An S corporation has advantages over a regular corporation

Starting a Georgia business is an exciting event, but it comes with many important decisions, including what form of business to create.

Forming a corporation, instead of moving forward as a sole proprietorship, partnership or limited liability corporation, can provide benefits that are more appropriate for some going concerns. However, corporations, which come in multiple forms, may be more complex to create and operate.

Most common forms of business entities

According to the IRS, the five very popular forms of business structuring include the following:

  • Corporation
  • S corporation
  • Partnership
  • Sole proprietorship
  • Limited liability corporation

As explained by the Small Business Administration, corporations, although often far more complicated and expensive to set up, have the important advantage of providing the most protection for their owners with regard to liabilities.

What is the difference between a corporation and an S corporation?

An S corporation, sometimes called an S corp, is a special type of corporation whose purpose is to elude the more burdensome taxation that straight corporations experience. Corporations that are not S corporations generally experience a double taxation on profits.

This double taxation starts when the corporation pays taxes on its own profits first. Later, when shareholders receive dividends from the profits, those shareholders pay another tax on the dividend received with their personal tax returns.

With an S corporation, the entity does not pay taxes on its profits. Rather, from a federal perspective, its profits pass down to the owners and they pay taxes on their personal income tax returns. Taxation schemes of the states, however, may treat S corporations differently than the IRS when it comes to taxing profits.

An S corporation is also different in that the number of its owners cannot exceed 100, unlike a regular corporation. All shareholders must also be citizens of the United States.

Similar to a regular corporation, an S corporation survives the departure of one or more of its owners and business continues as usual.

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