An S Corporation (S Corp) is similar to a C Corporation except that the business is not taxed separately from the owners. S Corps are also very similar to Limited Liability Companies (LLCs), but with more limitations.
Main advantages:
- Owners have limited liability for business debts
- Owners report their share of corporate profit or loss on their personal tax returns
- Owners can use a corporate loss to offset income from other sources
Main drawbacks:
- More expensive to create than a partnership or sole proprietorship
- More paperwork than for a limited liability company which offers similar advantages
- VCs aren't willing to fund S Corporations or any other pass-through entity
- Income must be allocated to owners according to their ownership interests
- Fringe benefits are limited for owners who own more than 2% of shares
If you are unsure of which structure is best for your business, you can visit a New Jersey Small Business Development Center. Some business owners also seek professional advice from an attorney or accountant.
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