When Florida residents decide to start a business, they have many choices to make about their new company’s legal status. One of the statuses people can choose is called an S corporation. Before people set up this kind of corporation, it is important to understand what it is and how it may be beneficial for business owners.
An S corporation is a domestic company that is not taxed at the corporate level. According to the Internal Revenue Service, the business owner and shareholders both use their personal tax returns to report credits, losses and income. People usually need to submit paperwork to the IRS in order for their company to become an S corporation, and the shareholders typically need to sign these papers. To receive this status, a business generally needs to meet the qualifications. Most of the time, a company needs to be based in the US and have 100 shareholders at most. Additionally, the business may need to have a single class of stock. Shareholders may also be limited to particular types of estates and trusts and private individuals.
There are several reasons this kind of corporation can be beneficial for business owners. Business.com says that S corporations are not always tied to one person. If people realize they need to sell the company to another person, they can usually sell the stock to transfer ownership. S corporations also do not have limited lifespans, so they can continue even after the original owner steps down. Additionally, this legal status allows people to have a limited liability for the business’s actions. This is because the corporation is considered a separate entity from the business owner.
Another benefit of an S corporation is that business owners may be able to come out ahead if they decide to sell the company. The taxable gains are typically lower for these corporations. Sometimes people may realize that their business needs a different legal status. It is generally easy to change an S corporation into a C corporation if people think this will be better for the company.