• Menu
  • Skip to right header navigation
  • Skip to main content
  • Skip to secondary navigation
  • Skip to primary sidebar

Before Header

  • Facebook
  • LinkedIn

Hood Venture Counsel, P.C.

NYC Corporate Law

  • Home
  • Attorneys
    • Jonathan L. Hood, Esq.
    • Benton J. Levy, Esq.
  • Services
    • Contract Preparation/Review
    • Terms of Service and Privacy Policy
    • Entity Formation
    • Trademark Application
    • Copyright Application
    • Compliance
    • Not-for-Profits
    • Investment
    • Concierge General Counsel
  • Contact
  • Disclaimer

Mobile Menu

  • Home
  • Attorneys
    • Jonathan L. Hood, Esq.
    • Benton J. Levy, Esq.
  • Services
    • Contract Preparation/Review
    • Terms of Service and Privacy Policy
    • Entity Formation
    • Trademark Application
    • Copyright Application
    • Compliance
    • Not-for-Profits
    • Investment
    • Concierge General Counsel
  • Contact
  • Disclaimer

Should Your Corporation be an S Corporation?

November 9, 2014 //  by Jim Hood

There are several ways that aspiring entrepreneurs can structure their new business. The most well known are the limited liability company (LLC), and the corporation. The basic corporation is what’s known as a C corporation, but there are also S corporations, named for Subchapter S of the Internal Revenue Code. A corporation takes on the S designation when it elects to pass income through the corporation and onto its shareholders; the corporation itself does not pay taxes on its income, but its shareholders do.

Why is this a desirable arrangement? It can help startups by reducing tax liabilities at a crucial time for the business’s development. In addition to income, losses also pass through to shareholders (in many cases, startup employees); these losses can be offset against income received from the business (and other types of income) in calculating the amount of income tax owed. In addition, as a corporation the S structure allows shareholders to receive dividends, which are then taxed at the more favorable capital gains rate.

While these are definite benefits to having S status, there are other caveats that should be considered when deciding whether to make the S election. Because of the corporate form, S corporations need to adhere to stricter legal formalities than an LLC (such as paying state report fees, creating corporate bylaws, issuing stock, and more detailed recordkeeping). S corporations also have limitations on issuing stock that their C counterparts don’t; there may only be 100 shareholders per S corporation, and only one class of stock can be issued. This can complicate the process of dividing stock options between investors, since there is no way to allocate different types of dividends or distribution rights that different investors might want. In addition, the IRS watches S corporations more closely, since shareholders can receive both dividends and a salary; the IRS will need to ensure that payments made to shareholders are accurately represented.

However, whether a business should make the S election depends on the needs of the business and its members. Other benefits available to S corporations include transferability of shares (which can’t be done in an LLC), and the corporate structure (compared to the more partnership-like LLC); these should all be considered in deciding what sort of organization will suit your business best.

Category: blogTag: corporate structure, corporate taxation, corporation, LLC, s corporation

Previous Post: « What Do General Mills and Your Business Have in Common?
Next Post: Should You Register Your Trademark Yourself? »

Primary Sidebar

Recent Posts

  • Ten Common Startup Business Mistakes to Avoid
  • The Latest on Legalized Cannabis in New York and What It Means for Your New Cannabis Business
  • Trademarks 101 – What You Need to Know About Getting a Trademark
  • C-Corp, S-Corp, or LLC? Choosing the Right Structure for Your Business
  • Six Things You Need to Know Before Starting Your Own Business

Tags

American Civil Liberties Union (ACLU) Americans With Disabilities Act (ADA) apple arbitration bank of america civil rights class action compliance contracts corporate structure corporate taxation corporation criminal justice discrimination ea sports Electronic Frontier Foundation (EFF) employee employment employment law entrepreneur entrepreneurship Facebook federal trade commission (FTC) Fourth Amendment Gawker gay rights Google hurricane sandy injunction intellectual property law enforcement LLC national football league (NFL) New York City NYPD privacy same-sex marriage s corporation settlement smartphones sports law stop-and-frisk terms of service Terms of Use U.S. Supreme Court
  • Practice Areas
  • Attorneys
  • Success Stories
  • Blog
  • Privacy Policy

Site Footer

Hood Venture Counsel, P.C.

43 W. 43rd Street, Suite 107, New York, NY 10036

Copyright © 2021 · Hood Venture Counsel, P.C. · Web Design by: WarMarks