Business Organization: The Advantages of an S-Corporation

Deciding how to organize your business can be one of the toughest decisions you make. One of the more popular ways to organize your small business is as a Subchapter “S” Corporation, also known as an S-Corp. All organization structures have their advantages and disadvantages. Here’s more about the advantages of filing as an S-Corporation.

Pass-Through Taxation

One of the main benefits of organizing as an S-Corp is that you can divide the annual corporate earnings amongst the shareholders. This means that your business will not have to pay income tax. Instead, the shareholders would claim their share of the income directly on their personal income taxes.

This avoids a situation of potential double taxation. In some cases, companies themselves are required to pay taxes on their earnings. Then, after earnings are distributed to the shareholders, those shareholders may be required to count it as personal income when they file their taxes. In those situations, the same earnings may be taxed twice.

Florida Does Not Have a Personal Income Tax

This ties in with the benefit of pass-through taxation. Once your company’s earnings are distributed to the shareholders, they claim it on their personal tax returns. However, because Florida does not have a state income tax, you don’t end up paying state taxes on your portion of the earnings, only federal taxes.

The Company Is Separate from its Owners

When you organize your business as an S-Corp, one of the benefits is that it creates a legal separation between the owners and the business. This way, if something happens and your business is unable to pay back borrowed money or money owed for equipment, the individuals who created the business are generally not liable for the amount owed.

Allowed Up to 75 Shareholders/Owners

When you file as an S-Corp, you are allowed up to 75 shareholders/owners. Whether you created your company by yourself or with others, this number of shareholders allows everyone important to the creation and management of the business to be a shareholder. Once shares are distributed, you can later decide as a group whether or not to offer to sell shares to the public.

Officers and Directors Handle Daily Business

With this form of business entity, the owners are not directly responsible for the operations of the company. Instead, owners are part of a board of directors that make any important decisions regarding the company. For example, they might come together to hire directors and officers to oversee the daily operations of the business.

Need Help?

Knowing the advantages and disadvantages of the various business organizations and how they would apply to your personal business is challenging. If you’re unsure of how to organize your Florida business, you should consult a professional at Cove Law. Their experts can answer your questions to ensure that you make the right choice for your business. Then, they can help you get your business established. Give them a call today at (954) 921-1121 or contact them online to learn more about how they can help.

Written by Andrew Cove

Cove Law has significant experience defending federal investigations and formal actions by the Federal Trade Commission, the Consumer Finance Protection Board and the U.S. Department of Justice, as well as similar matters on the state level by the respective state Attorney General’s Offices and other local agencies.