S-Corporation

Formation
You must file your Articles of Incorporation with the Secretary of State, adopt bylaws, figure out how your capital structure is going to work, issue stock, and abide by all the necessary corporate formalities.  (i.e. having meeting and keeping minutes etc….)

Administration
Both C-Corporations and S-Corporations can be arduous to administer.  They require that corporate formalities be adhered to including stock holders’ meetings and directors meetings.  They require that decisions for those meetings be reached through voting based on ownership in the stock.  However, this may still be the appropriate structure if your Exit Plan is to be acquired at some future point.

Control
Shareholders elect directors, Directors elect Officers.  Directors make the big decisions and have ultimate control.  Officers take care of the decisions for day-to-day operations of the corporation.  In most small S-Corporations the shareholders are also directors and officers.

Asset Protection
The owner of stock in a S-Corporation is insulated from the debts, obligations, and liabilities of the corporation.  Similarly, if the corporation gets sued, the stock owner’s assets are still protected.  However, if the stockholder gets sued, the stock itself is an asset that can be taken in judgment.  A judgment creditor could take your ownership of the company and if it is enough they could force dissolution.

Taxation
The tax structure of S-Corporations is one reason they were so popular.  The S-Corp used to be the only way to get corporate protections, have flow through taxation, AND save some money on Self Employment taxes.  The Owner/Employee of the S-Corporation must receive a “reasonable” salary or wage for services rendered.  The S-Corp pays employment taxes on the employee and the employee has funds withheld from their wage.  However, the remaining income passes to the owner (whether or not distributed) and is taxed without Self Employment taxes being added.

Going Concern
Corporations continue either for a specific number of years adopted in the Bylaws or the Charter.  If there is no such provision, the corporation continues in perpetuity.  However, you must be careful not to violate the IRS regulations for S-Corporations or, although it will continue on as an entity, it will lose its “subchapter S” status and become a C-Corporation.

Discounts
In a corporation any discount will be in the value of the stock held by the individual.  Therefore, it varies by how much control the individual has over the corporation.  If they have controlling interest it is difficult to get much of a discount at all.