All of which are pretty easy requirements for most small businesses. Closer IRS scrutiny. Characterizing distributions as salary or dividends may help the owner reduce liability for self-employment tax while generating business-expense and wages-paid deductions.Â, Because S corporations can disguise salaries as corporate distributions to avoid paying payroll taxes, the IRS scrutinizes how S corporations pay their employees. No. By this method, a C-Corp’s profits are balanced out by the owners' compensation, so there is little taxable income left on which the corporation must pay taxes. Do I need an attorney to form a corporation? What Is an S Corporation (S Subchapter)? An S Corp, also known as the subchapter or small business corporation, is a tax code that was enacted into law by Congress in 1958. Unlike the c corp and LLC (Limited Liability Company), you have to be a legal resident of the U.S. Limited ownership. U.S. citizens and permanent residents only. What Is an S Corporation? What are the requirements to form an s corporation (s corp)? What are the requirements to form an s corp? Choose a legal name and reserve it, if the Secretary of State in your state does that sort of thing (not all do). While rare, noncompliance such as mistakes in an election, consent, notification, stock ownership, or filing requirements, may result in the termination of an S corporation. Quick rectification of noncompliance errors can avoid any adverse consequences.Â, Filing under Subchapter S also requires time and money. A few states require us to get your signature on the completed documents before submission. S corporations combine the benefits of partnerships (single taxation) with the limited liability offered by corporations. Not quite ready to pull the trigger? incorporate.com will guide you through the steps to incorporate your business either online or by telephone. What is the organizational structure of an s corp? An s corp can own an LLC. An S corporation is an IRS tax classification, not a type of business entity. corporation (C corporation, C corp): A corporation is a large and complex organization that is owned by its shareholders and governed by a board of directors. S corporations are corporations that decide on an alternate way to pay yearly income taxes. Payments to employees and shareholders could be distributed as either salaries or dividends. Apply for a business license and other certificates specific to your industry. Our guide can provide some answers to help you decide. Perpetual existence. It's only taxed when paid out as salaries or dividends to shareholders. If you are still undecided as to the pros and cons of declaring your business an s corp, please contact incorporate.com to speak to someone who may be able to set you on the right path. The corporation may pass income directly to shareholders and avoid double taxation. Instead of paying taxes at both levels, S corporations are required only to tax their dividends--the corporation itself does It’s a popular tax election because it has tax-saving potential for both corporations and LLCs. S corporations are virtually identical to C corporations, save that they have a special tax status with the IRS. A C corporation, under United States federal income tax law, refers to any corporation that is taxed separately from its owners. The company can attract investors through the sale of shares of stock. Filing Articles of Incorporation 2. Normally, we submit documents directly to the state. However, there are other intangible factors you must take into account. State laws require s corps to hold annual meetings of shareholders and directors and record meeting minutes. CSC is a service company and does not offer legal or financial advice. 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