Intro:
Before you begin
Step 1:
Understand your options
Step 2:
Understand the advantages of incorporation
Step 3:
Understand the disadvantages of incorporation
Step 4:
Consider the S corporation
Step 5:
Understand LLCs
Step 6:
Understand sole proprietorships
Step 7:
Understand partnerships
Step 8:
Consider professional help

2torial #0907:
Learn2 Choose a Business Entity (Continued)

Consider the S corporation

Created by the Tax Reform Act of 1986, S corporations are in many ways the best of all possible worlds. S corporations are taxed like individuals, yet shareholders benefit from the same liability protection as regular corporate shareholders. However, an S corporation must meet a strict set of criteria, including:

• A maximum of 75 shareholders
• Shareholders must be citizens or residents of the U.S.
• Only one class of stock (regular corporations can offer different classes of stock with varying prices and dividends)
• No more than 25 percent of the gross corporate income from passive income (in other words, they must create products and services, not simply produce investment income)

The S corporation is an excellent option if your company qualifies, but the strict rules can limit flexibility, especially for fast-growing companies that have the potential to become quite large. In addition, S corporations take on all the bookkeeping burdens of a regular corporation.