S-corporation – Essay Sample
S-corporation – Essay Sample
Is a form of an enterprise, which combines advantages of all types of business entities, mentioned above. Nevertheless, there are particular limitations on operation of companies, having this type of incorporation.
Liability. Like shareholders of C-corporation, shareholders of S-corporation have limited liability. In case of bankruptcy they lose only their shares.
Income taxes. Income of S-corporation is a subject to pass-through taxation. Company doesn’t pay taxes, they are paid only by shareholders.
Longevity. Like C-corporation, S-corporation life period of is unlimited. Any changes in the amount of shareholders cannot influence company’s operations.
Control. The company is managed by the board of directors like in C-corporation. But in S-corporation shareholders have more influence on their company. According to the rules, stockholders are obliged to organize corporate meetings.
Profit retention. Retention of the profit is performed like in a C-corporation.
Location. The business must be a domestic company in any state
Compliance . The S-corporation is exceptionally convenient for the starting businesses, as it allows pass-through taxation, but also limits the liability of the shareholders. Nevertheless, an S-corporation is not as easy to organize, as extra paperwork is required. Some limitations are also present: S-corporation can issue only one class of stock; number of shareholders must not exceed 75 persons; only individuals, certain trust and estates can be shareholders; all shareholder must have American residence. Moreover, the shareholders’ meetings are required, which is often problematic.
