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“S” Corporation

A Pennsylvania corporation properly formed pursuant to Pennsylvania law provides its shareholders protection from personal liability and, therefore, is referred to as a limited liability entity.

A business owner may elect under Subchapter “S” of the Internal Revenue Code and corresponding Pennsylvania law to be taxed as a “pass-through entity” to avoid the “double taxation” of income for both federal and state tax purposes associated with Subchapter “C” corporations.

An “S” corporation:

  1. May only utilize a single class of stock (differences in voting rights are generally permissible)
  2. Must have 100 or fewer shareholders
  3. Shareholders limited to individuals who are U.S. resident individuals, estates, or limited types of trusts.

Non-resident “aliens,” partnerships, “C” corporations and most other types of entities are not permitted to hold shares in an “S” corporation.

Pros:

  • No personal liability for corporation’s owners. Commonly referred to as a “limited liability entity”
  • Income “passes through” directly to the owners – the corporation does not pay income tax (avoiding the double taxation pitfall associated with “C” corporations) taxation occurs at the individual (Form 1040) level
  • Can sell stock to raise capital (if organized as a Pennsylvania business corporation)
  • Only owner “wage” payments subject to employment taxes
    • Corporate distributions to owners are not subject to excluded. Beneficial where anticipate profits will be significantly in excess of what is considered a “reasonable” salary

Cons:

  • Additional costs to form – notice of formation publication requirements
  • Strict, statutorily-mandated record keeping and corporate formality requirements
  • Stringent restrictions and requirements regarding ownership
    • Limited to 100 shareholders (must be a “person” but for limited circumstances), U.S. citizens or residents only
    • Limited to a single class of stock among other restrictions
  • Administration and recording keeping requirements
  • Limitation to one class of stock dictates that all shareholders have the same income, loss and cash flow etc rights
    • Distributions must be proportional based upon percentage ownership reducing flexibility
  • Entity level tax return must be filed even for single shareholder entity unlike single member LLC which permits single member to report income on their personal Form 1040 tax return as a “disregarded entity”

Single Shareholder Corporation

Standard and Premium Packages Available
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Multiple Shareholders Corporation

Standard and Premium Packages Available
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