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What is a Subchapter S Corporation, S-Corp?

What is a Subchapter S Corporation, S-Corp?

You have heard the word “corporation” for years, and you might think this means a large business with multiple owners and many employees. Your business doesn’t have to be large or have more than one owner in order to form a corporation. In fact, an “S-corporation,” or “S-corp,” is extremely common for new small businesses and one-person companies.

The biggest advantage of choosing an S-corp for your business rather than a LLC is that Texas case law supporting S-corps is much older than case law on LLC’s. To date, the case law is stronger in shielding you from personal liability for the corporation’s debts and obligations than it is for LLC’s.

An S-corp is basically the same thing as a C-corp except that the S-corp has elected a special federal tax status, namely, S-corporation tax status. The election is made by filing Form 2553 with the Internal Revenue Service (IRS). So, what exactly does S-corp status mean? It means that the corporation will be treated like a partnership, limited liability company (LLC) or sole proprietorship for tax purposes: business profits and losses “pass through” the corporation directly to the owners or shareholders, who in turn report the profits and losses on their individual tax returns.