Doing Good While Making Money: Benefit Corporations in South Carolina
You’ve heard of C-corps and S-corps, but what about B Corps?
B Corp is short for benefit corporation, a type of for-profit business entity that is regulated by state law. Currently, 35 states and DC have enacted legislation to create benefit corporations, including South Carolina.
As stated in the 2012 South Carolina Benefit Corporation Act (find it here), “a benefit corporation shall have as one of its corporate purposes the creation of a general public benefit.” Here, “general public benefit” is defined as “a material positive impact on society and the environment taken as a whole.”
Who Benefits from a Benefit Corporation?
Traditionally, corporations are run with the primary driver of making money for their shareholders. High-level decisions are made with this question in mind: How can we maximize profits for the benefit of the shareholders? Though it’s not actually a legal requirement for corporations to make the most money possible, this is often the way it works in the real world. After all, a CEO who doesn’t make enough money for the shareholders can be ousted by the board of directors.
But in a B Corp, making money is not the primary driving force. Instead, business decisions are guided, in part, by the desire to create a particular benefit in the world.
Examples of some benefits that a B Corp might have include:
- Donating a portion of income to charitable causes
- Operating in a way to reduce environmental impact or actively preserve the environment
- Providing goods and services to a specific group of people such as low-income families
- Providing employment and economic opportunities for underserved groups
- Promoting education or awareness of a certain subject
- Advancing the welfare of other groups besides in addition to the shareholders, like the employees, the customers, or particular minority groups
A well-known business that’s also a B Corp is Patagonia, which amended their articles of incorporation in 2012 to include a commitment to sustainability and treating workers well. Ben & Jerry’s also became a B Corp in 2012, with a goal of advancing social change for good.
What It Means to Be a B Corp
The decision to be a B Corp is a big one. It can drastically change the way you approach decisions and run your business. Of course, that’s the exact reason why some people want to run a B Corp.
For instance, let’s say your stated public benefit is to protect the environment. You may choose packing for your product that is biodegradable and more environmentally-friendly but is more expensive to produce. A regular corporation may be bound to sticking with less environmentally-friendly options, because that’s the decision that maximizes profits and increases shareholder value. But as a B Corp with a stated intention of helping the environment, you can choose to forsake some of those profits for the public benefit of a better environment.
Requirements for Becoming and Being a B Corp
Entrepreneurs can incorporate their business as a benefit corporation in South Carolina by including a provision in its articles of incorporation that it is a benefit corporation and specifying its benefit purpose. Existing entities can also become B Corps by changing their status.
In South Carolina, there are some requirements that come along with being a benefit corporation. One is the submission of an annual report to the Secretary of State which must include, among other things, an assessment of the business against a third-party standard. Though the law says that a B Corp need not have an outside party certify them, there are organizations that do that, such as the independent nonprofit B Lab.
Additionally, a director on the board must be the elected and serve as the benefit director, and you may also have an officer designated as the benefit officer. (The same person can fill both roles at the same time.) Their roles and duties are described by law, but in short, both are responsible for making sure that the company is carrying out its mission as a benefit corporation in terms of the benefits it creates.
Advantages and Disadvantages
As with all types of business entities, there are pros and cons of being a B Corp.
Pros of being a B Corp:
- Furthering a cause you believe in and making a positive change in the world through your company
- Ability to make decisions in your company that align with your values rather than focusing solely on making more money
- Attracting and working with talented people who share the same values (especially important to younger workers who increasingly want to work at ethical, mission-driven companies)
- Attracting impact investors
- Good for public relations and consumer perception of your business
- Being part of a values-based global movement
- If you change your mind later, you can easily drop your B Corp your status
Cons of being a B Corp:
- Additional burdens of paperwork, certification, and maintaining benefit director and benefit officer roles
- Converting to a B Corp may be difficult for existing publicly traded companies (which is why Etsy gave up its B Corp status and Warby Parker did, too)
- Uncertainty due to how new B Corps are, and the potential increase in liability exposure
Though there many more advantages than disadvantages listed here, the disadvantages still merit consideration.
However, if you are driven to do good via your business and you want more control over how your company can make that happen, a B Corp is something to look into.
Is Becoming a B Corp Right for Your Business?
Changing your status or incorporating as a B Corp is a big step. Before taking that step, speak to an experienced business attorney like Gem McDowell. Gem has over 25 years of experience working with clients, giving them strategic advice on how to start, grow, and protect their businesses. Contact Gem and his associates at the Gem McDowell Law Group in Mt. Pleasant to schedule your free consultation by calling 843-284-1021 today.
Choosing the Right Business Entity at the Federal and State Level
As a business owner, it’s important to understand the differences between various business entities. Some of the differences include how the entity is structured, how it’s taxed, and what kind of liability protection if offers its owners.
