Pros and Cons of Forming an S-Corp

Irvine business lawyers at Brown & Charbonneau, LLP will help you to decide what kind of business entity is best for your particular situation. You have different options when it comes to how your structure your business and there are advantages and disadvantages to each of the different types of business structures that you can choose. One of the options available to you is an S-corporation. 

It can be difficult to know if an S-corp is the right business structure or if there are other types of business entities that would make more sense to meet your needs. You should get personalized help understanding your options from Irvine business lawyers. Our knowledgeable legal team will work with you to choose the best structure and will also help you with the process of forming your desired business entity. To find out more about how our firm can assist you, give us a call. You can also read on to find out about the pros and cons of forming an S-corp so you can decide if this kind of business is the right one for you.

Advantages of Forming an S-corporation

There are a few big advantages that you should be aware of when it comes to structuring your business as an S-corporation.  One of the best benefits is that you are more protected from liability than you would be with other types of business entities such as a partnership or a sole proprietorship. When you form a corporation, that corporation has a separate identity independent from you. As long as you maintain business formalities — like not mingling your money with the company or cosigning for business loans — your potential risk of loss is limited. You should not lose more than the money you invested, because if the corporation goes bankrupt, your personal assets should not be affected.

Another big advantage of an S-corporation is that you can often save money on taxes. An S-corporation is not separately taxed on profits, as a C-corporation is, so you do not have to worry about being double taxed like you would with a C-corp. With a C-corp, the company pays taxes on profits and individual owners pay taxes when profits are distributed to them. This does not happen when you have formed an S-corporation. Income passes through to owners so they can claim profits and losses on personal tax returns, similar to other pass through entities like LLCs.

When you have structured your business as an S-corporation, some of the money the company makes can be paid out to you in the form of distributions instead of salary. You can avoid paying Social Security and Medicare taxes on distributions, so you benefit from significant tax savings.

Disadvantages of Forming an S-corporation

There are also some downsides associated with forming an S-corporation as well. For example, when you form an S-corp, there are more restrictions on both the number of owners and on who can own stock in the corporation compared with a C-corporation. The process of forming the corporation can be much more complicated than just operating your business as a sole proprietorship. You also have to submit an S-corp election form to the IRS and if you miss the deadline to do so, your organization won’t be able to be recognized as an S-corporation right away.

When you operate as an S-corp, you also have to maintain corporate formalities, such as having regular meetings and electing corporate officers — and you have to keep corporate money separate from personal funds in order to maintain the protections in place for incorporating.  Your corporation also has to file a separate tax return, even though you don’t have to pay taxes, so you’ll have extra accounting costs in addition to other ongoing costs associated with maintaining your corporate status.

Often, these disadvantages are outweighed by the advantages, but you still need to talk with Irvine business lawyers to make sure forming an S-corp is right for you.

Getting Help from Irvine Business Lawyers

Irvine business lawyers at Brown & Charbonneau, LLP will provide the personalized assistance you need to evaluate different kinds of business entities and pick the business structure that is right for you. We can also help you to file your articles of incorporation with the state and to file your S-corp election with the IRS.

To find out more about the ways in which our legal team can help you pick the right business entity and to create the business entity that is best for your organization, give us a call at (866)237-8129 or contact us online today.