S Corporation Case Study

S-CORPORATION: An S Corporation (named for Subchapter S of Chapter 1 of the Internal Revenue Code) is a corporation whose income or losses are divided among its shareholders. The number of shareholders in an S Corporation is 100 and shareholders may be any individuals with the exception of non-resident aliens. Estates and certain trusts are also eligible to be shareholders in the business. To become and S Corporations, all shareholders of the corporation must agree to it. The corporation must be domestic and there can only be a single class of stock. A board of directors must be elected and there must be annual meetings for the board, shareholders and minutes must be taken. Annual reports must be completed and distributed to shareholders.

An LLC can have an unlimited number of members that can be individuals or other corporations. Creating an LLC requires filing an Articles of Organization with the secretary of state (or equivalent) office. It is recommended, although not required in all states, that the business also create an operating agreement that includes percentage of interest, allocation of profits and losses, rights and responsibilities of the members and other provisions. In a LLC the company owners are called members instead of shareholders. LLC’s have a limited life and members can be subject to self-employment

Although an S-Corporation or C-Corporation would address some of your concerns, I believe that LLC status would give you better protection for your personal assets, greater flexibility for adding investors and/or partners (members) to your organization, and give you a greater choice of taxation options. Expanding an LLC is not as simple as expanding a sole proprietorship to other geographic locations, however the research shows that the process is not difficult and the requirements for each state are quite easily obtainable from their secretary of states office or the office that governs businesses in that state. Usually what is required is submission of some forms or documentation and a payment of