All Corporations start out as a regular Corporation. By filing form 2553 with the IRS you are electing to meet the requirements for an S-Corporation. Essentially, an S-Corporation is treated like a partnership for tax purposes, but it has all the limited liability protection of a regular Corporation. S-Corporations, however, do not have many of the fringe benefits that regular Corporations do.
An S-Corporation is a pass-through entity. This means profits and losses pass through to the shareholders.
An S-Corporation provides the same liability protection as a regular C-Corporation.
There are certain restrictions that must be met to qualify as an S-Corporation:
100 or fewer shareholders
You can only issue one class of stock
Shareholders must be U.S. Citizens or U.S. residents, estates, certain trusts, banks and certain exempt organizations, not C-Corporations
If you are a greater than 2% shareholder of an S-Corporation, certain benefits available to you may be limited.
The following table provides a look at the LLC vs Corporation, and LLC vs S-Corporation. Tax comparisons can be found in the lower portion of the table.
C-CORPORATIONView the Details Incorporate Now
LLCView the Details Incorporate Now
S-CORPORATIONView the Details Incorporate Now
Stock, there may be different classes.
|Membership interests. There may be different classes of membership.||One class of stock. Which may be voting or non-voting.|
|Eligible Owners||No restrictions.||No restrictions.||100 shareholder limit. No non-individual and no non-resident alien shareholders.|
|Management||Managed by director(s) and officer(s).||Two Management Types
- Managed by Manager
- Managed by Members
|Managed by director(s) and officer(s).|
|Allocations of Ownership||None. Dividends must be paid based upon stock ownership.||Permitted if the allocations have substantial economic effect.||None. Income, gain, and loss pass-through to the shareholders based on the percentage of shares owned.|
|Liability Protection||There is limited liability for shareholders, officers and directors.||There is limited liability for members and managers (if applicable)||There is limited liability for shareholders, officers and directors.|
|Duration||Perpetual||Dissolves at the time specified in the Operating Agreement or upon the loss of a member unless other members agree to continue.||Perpetual|
|Transfer of Ownership||Shares freely transferred.||There may be restrictions under certain state laws.||Shares can be transferred only to eligible S-corporation shareholders|
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