S-Corporation (S-Corp)

Learn more about whether an S-Corp is right for your business.

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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 corporate loss to offset income from other sources

Main drawbacks:

  • More expensive to create than 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 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.