Subchapter S Corporation Advantages

A Subchapter S Corporation formation occurs when a corporation files Form 2553 with the IRS. S Corporations must abide by certain rules, such as having 100 shareholders or less, in order to maintain Subchapter S status. Lack of taxes on the corporate level provides shareholders of a corporation with motivation to elect Subchapter S Corporation status.

Taxation

Forming an S Corporation allows shareholders to avoid double taxation. C Corporations have exposure to double taxation when taxes are filed on the corporate level, and when shareholders pay taxes on dividends received from the corporation. Shareholders in an S Corporation may pass their share of business profits and losses to an individual or joint tax return. S Corporation taxation appears like that of a sole proprietorship or a partnership, as explained on the All Business website.

Liability

By law, S Corporations appear as a separate legal entity from the shareholders of the company. S Corporations may accumulate assets and debts, sue or be served legal process, as well as enter into contracts. According to the Florida Corporations Online website, S Corporation shareholders and directors are shielded from company debts, liabilities and other financial obligations. Business creditors of an S Corporation may not pursue the personal assets of shareholders to recover business debts.

Raising Money

S Corporations may find it easier to raise capital when compared to sole proprietorships, partnerships and LLCs. S Corporations may issue stock to finance expansions, pay debt or finance other corporate activities. Only incorporated businesses are allowed to issue stock. S Corporations may only issue one class of stock. Issuing stock appears as one of the easiest methods to attract investors, as stated on the Florida Corporations Online website.

Existence

S Corporations have a perpetual existence. S Corporations may exist for an unlimited amount of time, long after the original shareholders of the company have passed on. As mentioned on the Florida Corporations Online website, an S Corporation will continue to exist and conduct business, even if a shareholder dies or sells his ownership interest in the corporation. Business types such as a sole proprietorship dissolve when the owner dies, or upon the sale of the business.

References

• All Business: Advantages and Disadvantages of S Corporations
• More Business: S Corp Eligibility: S Corporation Advantages and Disadvantages
• Florida Corporations Online: Advantages to S Corporations Versus C Corporations

Resources

• Residual Rewards: S Corp vs. C Corp Advantages, Disadvantages