Subchapter S Incorporation Advantages and Disadvantages

There are a number of options for business owners to consider when incorporating. You should be familiar with all of them because they are all a little bit different. Subchapter S, or S Corporations are created after an application to the IRS is approved. If you want to read more about what an S Corporation is click here.

Advantages to S Corporation (Subchapter S) Incorporated Companies:

No Corporate Taxes: Perhaps the most valued advantage to having a subchapter s corporation concerns the tax advantages. Company profits and losses are paid on the owners’ personal income tax. What this means is – if the s corporation paid you $12,000 for the year and yet has made $60,000 of which $48,000 remains in the business checking – the taxes are on $12,000 at the personal tax rate.

This is similar to a LLC, taxes “pass through” and allow you to avoid any “double taxation”.

Reduce taxable gains when selling your business. This can be part of good planning for your retirement as you’ll save considerably.

Losses incurred during start-up can be written off. These can be written off against your personal income.

Protection of assets… liability protection: S corporations offer protection against some liability. However, you remain personally liable for your actions in the case of fraud, intentional harm or anything else the court rules.

Disadvantages of Subchapter S corporation entities:

Less Stock Issuing Options. Subchapter S corporations are limited to one class of stock.

Venture Capital Issues. Venture capitalists are less likely to be interested in funding your growth because of the pass-through tax structure and the limit of 75-100 shareholders.

Corporate Meetings and Minutes. Some additional time is necessary for administrative tasks.

More Subchapter S Information:

Subchapter S Versus LLC Showdown… – For many new Illinois businesses the choice will come down to these two types of corporations.

What is a Subchapter S (S Corporation)? – Subchapter S is an IRS designation for a Profit Corporation that distinguishes it…

Incorporate your Subchapter S – (S Corporation) online now.