Another difference that’s often overlooked is whether the entity is defined at the federal level or the state level. For instance, the corporation, partnership, and sole proprietorship are defined by the IRS at the federal level. The limited liability company, on the other hand, exists because of state statute. It’s treated as a corporation, partnership, or disregarded entity by the IRS for federal tax purposes.
Some entities look so similar at first glance, it can be hard to see the distinction between a business entity defined at the federal level and one at the state level. One example of this is the S-Corp versus the statutory close corporation.
Case in Point: Pertuis vs Front Roe
Even the Supreme Court of South Carolina failed to make the distinction between state and federal statute in a recent decision filed in July, 2018, Pertuis vs. Front Roe Restaurants, Inc.
In short, Kyle Pertuis was the manager of three restaurants owned by three separate S-Corporations: Lake Point and Beachfront, both in North Carolina, and Front Roe, in South Carolina. All three S-Corporations were owned by Mark and Larkin Hammond. After working with the Hammonds for several years, Pertuis decided to leave, and this case is primarily about his ownership in the three restaurants and their valuation.
That’s not relevant to our discussion here, but what is relevant is the South Carolina Supreme Court’s assessment of whether the three S-Corporations should be amalgamated into a single entity or not. If yes, that means the three would be considered together as if they were one company. If no, the three should continue to be considered as three distinct businesses.
The Trial Court said yes, the three should be amalgamated, citing in part the fact that the Hammonds had “disregarded corporate formalities” including shareholder and board of director meetings. The Supreme Court said the trial court erred, because it overlooked the fact that all three companies were S-Corporations, which are statutorily permitted to disregard various corporate formalities including those of having shareholder and board of director meetings. The Court cites SC Code Section 33 Chapter 18, -200, -210, -220, and -230 to make these points.
But here’s where the Supreme Court erred: it failed to make a distinction between an S-Corporation (federal) and a statutory close corporation (state). The SC Code it cited is about statutory close corporations, not about S-Corporations.
S-Corporation Versus Statutory Close Corporation
An S-Corporation is a business entity that is defined by the IRS. A statutory close corporation is a business entity allowed by some states, including South Carolina.
S-Corporation
An S-Corporation is a business entity with shares and shareholders, just like a C-Corporation. Certain entities may elect to become an S-Corp by filing Form 2553 with the IRS. Unlike a C-Corp, S-Corp income, losses, deductions, and credits “pass through” to shareholders, who pay taxes on the income (or deduct the losses) on their individual federal income tax returns. This is the biggest advantage of the S-Corp and why many businesses elect to become one – to avoid the “double taxation” of the C-Corp. (Read more on C-Corp versus S-Corp here on this blog.)
Statutory Close Corporation
A statutory close corporation is a type of corporation that is defined by state statute. A “close” corporation is typically one where the shareholders are actively involved in managing the business. Not all states allow for statutory close corporations, but South Carolina does. Any corporation in South Carolina with one or more shareholder may elect statutory close corporation status by filing with the South Carolina Secretary of State.
The main reason corporations in the state elect statutory close corporation status is because it offers business owners greater freedom from corporate formalities and greater organizational flexibility than does a standard corporation.
Some provisions to ease the formalities are automatically put in place for your business once the election is made to statutory close corporation status. Other provisions are only put in place if those incorporating make an affirmative selection. These may be made by checking the appropriate boxes on the form articles. Lastly, business owners also have the option to have documents laying out management, elimination of by-laws, dissolution rights, and buy-sell provisions.
The election of filing for a statutory close corporation at the state level does not affect how the corporation is taxed at the federal level. An important thing to note is that the statutory close corporation is automatically taxed as a C-Corp unless it makes the election to be taxed as an S-Corp.
Corporations that elect statutory close corporation status find that under these less rigid rules, they can operate more like a partnership, with greater organizational flexibility and freedom from standard corporate formalities.
Understand How the Law Affects Your Business: Work with Business Attorney Gem McDowell
Choosing the right entity and structure for your business may be more complex than simply deciding on LLC or corporation or partnership. By not understanding the difference between federal and state levels of business entities, and what options are available to you, you could be missing out on some great advantages in your business.
For a better understanding of your options, or for help drafting contracts and corporate governance documents, call Gem and his associatess at Gem McDowell Law Group in Mt. Pleasant, SC. Schedule an initial consultation by calling 843-284-1021 today.
6 Common LLC Creation Mistakes
Starting a new business is exciting but also a little intimidating. There’s a lot you probably don’t know, and mistakes can end up costing you.
If you’ve decided to start a limited liability company (LLC), then you’ve already avoided the biggest mistake, which is not having a business entity at all. But you’ll also want to avoid these 6 other common mistakes people make when starting an LLC.
Mistake 1: Choosing to Become an LLC When It’s Not the Right Entity for Your Business
The first mistake people make when creating an LLC is choosing an LLC to begin with. The limited liability company is a great business structure for many business ventures, but it’s not suitable for all.
