Limited liability for management and shareholders.
An unlimited number of managements, no state residency requirements.
Distinct, court-recognized existence helps protect you from personal liability that can cause you to lose your wealth in assets like your home, car, or nest egg.
Flow-through taxation
Profits are distributed to the shareholders, who are taxed on profits at their level.
Adequate privacy protection, especially in Nevada and Wyoming.
Great income-splitting potential for owner/employees.
Can take a smaller salary and pay income taxes and regular payroll deductions, then take the remainder of profit as a distribution subject to income tax only.
S Corporations are great for businesses that: will provide a service (i.e. consultants). will not have significant start-up costs. will not need to make substantial equipment purchases before beginning operations, creating a sizable amount of money without a great deal of effort and expense.
DISADVANTAGES
At shareholder level, shares are subject to seizure and sale in court proceedings.
Maximum of 100 shareholders, all of whom must be U.S. residents or resident aliens. Shares must be held directly, except circumstances.
Owner/employees holding 2% or more of the company’s shares cannot receive tax-free benefits. Because flow-through taxes will be paid at the personal rate, high-income shareholders will pay more taxes on their distributions.
Not suitable for estate planning vehicle, as control is ultimately in the hands of the stockholders.
In a planned gifting scenario, once majority control passes to children from parents, children can take full control of the company.
Suppose tax status is compromised by either non-resident stockholder or stock being placed in corporate entity name. In that case, the IRS will revoke status, charge back-taxes for 3 years and impose a further 5-year waiting period to regain tax status.
Capital gain on sale of assets will incur higher taxes than with other pass-through entities such as LLCs and Limited Partnerships.
