Contrary to popular belief, the S corporation is not a distinct entity type. According to the Internal Revenue Service (IRS), an S corporation is a corporation that has elected treatment as a pass-through entity for federal income tax purposes under Subchapter S of the Internal Revenue Code. This tax election allows the corporation to enjoy a unique combination of benefits if it meets the following requirements: 

Certain types of financial institutions and insurance companies are prohibited from electing Subchapter S treatment even if they meet the requirements. 

Benefits of an S Corporation

The S corporation appeals to business owners for a number of reasons:

Limitations of an S Corporation

Despite the many benefits of the S corporation, there are several limitations: 

Individuals who are most likely to elect taxation as an S corporation understand its legal and financial structure and have determined that the benefits outweigh the limitations. When deciding whether to form an S corporation, ask the following questions:

Exploring your taxation options as a corporation can be difficult and complex. Our experienced attorneys understand the various options available and will help you make the right choice. Call us today to schedule an appointment.