There are many people who consider S-Corporation election when forming their new corporation.
An S-Corporation offers both advantages and disadvantages that regular C-Corporations do not, and may be beneficial depending on what type of business you run and how you would like to run that business.
S-Corporations operate similarly to regular corporations, but are taxed in a manner that is similar to a Limited Liability Company.
For example, the main difference between an S-Corporation and a regular C-Corporationis that the profits and losses of the S-Corporation are passed on to the various shareholders in the corporation.
The shareholders are then taxed on their individual share of the corporation’s profits or losses and report this on their individual tax returns.
S-Corporations start out their lives as regular C-Corporations.
To become an S-Corporation, the corporation must meet certain requirements and file Form 2553 with the IRS.
To qualify as an S-Corporation, the following requirements must be met:
- • Must have less than 100 shareholders
- • Shareholders must be U.S. citizens or resident aliens
- • Shareholders must be individuals, estates, certain exempt organizations, and certain types of trusts
- • Must have only one class of stock
If these requirements are met, then the shareholder can file Form 2553 to become an S-Corporation.
For new corporations, the deadline is 75 days after conducting business, acquiring assets, or issuing stock (whichever is earlier) to file Form 2553 and become an S-Corporation.
Existing corporations must file Form 2553 by March 15 of the year they wish to make the election.
In order to retain corporate existence, one must observe certain corporate formalities such as holding an annual meeting, taking corporate minutes, issuing shares and appointing officers.
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