Legal Considerations and Tax Consequences of Forming an S Corporation, With Guest Blogger Ricky Huey
In this blog post, the ladies of Smith Shapourian Mignano LLP collaborate with guest blogger, Ricky Huey, C.P.A., the President of HRH Accountancy Corporation in San Francisco to briefly outline the legal and financial considerations entrepreneurs may face when determining whether an S corporation is the right type of entity for their business.
We met Ricky at a BNI meeting in San Francisco, and are pleased to feature him as a guest blogger for our website. Prior to owning his own firm, Ricky practiced at Ernst & Young. He is a member of the California CPA Society and is an American Institute Certified Public Accountant (AICPA).
Legal Considerations for S Corporations
By: Smith Shapourian Mignano LLP
If you are debating between forming your business as an S corporation as opposed to a C corporation, there are some legal issues you may want to consider:
Finally, you may want to consider whether you intend for your business will raise money from investors or venture capital firms and/or go public in the future. If so, then an S corporation may not be the best fit because of the limitations on stock (one class only) and the number of shareholders (100 maximum). Moreover, if your company will go public in the future, it must be structured as a C corporation. For the aforementioned reasons, Investors usually prefer C corporations over S corporations.
Financial Considerations for S Corporations
By: Ricky Huey, C.P.A., HRH Accountancy Corporation
Small business owners should always consider both the legal and tax impact of entity choices during the formation process.
First, to become an S corporation, you have to make the election on Internal Revenue Service (“IRS”) Form 2553.
Second, from a tax perspective, there are some advantages and disadvantages between choosing an S corporation, as compared to a C corporation.
These are just a few of the differences in tax implications of filing as an S corporation as opposed to a C corporation. Generally, if you do not anticipate your business “going public” and you are a small business owner, then filing as an S corporation may be a more favorable option for you, tax-wise.
Smith Shapourian & Mignano, LLP is available to answer any questions or concerns you may have regarding incorporating your S corporation in California. Feel free contact us to learn more.
This blog does not constitute solicitation or provision of legal advice, and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter in a timely manner, as statutes of limitations may bar your claim.