The “S” Corporation is a particular type of corporation that exists for certain tax purposes. It is particular to the Internal Revenue Service and “S” corporation status is not relevant to state corporate laws. It enables a small corporation to be taxed on the federal level like a partnership yet retain some of the benefits of corporation status.
To qualify as an “S” Corporation , a corporation must meet these requirements:
· It must have no more than 35 shareholders
· All of the shareholders must be individuals (no corporations or other entities as shareholders)
· It may have only one class of stock
· Each shareholder must consent to “S” corporation status; and
· An election of “S” corporation status must be filed with the IRS
The “S” corporation retains all of the advantages and disadvantages of the traditional corporation except concerning taxes. Shareholders in “S” corporations are treated like partners in a partnership. The income and losses generated by an “S” corporation go through the corporation directly to the individual. This means that there is no double taxation. Also, unlike a regular corporation, shareholders in an “S” corporation can deduct any corporate losses.
As with any legal and business matters a competent attorney should be consulted before an individual makes any decision concerning what form of business structure to choose and how to go about drawing up the documents.