The "S Corp" is considered by many closely held enterprises to be the preferable entity of choice to incorporate under. Like the "C Corp" the "S" in S Corp refers to the subchapter that the rules and regulations governing S Corps can be found in the I.R.S. code. The benefit of the S Corp is that it is formed under state law with all the benefits of the C Corp in regards to liability protections. But, unlike the C Corp, the S Corp is a pass through entity in regards to taxation.
Some of the benefits of an S-Corp include:
1) the accumulated earnings of the S Corp will increase the outside stock basis of the shareholder's stock (this can achieve very favorable taxation consequences),
2) the S Corp is immune from the double taxation effect on distributions and liquidations that are found under the C Corp,
3) S Corp status can help enable passive income and income shifting.
Some of the major limitations include;
1) not all corporations are eligible for S Corp status,
2) corporations with more than 100 shareholders will not qualify,
3) also corporations that have more than one class of stock can not qualify (there is an exception in regards to voting and nonvoting shares).
There are a lot of considerations when deciding to become an S Corp. The Smith Law Firms LLC can help you understand what your business venture needs and whether you will qualify as an S Corp.