The Advantages of S Corporation
· The tax system eliminates double taxation. Gains and losses are reported on your personal tax as a proportion of shares you own. This is particularly interesting at the beginning of a case in which losses because it allows you to have a salary elsewhere;
· Members do not engage in personal responsibility as a partnership. Their liability is limited to the amount of their contribution except, of course, if members have given personal guarantees certain loans;
Disadvantages of the S Corporation
· You cannot have shareholders who are not legally "residents". It is for many of us an important point;
· The number of shareholders is limited to 35;
· You cannot deduct accident insurance, health, pension plans, "stock ownership plan" etc.;
· The State of California, and others impose a tax of 1.5% on the profits of the S corporation;
· The fiscal year shall, unless specific exceptions, be the calendar year;
· A company cannot be a shareholder. The S corporation cannot have more than 80% of another company.
Advantages of C Corporation
· You can create your company and do business in the U.S. even though you are not officially "resident";
· Your responsibility is not engaged beyond the paid-up capital;
· A corporation continues to exist even after the death of "shareholder" (shareholder);
· A case "incorporated" may seem more serious than a proprietorship. This can be useful when looking for capital;
· The shareholders who become employees can deduct operating expenses, payroll, retirement plans, insurance etc.;
· The fiscal year can begin when the shareholders want, which can be a practical management tool.
Disadvantage of C Corporation
· It is a little heavier editing and management but the mandatory formalities can be reduced to an annual meeting of shareholders. All in a form that can be quite standard. Proper accounting is necessary but it is not for any serious business;
· You must pay $ 800 to the State of California even if you loss;
· There is double taxation because the shareholders did not "tax credit"
After discussing different features, advantages and disadvantages of both the Corporation or C Corporation and the S Corporation, it seems appropriate to say that no one is better than the other. Both of these organizations are actually different organizational structures of the companies which are adopted in order to achieve specific goals. Thus, if one organizational structure is better in one condition it may not be appropriate in another and vice versa. So we can say that none of the organizational type is better than the other.
Scuba View Inc.
Scuba View Inc. is a private company categorized under Divers Equipment and Supplies and located in Las Vegas. Scuba View Inc. is registered as a corporation. Corporations are legal entities in their own right subject to certain rights that are recognized as individuals (right to appear in court without a lawyer, the 14th Amendment to the Constitution). Corporations are responsible for their debts. Except in exceptional cases, it is not the shareholders who are liable for the debts of the company. The shareholders' liability is limited to the amount of their investment in the company. If you do not personally endorsed loans, creditors cannot sue you if you file for bankruptcy. There are different types of companies.
Why a corporation was elected?
Being the CFO of Scuba Inc. it is my responsibility to tell the management that the corporation was elected because it has:
· Any number of shareholders, natural persons or legal persons (corporations);
· Shareholders may not be U.S. citizens nor residents;
· You can have only one shareholder and there is no minimum capital;
· The full deduction of salaries and related expenses, various insurance (health, life, accident etc.);
· The deduction of pension plans (Keogh);
· The deduction of payments to charities.
To create a corporation, you must register the "Articles of Incorporation" with the Secretary of State (somewhat equivalent to the Tribunal de Commerce in France). These articles describe the structure of society. They can contain the minimum information required by law. There are standard forms. You can also adopt the "Bylaws" that will define the activity every day. They are not legally binding except when the number of "Directors" is not specified in the Articles of Incorporation.
The "directors" determine the overall strategy and decide on exceptional decisions for the company (sales of goods of the company, changing the Articles of Incorporation). They delegate to the "Officers" employees and current management of the company. The society is strictly regulated by law.
There is no tax credit. This means that the company will pay taxes, pay dividends and recipients of such dividends must pay tax on this income in their personal statement. Being a relatively small company, Scuba View Inc. have many ways to reduce the double taxation. For example deducting expenses of shareholders and justified in paying their salaries and bonuses in reasonable proportions. It is rare then a small company has made enough profit to exceed the tax bracket (federal) corporate 15% which equates to a maximum benefit of $ 50,000.
The Lost and Found Corp
The lost and Found Corporation is an audit firm. Systems deficient of management and audit risk in the financial sector can quickly cause financial losses which, if they are not adequately contained by buffers capable of stemming the strong systematic risk are likely to cause a domino effect with other operators in markets with consequences difficult to calculate for financial system. The financial turbulence that rocked the international financial markets have highlighted weaknesses in the management and audit risk in banks. This management considered a mere compliance with prudential rules proved ineffective since it was limited mostly to comply with a set of indicators rather general and has ignored a fundamental management of banking risks: the involvement of top management and board in control of banking organizations. Lost and Found Corp. is a firm which fulfills the audit needs of company in order to reduce financial risk which leads to financial losses.
Why S Corporation was elected?
We were elected for S Corporation because it has the suppleness and flexibility of the Partnership and associates called "members" have considerable latitude in drafting the contract, or "operative Agreement" of the LLC. "Articles of Incorporation" are called "Articles of Organization". They must also be filed with the Secretary of State. Directors become the "Managers". The operative agreement may be written or oral. It is recommended to write. Otherwise, the ways of organizing the S Corporation statutory automatically apply. This company may be treated for tax purposes as a Partnership. Actually, it is not a separate legal entity but merely a tax option of a C corporation that has other advantages and disadvantages. It should not be confused with a "Close Corporation" (C Corporation vs S Corporation).
In other words, the S corporation is actually a C corporation which then gets a special tax status with the Internal Revenue Service (IRS). This status must be requested by the corporation within a certain period of its formation. Instead of being taxed in the hands of the corporation, profits and losses are "devolved" to the shareholders and taxed in their hands as if they were partners. This avoids double taxation (at the corporate level first, then at the personal level) and does not affect the protection offered by a corporation. It’s important features are:
· Property protection of shareholders;
· Profits and losses of the corporation directly attributed to shareholders;
· U.S. citizenship or residency required shareholder;
· Number of shareholders to 100;
· One class of shares
· Other restrictions
In terms of federal taxes on income, S corporation can be described indifferently either Partnership or Corporation or even "Disregarded entities". According to the rules governing the classification of structures of associations in the field of taxation, it is automatically qualified National Partnership, but the S Corporation can also opt for the qualification Corporation.
Elimination of usual corporate formalities (e.g. minutes, regulations, meetings, officers and directors, etc.). If provided for in the Convention of operation of the S Corporation. Drafting of the convention of operation of the S Corporation in any language (no need to write or translate into English);