One of the most important decisions you will have to make as a business owner is which type of business structure you will choose. For a small business owner, this might prove to be confusing and complex. Before you can make that crucial decision, you need to know what you can expect from each of the business structures. An S corporation is a special election whereby paying taxes will not be done at the corporate level. The shareholders will be the ones to pay the taxes on a personal level as profits and losses are passed through to them. It is important to note that an S corporation is not a business structure because you will need to be part of an LLC or corporation. The following are reasons why it is wise to go for an S corporation.
One of the biggest advantages of an S corporation is the fact that the owners of the company don’t have much liability protection against the corporation’s debts and obligations. The much you have invested into the company is the level at which you will be liable. The bright side is that if the corporation has any debts or obligations and there is a lawsuit, your assets will not be used as compensation. On the other hand, if any member finds himself in a lawsuit because of personal debts, none of the company’s assets will be on the line.
The one major reason why an S corporation is great is taxation. One of the most significant things you will definitely enjoy being part of an S corporation is the fact that you will not be required to file returns as a business in his case the S corporation. This is because the law requires that each business owner pay their taxes personally according to what they have made from the business. This is best because you will only pay taxes once and not twice as other entities would require.
Another benefit with this kind of entity is being able to give stocks to investors. This will allow you raise capital for expansion or sort out other obligation. On the flipside, a limited liability company does not have this ability. This means that they cannot give away stocks as a means of raising capital.
The net income of the company is not taxed when you are in an S corporation. The employees of the company are the only ones to pay taxes from what they have earned from the company. This is a great thing for any company.
An obvious benefit of the S corporation is the fact that it has no end. The company might be owned by different individuals at different times but the fact of the matter is that it will not die. This is because even if one of the members die, the company continues to exist. With sole proprietorship, when the owner dies, so does the company.