S Corp and Tax
Understanding S Corp and Tax
To qualify for S-Corp status:
- No more than 75 shareholders are allowed. Venture capitalist are often put off by this sort of set up.
- Non US citizens are not allowed to be shareholders
- Individuals, certain partnerships and other S Corporations can be shareholders but S Corporations cannot be owned by C Corporations, other S corps, many trusts, LLCs and partnerships.
- S Corporations can only issue one class of stock - common stock. Your ownership percentage determines your percentage of the pass through income. This is different to LLCs where the percentage of pass through income does not have to be the same as ownership percentage.
- Your interest is freely transferable, which means you can sell it without the approval of other shareholders. LLC members need approval from the other members.
- Your ownership interest is easy to sell or transfer to family members. This can be time consuming and costly for a sole proprietor or partnership. With corporations your ownership of all the business assets is wrapped up in the stock you hold and all you have to do is sign over your stock.
- The corporate structure allows you to easily sell shares in the company through stock offerings. This is useful for attracting investors and employees.
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