What is an S Corp or S Corporation?

An S corporation, also known as an S corp, is a type of business structure that is recognized by the Internal Revenue Service (IRS) as a corporation, but is taxed as a partnership. An S corp is a separate legal entity from its owners, which means that it has the same legal rights and responsibilities as a regular corporation, such as the ability to sue and be sued, enter into contracts, and issue stocks.

One of the main benefits of an S corp is that it can provide personal asset protection for its shareholders, meaning that the shareholders are not personally liable for the debts and liabilities of the corporation.

An S corp also has a pass-through taxation, which means that the business income is passed through to the shareholders and taxed at the individual level, rather than the corporate level. This can be beneficial for small businesses as it can result in lower overall taxes compared to a traditional C corporation.

S corps are also required to have a board of directors, hold annual meetings and keep minutes of the meetings, and keep records of the stock ownership. They also have restrictions on the number of shareholders and the types of shareholders, for example, S corps are not allowed to have more than 100 shareholders and the shareholders must be individuals, certain trusts, and estates of those individuals.

It’s worth noting that not all states recognize S corps and there are specific requirements that need to be met in order to qualify as an S corp, it’s best to consult with a tax professional or a business attorney to understand if your business qualify and if it’s the right structure for you.

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