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What is an S corporation?

If you are considering the next steps toward legitimizing your small business and setting it up to grow, you may have run into people discussing S corporations. S corporations are a specific type of business classification that many small business owners prefer to use. In very broad strokes, the most commonly noted benefits of the S corporation are its potential tax benefits and its relatively affordable protections.

In order to qualify for S corporation status, a company can have no more than 75 shareholders. Of course, if you're just starting to venture into these matters, it is very unlikely that you and your business already have more than 75 shareholders. S corporations use relatively unique tax structuring that allow business owners to only pay one broad kind of federal tax by claiming the income as well as the losses of the business on their individual returns.

At the same time, the liability protection that other big corporations enjoy is also available to S corporations. These businesses are also allowed to use "cash accounting" methods if they do not retain inventory, which many business owners find very useful and efficient.

Whether you choose to classify your business as an S corporation or not, be sure to take the time to professionally fund your business and set it up for success. Many truly good business ideas never get off the ground or fully see their potential because they don't start off on solid legal footing and run into unnecessary trouble quickly.

If you believe that your business may fit well in an S corporation, an experienced legal professional can help you set up your business and keep your rights and priorities secure.

Source: Entrepreneur, "Subchapter S Corporation," accessed Dec. 01, 2017

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