What Is an S-Corp?

S-Corporations, sometimes called S-Corps, can be useful ways for business owners to avoid what’s called “double taxation”, while also protecting shareholder assets from personal liability. It’s a mix of advantages drawn from other types of business entities; and it isn’t nearly as complicated or time consuming as you might think to establish.

As a corporation, an S-Corp must file Articles of Incorporation with the Secretary of State (like a corporation), and it uses much of the same terminology as a corporation. Owners or members are instead called shareholders, who are protected from being held personally accountable for any of the company’s debts or losses.

However, unlike a corporation, an S-Corp is treated, for tax purposes, like a sole proprietorship, featuring what’s called “pass-through taxation”.

Traditional corporations are taxed twice: once in corporate taxes, and again for individual shareholders; hence the term “double taxation”. However, “pass-through taxation” is only taxed once at the individual shareholder level.

Advantages of Establishing an S-Corp 

Now that you can successfully answer the question, what is an S-Corp, you might be wondering why it would be advantages to file an S-Corp in lieu of another type of business entity.

Advantages of an S-Corp include:

  • Protected assets or limited liability for shareholders
  • Pass-through taxation
  • Favorable tax advantages
  • Ease of ownership transfer
  • Increased credibility

How to Obtain an S-Corp Application

To file an S-Corp application, all you have to do is register your company as a corporation in the state where you’ll be doing business, followed by filing Form 2553, which must be signed by all shareholders to receive S-Corp status.

After your business is registered, you can apply for any necessary business licenses or permits particular to your state with ease.