Subchapter S Corporation

There are certain business organizations who would like to cut costs in their taxation. The Internal Revenue Code actually allows some corporations to elect not to pay corporate income taxes provided they meet the requirements of being a subchapter S corporation. The most obvious advantage of being a Subchapter S Corporation is exemption from paying corporate income taxes. Since the net profit or net loss is flowed through the shareholders of the corporation, taxation would depend on each individual profit.

To become registered as a subchapter S corporation, your company:

1. must be a legal entity, either a corporation, a partnership or a multiple-member limited liability corporation, with no more than 75 members


2. must have all of its shareholders as US citizens


3. must have only one class of stock


4. must have shareholder agreements between all shareholders which would allocate the profit proportionately to each person's own interest in the enterprise

Another clear advantage of being a Subchapter S Corporation is that each investor is more involved with the taxation, since the profits are flowed individually. This usually leads to bigger tax savings. But in California though, there are certain things to ponder if you're deciding to register your business as a Subchapter S or a limited liability corporation. Depending on how your company declares its gross revenues, additional taxes such as franchise tax will be added on top of your net income tax.

Registering your company as a subchapter S corporation will require further paperwork because you have to prove to the Secretary of the State that your business entity meets the Subchapter S, Chapter 1 of the Internal Revenue Code (hence the name). Our business lawyers from the law office of Mesriani & Associates can help you file the paperwork in your behalf so you can focus on setting up your business. We've been helping many enterprises draft bylaws and agreements that create good partnerships and corporate relationships for the past 30 years. Call us today thru our toll-free number and let our business partners help you register your business entity.