Background on S-Corporations
Double taxation is a horrible practice, which many governments around the world embrace thoroughly. It’s the nasty habit of a government to tax your company’s profits, and then when you distribute the after-tax profits to the shareholder’s they TOO have to pay tax on money the company already paid the tax on.
In the USA, we have wrestled with the “dividend” tax in many ways, but the creation of the IRS tax code known as “Subchapter S” is probably the best-known and most effective way to avoid double taxation. Basically, it says a company organized as a S-Corporation does NOT PAY TAX at the entity level. Instead, the company passes its dividends through to its shareholder and THEY pay the tax on their portion of ownership.
Now, pass through tax treatment can also be achieved through the LLC but major corporations, with thousands of shareholders cannot avoid double taxation since there is 100-person limit on the number of shareholders an “S Corp” can have.
This blog category will help you understand all the benefits of an S-Corporation as time goes on. We invite you to join the conversation by leaving a question or comment.
I currently have an S corp, however I am concerned about my legal exposure to risk. I have plenty of liability insurance, but am I more vulnerable legally?
Hello Cynthia,
We have clients that form and file the Delaware corporation with the Sub Chapter S tax status on a daily basis, the primary reason for forming the corporation is for the asset protection. The whole idea of forming a corporation is to help separate ones personal life from their business life, more or less putting a big brick wall in between the two. With a corporation though, it is very important to keep up with corporate formalities such as annual meetings, minutes of the meetings, appointing directors and officers. Here is a great article on that topic http://blog.delawareinc.com/2009/09/how-thin-is-your-veil/
**Don’t forget the Delaware corporations annual franchise tax filing is due to the State of Delaware by March 1st go to http://www.delawareinc.com/payft to take care of that now, if you have not already done so.