Call Toll-Free 800-300-2300

Is an S corporation the preferred entity form for my business?

Many Californians would like to go into business for themselves by creating an entity or purchasing a business that is already established. One of the key decisions that a prospective business owner or current business owner must make is what entity formation to use. One option is an S Corporation. Understanding how an S Corporation works and its tax requirements is key before deciding on this entity form.

With an S corporation, the entity or a corporation that has been formed decides that it will be taxed under Sub-S corporation status in the tax code. The S corporation provides protection for owners against liability. The profits and losses of the S corporation will extend to the owners whether they are shareholders, partners or members. The debt obligations are contingent on the kind of S corporation the business is, such as a limited liability company (LLC), a partnership or a corporation.

There is a limit to the types of owners there can be with an S corporation, and it cannot go beyond 100 shareholders. There is no federal income tax with an S corporation. In California, there is a tax of 1.5 percent on the net income. Shareholders are responsible for paying the taxes on the proportional (pro rata) share of the income, deductions and credits. There must be a separate bank account and separate records with an S corporation. An S corporation is generally used so the shareholders and other owners can avoid being double-taxed as they otherwise might be with a different business formation.

There are four installments to pay taxes with an S corporation and they must be paid in the following manner: 30 percent due April 15; 40 percent due June 15; there is no installment payment for the third installment due September 15; and 30 percent due December 15. With a C corporation, the business will face a business tax and the shareholders and owners will face taxes on their dividends. This is not the case with a S corporation, as it is not taxed on profits.

Business formation can be a confusing matter to those who are considering purchasing a business or starting one of their own. An S corporation can be useful if the circumstances warrant it. Before making any decisions, is may help to discuss the situation with a professional. A law firm with experienced in business and commercial law can help with entity formation and all the factors that go along with the business.

Source:, "S Corporation," accessed on Jan. 15, 2018

No Comments

Leave a comment
Comment Information
Call Toll-Free 1-800-300-2300
Email Us For A Response

Don't Wait To Get The Help You Need Get Started Now

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

Our Offices

Long Beach Office
301 E. Ocean Blvd.
Ste. 1700
Long Beach, CA 90802-8812

Toll Free: 800-300-2300
Phone: 562-485-9376
Fax: 562-624-1178
Long Beach Law Office Map

Costa Mesa Office
600 Anton Blvd. 11th Floor
Costa Mesa, CA 92626

Toll Free: 800-300-2300
Phone: 562-485-9376
Fax: 562-624-1178
Costa Mesa Law Office Map