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What is an S Corporation?

Written on December 5, 2019

If you’re considering starting up a company in Florida, you’ve probably already done some research on the wide range of potential business formations available under state law. You may even be committed to organizing as a corporation, because of the numerous advantages it offers for both owners and the entity itself. However, what you may not realize is that there are different types of corporations – not for purposes of state statutes, but in terms of federal income tax treatment. 

You should always trust specific, important legal issues to a Clearwater, FL business law attorney, but some general information may help you understand the basics.

General Overview of Corporations:

Regardless of the specific type, there are certain characteristics that make corporations an attractive option for business owners. The key is liability, since a corporation is a separate, distinct entity for the owners. All stakeholders have the right to profits, but they won’t be liable for debts, judgments, lawsuits, and other financial or legal obligations of the company. This means you can protect your own personal interests and assets in most situations, though there are exceptions when misconduct is involved.

S Corporations and Federal Income Tax Implications:

Once you organize your business as a corporation in Florida, you have options for how you’d like the company treated for federal income tax purposes. The S corporation is a structure specifically created under the Internal Revenue Code as a “pass-through” entity. In other words, the shareholders of an S corporation are only taxed on income, not the entity. Plus, they can deduct their share of losses on their individual income tax returns. Both of these factors are in contrast to C corporations, in which stakeholders AND the company pay taxes on income – and only the entity can offset operating losses.

However, there are strict requirements you must follow when opting for S corporation status. They include:

  • Your corporation must be domestic, instead of organized in a foreign country;
  • Your company cannot have more than 100 shareholders;
  • You can issue only one class of stock;
  • Shareholders must be individuals, as opposed to other corporations, LLCs, partnerships, or other entities;
  • Nonresident aliens cannot own shares; and,
  • You must file the S corporation election with the Internal Revenue Service, otherwise, your company will be treated as a C corporation by default. It’s difficult to switch over to S corporation treatment once you’ve already begun operations, so you should make the decision as early on as possible.

Discuss S Corporations with a Knowledgeable Clearwater, FL Business Law Attorney

While this summary of S corporations may be useful, there are many other details and subtleties you should note before you make the decision. Our team at Clearwater Business Law can advise you on the laws and legal concepts that apply to your unique situation, just as we have been for years for clients throughout Pinellas County, FL. For more information on S corporations in Florida, please call (727) 785-5100 today to set up a consultation. Once we review your circumstances, we can assist with essential tasks and help you navigate the filing process.

TESTIMONIALS

I strongly endorse Andrew Mongelluzzi. He is a very skilled and able business attorney focused on customer service and results. On the front end, Andrew deftly advises new businesses on organizing properly, acquiring necessary licenses, contracting with vendors & customers, and dealing with various compliance issues that may arise. On the back end when things go south, Andrew counsels and navigates businesses through complex commercial disputes and aggressively represents them in negotiations, mediation, arbitration, and in litigation so that businesses can legally move on and get back to business. Andrew’s ability to identify legal issues and approaches to resolve business-related issues is a strength that I have learned from and professionally relied upon in approaching the business matters and cases that I handle. I regularly refer business to Andrew knowing that he will diligently represent his business clients and their best interests.
Relationship: worked together on matter

- Frank N. Genco, Florida Bar No. 440086

Attorney Mongelluzzi and his team provided excellent and quality service. I always felt that my needs were met and that the firm was invested in me and my case. The quality services I received at Mongelluzzi’s firm were remarkable. From the initial meeting they were responsive to my calls, questions and concerns. All issues were handled professionally and timely, easily accessible, got back to me quickly, aggressive and got me the results that I wanted. Attorney Mongelluzzi and his staff all gave my case their personal attention and provided the quality of work that anyone would want when hiring an attorney.

- Client

Andrew is very thorough defining the outcome expectations. In my case, it was setting up a new corporate entity. He advised me on the most beneficial option and he then executed on that path. Andrew is a very pleasant person to work with. He is determined, skilled and committed to his client’s success.

- Gil Pinney

Andrew helped me through a difficult situation with American Express and we won the case. A great job by Andrew! He also helped me with T&C’s in my company. I would recommend Andrew highly as an attorney.

- John Sams

As a business owner for 12 years I have seen my fair share of ups and downs. Some of the downs would include landlord/tenant disputes and creditors that may have not been fulfilled to agreement. Andrew has met both of these situations for me in a timely, positive, and affordable manner.

- Rich Mattes

It was very nice to have a lawyer who not only is fierce in negotiations but has been successful in business. This is a lethal combination. I was glad he was on my side.

- Nigel Castanheiro

Andrew helped me with a contract litigation case. The lawyers battled it out for over a year and we finally got a reasonable settlement offer. Then the other side tried to back out. Andrew figured out how to force the other side to honor the deal and really knows his way around the court system. Definitely feel comfortable using him again.

- John Ellis

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