Establishing Sub-Chapter S Corporation
A sub chapter S corporation is a business structure which has the limited liability of a corporation but taxed like a sole proprietor or a partner. An S corporation is like a common corporation that chose to shift to an “S tax status” through stockholders’ meeting and voting.
A business company can set up an S corporation in two ways:
- You can set up a limited liability company (LLC) first and then make the subchapter S election to have the LLC treated as S corporation for income tax purposes.
- You can establish a traditional corporation and elect to have the corporation treated as an S corporation for income tax purposes.
As a subchapter S corporation, you are allowed to include company losses to your own income tax declaration. In addition, you will have lower taxes if you decide to sell the company and shareholders are free from paying 15% of their income for self-employment taxes.
However, the California Corporations Code has strict and intricate provisions for establishing a sub-chapter S corporation. Potential difficulties may arise regarding some rules which include having not more than 100 owners or shareholders who are actually U.S citizens or residents, among others.
Establishing a subchapter S corporation may not be as easy as it looks. But with Business Corporate Attorney, we can help you find ways on how you may qualify for this business structure.
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