If you own a small business, you might want to consider forming an S corporation because it offers several advantages for the small business owner. You should carefully evaluate the pros and cons of the various business structures available and choose the best option for your situation. For some companies, a sole proprietorship, partnership, C corporation, or some other form would be better.
A Miami, Florida business litigation attorney can talk to you about your choices and draft the documents and filings appropriate for your company. Let’s take a look at why S corporate status makes sense for a number of small businesses.
Who Can Become an S Corporation
Not everyone can form an S corporation. You will have to satisfy all six of these rules to operate as an S corporation in Florida:
- Your company must be a U.S. corporation or an LLC (limited liability company).
- The decision to become an S corporation must be unanimous. If one shareholder does not consent, the business cannot form as an S corporation.
- Your company cannot have more than 100 shareholders.
- There can only be one class of stock in the company.
- The shareholders can only be certain individuals, trusts, or estates who meet S corporate qualifications under Florida law.
- The business cannot have any shareholders who are not U.S. citizens or permanent resident aliens.
If your business entity does not meet all of the requirements, you might talk with a business attorney about how you might satisfy all of the rules by making some changes in the company.
Benefits of S Corporate Status Include:
S corporations, C corporations, and LLCs offer some protection from personal liability that a sole proprietorship or partnership does not provide. If someone files a lawsuit against your sole proprietorship or partnership, you could lose your personal assets as well as the business assets. With an S corporation, C corporation, or LLC, your personal assets are usually protected from claims against the business.
S corporations (S corps) have tax advantages over C corporations (C corps) in that S corps do not have the double taxation that C corps have to pay. A C corp gets taxed as its own separate entity, whereas in an S corp, the income passes through and does not get taxed until someone receives it as income or a dividend. Also, the owner of an S corp can elect to take most of their “income” in the form of dividends instead of all as salary, avoiding much of the self-employment tax.
S Corporations Have Some Disadvantages
If your company succeeds, it might outgrow S corporation status because of high earnings or the desire to have more than 100 shareholders. Also, the strict rules for the formation of an S corp remain throughout the life of the S corp status. You cannot retain S corporation status if you sell shares to individuals or entities who do not qualify under Florida’s S corp rules.
Finally, an S corp does not allow the generous tax deductions that the owner of a sole proprietorship or partnership enjoys for business expenses and losses. A Miami, Florida business attorney can help you decide if an S corporation is right for your business. Get in touch with our office for legal help, we gladly offer a free consultation.
