S Corporation Basics: What Business Owners Should Know Before Filing
At some point in growing a business, the question of entity structure stops being theoretical. The entity you choose affects how you're taxed, how profits are distributed, how you pay yourself, and how the business is perceived by investors and lenders. For a significant number of small business owners, the S corporation is the structure worth understanding — but it also comes with rules that catch people off guard.
Here's what's actually involved.
What Makes an S Corporation Different
Most people start by comparing S corps to LLCs, so it helps to understand the fundamental difference.
An S corporation is a tax designation rather than a separate legal entity type. You form a regular corporation (a C corporation) at the state level, then elect S corporation status with the IRS by fi...