When writing your business plan, you need to take into consideration the structure and filing of your company for both operational and tax purposes. An S Corporation (S-corp or subchapter 'S') begins as a general, for-profit corporation—or C Corporation—with its articles of incorporation filed at the state level. However, after the formation of the C Corporation the entity may elect "S Corporation Status" with the submittal of IRS form 2553. This allows the newly formed S Corporation to be taxed like a partnership or sole proprietorship rather than a separate entity.
If your business plan suggests that the owners of the company want the benefits of the limited liability of a corporation and "pass-through" tax-treatment of a partnership, your business plan might be a good candidate for S Corporation election. For an example of how small business S-corp registration might effect your business plan visit Intuit's MyCorporation.com website. MyCorporation.com suggests that an S Corporation election might be right for your business plan where "Shareholders are employed at least half-time within the corporation. Shareholders heavily participate in the corporation's daily activities. The corporation plans to distribute most of its income to its shareholders each year."
However, when writing your business plan there are some reasons when you should NOT elect S Corporation Status. As an S Corporation you must "pass through" all profits of the business, or pay taxes on all profits of the business whether or not they are distributed to the shareholders. So if you have $100,000 in net profits but plan to reinvest $50,000 into future development of the company, the shareholder(s) must still pay taxes on $100,000.
Important Disclaimer: When writing your business plan it is important that you discuss all corporate filings with a with a certified and licensed professional. The staff at MasterPlans does not represent specific knowledge in the field of corporate filings, elections and taxation.
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