A look at the S-corp and whether it might be right for your business

If you’ve been operating as a sole proprietor, now is an excellent time to consider a change in your business structure. The S corporation is the most popular business structure for small businesses and is worth considering for your company.
Benefits of becoming an S-corp
The biggest perk of an S-corp is the fact that it separates you personally from the business. This comes in handy in the event that your company is sued, because your personal assets can never be taken to cover company legal debts. That’s what would happen if you were sued as a sole proprietor.
Another advantage is that your S-corp will be taxed as a pass-through entity, which means that your corporation is not taxed separate and apart from its owners or shareholders.
Instead, corporate profits and losses are passed-through and reported on the personal income tax returns of the shareholders. So rather than filing your personal taxes as well as business taxes, you’d simply file your usual personal taxes, using the income you received from your company on the filing.
Additionally, you can easily transfer ownership of your corporation to another entity if you choose to sell it or hand it down to a family member.
Being incorporated also makes it easier to secure funding from investors. They tend to take you more seriously when you’re incorporated, compared to when you operate as a sole proprietor.
What you need to know about the S-corp
With the S-corp, you can have no more than 100 shareholders. That’s something to consider if you already have more than that, in which case, you may want to look at a C corporation.
Keep in mind that in addition to the initial paperwork and fees to establish your business as an S-corp, you will also be required to file an annual statement of information to remain compliant. While there’s a little red tape to work through, the payoff in becoming incorporated is well worth the effort.
When you should not consider becoming an S-corp
While there are so many reasons to think about the S-corp as a legal business structure, there are a few where it might not be the perfect fit for your company:
■  You have more than 100 shareholders.
■  Your company has partners who are not U.S. citizens.
■  You want more than one class of stock.
■  You are a sole proprietor who does not want the hassle.
■  You want flexibility in how you allot the dividends among shareholders.
In any of these cases, the limited liability corporation or another type of corporation might be a better fit. ●