $49 in Delaware and Nevada (plus applicable state fees). The cost to form a corporation in other states starts at $89. We have multiple packages to choose from to meet your individual needs and budget.

Start an S Corporation Today

Getting started is easy with our online order form. As the low cost leader in business formation services, CorpAmerica will save you time and money. If you have any questions or prefer to place your order by phone, call 877-246-2462 (toll-free) or 302-636-5448 to speak with a business specialist now.

Did you know?

You must follow your states rules and regulations for maintaining a business in "good standing" in order to preserve the benefits of incorporating. This includes protection of your personal assets.