S-Corp

Overview

An S-Corp is a type of business formation in which shareholders earn a part of the profit in the form of dividend by owning shares in the company. The main difference between C-Corp and S-Corp lies in the way they are taxed.

How it Works

You can approach the office of the secretary of state to obtain the forms that are needed for registration. You can easily get all the necessary paperwork and the schedule of the costs and the other charges associated with registration. Initially, you have to register the corporation with the secretary of state's office and then apply for the S-Corp. It is required that all the shareholders sign the special form to apply for the S-Corp.
You can easily register for the S-Corp with the secretary of state's office and avoid approaching any other agency that would charge you an extra amount for incorporation. If you find it difficult going to the office, you can also apply for S-Corp online.
Before you form an S-Corp, it is preferable that you contact your secretary of state's office to be able to report profit and loss on your personal income taxes. Few of the states' tax the S-Corp similar to the C-Corp. They tax the corporation, owner, and the shareholders separately.

Benefits

The main benefit of having an S-Corp is that the owners are not liable for any of the debts incurred by the company. In sole proprietorship and in partnership, the owners will be responsible for the debts and sometimes even their personal properties will be under stake.
The owners of the S-Corp include the profits under their personal income instead of putting them under the special tax paid by the company. The owners include the losses under their personal income taxes and, therefore, they get deducted from the personal tax debts. Unlike the owners of the other business like sole proprietorship and Limited Liability Companies (LLC), these S-Corp owners do not have the self-employment taxes.
The S-Corp benefits you not only when you own it, but also when you sell it. The tax burden by the sale of the business is small when compared to the other kinds of businesses, the taxable gain is also very little.

Costs

Costs associated with registering an S-Corp varies with states. The initial registration fee may be around $175, but after paying all of the other costs you may end up spending at least $400 or $500.

Timing

Forming an S-Corp can be done in two ways. Either register a new S-Corp or turn an existing business into S-Corp. You can also turn an S-Corp into a C-Corp or any other type of business organization when you feel you are ready. Such conversions are made for profit or taxation benefits, depending on the need of the situation.