How Do You Qualify for Subchapter S Treatment? What Are the Benefits?
When you’re establishing a new commercial enterprise, one of the most important steps is the selection of formation of the appropriate legal structure. Among the options for small businesses is the Subchapter S corporation. What is it? How do you qualify for Subchapter S status? What are the benefits of opting for treatment as a Subchapter S corporation?
What Is a Subchapter S Corporation?
An S (or Subchapter S) corporation is one that is formed pursuant to the provisions of Subchapter S of the federal Internal Revenue Code. To attain Subchapter S status, a business must affirmatively request treatment under that section of the law by filing IRS Form 2553—no entity can automatically be deemed a Subchapter S corporation.
What Are the Requirements for Qualification as a Subchapter S Corporation?
To be eligible for treatment as a Subchapter S, a corporation must first be incorporated domestically. The status is not available to entities legally incorporated in other countries.
A Subchapter S corporation may not have more than 100 shareholders, and all of those shareholders must hold the same class of stock in the company. Individuals, certain trusts or estates, and some 501 (c) (3), or tax-exempt entities can all be shareholders, but non-resident aliens, partnerships and other corporation are prohibited from owning or holding stock.
What Are the Benefits of Subchapter S Treatment?
The most significant benefit available to S corporations is the exemption from federal corporate tax. All income from an S corporation is passed through the company and recognized as personal income by the shareholders. All federal tax losses, deductions and credits of Subchapter S corporations are treated similarly.
Contact MCIS Law
At MCIS Law, PLLC, in Stafford, we provide comprehensive counsel to businesses in southeast Texas. For a confidential consultation with an experienced and knowledgeable lawyer, email us or call our office at (346) 297-0121. We accept all major credit cards.