Things to Look at When Converting Your Business to an S Corporation
As a business person, your main goal is to be able to lead your organization properly. You could be running your business alone or along with other people whom you contribute specific amounts to the organization. Change is inevitable, and you cannot avoid the urge when business conditions require you to try out something extraordinary. The best choice you can consider starting from could be an S Corporation before going to the LLC or the C corporation. Discussed hereunder are issues that clearly explain the benefits of an S corporation.
You have to consider moving your business to an S corporation because the burden of company obligations does not fall on you. Therefore, the financial commitment of each shareholder to the company’s debts and obligations is limited to the par value of each shareholder par value. The corporation is considered an independent body that can be able to take care of its obligations without shareholders help. Therefore, unlike the sole proprietorship or general partnership, creditors cannot pursue the personal properties of the corporation’s shareholders.
You can enjoy tax relief if you consider starting an S corporation. Taxes are suitable for raising country revenue, but they can be detrimental to the life of a new business venture. This kind of corporation is going to free you from the burden of paying federal taxes. Passing over your profits is an excellent way to window dress so that you report good profits that will be able to attract potential investors to your company. An S corporation is the best place to start because it can protect your company in its infant stages. You also need to know that you will avoid double taxation since the shareholders are taxed on their dividends and income but not on the corporation’s income.
The other crucial factor to consider is the availability of space for investors because it can have up to one hundred investors. An S corporation is going to make it possible for you to undertake important activities that you could not have undertaken without the investors. This means that your business will avoid borrowing to raise capital. The disadvantages of borrowing is that lenders might deny you money because of your credit rating. Relying on borrowing can make you take long to finish essential company strategies. Additionally, it is easier for you to establish credibility with the various company stakeholders if it is an S corporation.
More so, consider starting an S corporation because there is free transfer of ownership without underlying tax penalties. An S corporations shareholders can work for the company and be paid but still receive additional benefits in proportion to their shareholding proportion.