What is an S Corporation

Step By Step Guide to Set Up An S Corporation


When a businessman aims to initiate a business. This can come with a lot of excitement as well as complexity. You feel productive and receptive when an entrepreneurial idea hits your mind. However, what type of business structure will suit your idea is a head-scratching process. The idea of an S corporation is flexible enough to start small and then grow with the process. The question that arises here is that what is an s corporation?

In case you have identified that an s corporation is suitable for your business idea. We have gathered really important information for your benefit. This will help to grow your business rapidly. Before we delve further into the discussion, let’s have a look at the points of discussion in today’s articles. This includes the following:

  • What is an S Corporation?
  • Pros and Cons of S Corporations
  • Final Thoughts


What is an S Corporation?

An S corporation or s corp refers to a business entity that is legal. Its pass-through tax status helps to identify tax designation. A corporation can be called an S if it is meeting the requirements of the subchapter.

The important part is that s corp goes without paying the corporation tax. For the purpose of federal taxation, the corp passes the following to the shareholders:

  • credits
  • deductions
  • losses
  • corporate income


Pros and Cons of an S Corporation

Let’s have a look at the pros that are major attractions for people to form s corporations are listed below for you.

  • An S corporation refers to a business structure that is small.
  • The taxation process of such companies is similar to sole traders and partnerships.
  • Tax advantages are known to be the biggest attraction to form the company for owners.
  • The profits and losses are going by the owner’s income tax.
  • Corporate taxes can be avoided, however, you can file tax returns every year.

Whereas, there are several factors that come under the disadvantages of setting up an s corporation.

  • If your business is sold out, s corporation will reduce your taxable gains.
  • A rollercoaster of expenses and losses will be a part of the initial stage in setting up an s corporation.
  • Under the structure of S corporations, you can’t offer multiple types of stock. So, this way your options for business are limited.
  • The requirement of daily s corp meetings makes it hard. This is why people find LLC an easy to go with option.


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Final Thoughts

Now that you have developed a basic understanding of what are S corporations and what are the pros and cons that you have to face in the process. Finally, we can sum up the discussion.  Deciding what is the best structure for your business idea will not be easy.

Moreover, the more you will study about forming a suitable business structure, the more you will be closer to your decision. The company situation and laws may vary from one area to another. You are requested to get professional help from tax and legal counsel.

This process will guide you to find out a suitable choice for your individual needs. We hope these few minutes of reading will add to your knowledge and helps to make smart business choices.


Disclaimer: The information about What are S Corporations provided in this article including text, graphics, and images is general in nature. It Does not intend to disregard any professional advice.

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