The main consideration is money. Do you plan on growing with capital from outside investors? If so, a corporation is likely a better choice for you. Investors are typically more comfortable investing in corporations than in LLCs. Corporations are also the only entities that can issue stock, so if you dream of a big IPO in the future, then the corporation is the entity for you.
Mistake 2: Incorporating Your Business in the Wrong State
Once you’ve determined that the LLC is the right entity for your business, your next step is to decide on where to incorporate it, i.e., where to register it.
Most of the time, incorporating in the state where you live and do business is the best solution. Some entrepreneurs want to incorporate in other states like Delaware, Wyoming, or Nevada for the supposed tax and legal benefits. This can make sense for larger companies, but it rarely makes sense for smaller LLCs.
Incorporating your business in a state your business isn’t based in means taking on hassles like maintaining a registered agent in both the state you live in and incorporate in, filing paperwork in both states, and paying fees to both states. After considering the time and money involved, it’s typically not a savvy move for most LLCs. It’s usually smarter to incorporate in your home state.
Mistake 3: Choosing the Wrong Type of LLC
There are actually four types of LLCs you can create in South Carolina, as we’ve covered before in a previous blog. Check out that blog for more information, but in short, know that an LLC can be either “term” or “at will” and “member managed” or “manager managed.” If you select the wrong type when setting up your LLC, it can be bad for the LLC and the members down the line.
Mistake 4: Choosing a Bad Name
What makes a “bad” name? One that’s already being used.
Before choosing a business name, do some research. You can search for existing business names in South Carolina here under “Existing Business,” which is a good start. (South Carolina does not allow a new business to register a name that’s not “grammatically distinguishable” from existing names.) You might also want to search the trademark database at the US Patent and Trademark Office here to see if the name you have in mind is being used somewhere else. Finally, a thorough Google search for your proposed name can turn up other uses of the name.
Your name matters because if you inadvertently violate someone else’s trademark, you can get in trouble. Disputes over names can end up being costly and time-consuming if someone sues you over the name and you want to defend your right to use it. But even if you decide to let go of the name, it will cost you time and money to rebrand your digital and physical presence. Worse, you will have lost the brand recognition and goodwill you’ve built up over the years in your community. So choose wisely.
Mistake 5: Not Having Corporate Governance Documents
This is probably the single biggest mistake you can make when you plan to start an LLC with business partners. Many people go into business with friends or family members, and at the start everything is copacetic. Everyone gets along and there are no major disagreements. But many an experienced business attorney will tell you that times change, and that’s when things can get ugly.
Imagine that you’re in a business with two friends and everything is going well at first. Then one friend unexpectedly dies, and you find you’re now in business with their spouse. Or the other friend starts slacking off, working fewer hours but taking the same profits as the hard-working partners. Or you become incapacitated and can no longer work. Or the three of you disagree on how to raise money for the company. What happens to you, your investment, and the business in these situations?
Corporate governance documents are intended to lay out the rules so that when a disagreement or unpleasant situation arises, what happens next is clear. These simple documents can preserve good relations between partners, protect the partners’ investments, and protect the business itself.
Two important documents that any business owner with partners should consider getting during the creation of their business:
An operating agreement. This spells out how the company should be managed, how profits and losses are handled, how much of the company each member owns, what each member’s responsibilities are, and more.
A buy-sell agreement. This document covers what happens to the business when a member dies, becomes incapacitated, stops working, etc. Read more about buy-sell agreements here.
By addressing future scenarios now, you can avoid major problems down the line. Just know that it’s vital to discuss these things before you and your partners start operating your business.
Mistake 6: Not Getting Legal Assistance When You Need It
It’s very easy to go online and get the forms to start an LLC yourself, without the help of an attorney. Is that smart?
In some cases, doing so is fine and poses no future problems, particularly with single-member LLCs that operate within one state and are wholly self-funded. These business owners would likely benefit from speaking with a business attorney, but they may feel pretty confident that they can create their LLC on their own.
But other entrepreneurs should consider speaking with an attorney before and during the creation process of their LLC. This is especially true in any of the following situations:
- You have business partners
- You plan to take on money from outside investors
- You plan to do business in multiple states
The cost is usually the main reason that people don’t want to spend the money on an attorney at this stage, and that’s understandable. Business owners want to make money before they spend it. But the money you spend up front on corporate governance documents or advice from an experienced attorney can save you money and mistakes down the road. (Plus, don’t forget this expense is a business write-off when it comes to tax time.)
Questions About Your LLC? Speak with Business Attorney Gem McDowell
Gem McDowell is a business attorney with over 25 years of experience helping people start and run their businesses. He’s a problem solver who can help you start out right and avoid the many mistakes he’s seen in the past. Contact Gem at his Mt. Pleasant office today to schedule a free consultation by calling (843) 284-1021 or filling out this contact form.
Are You Protected? What You May Not Know About “Piercing the Corporate Veil.”
One of the first things to do when going into business is to select the appropriate business structure for your venture and set it up correctly. A primary advantage of doing so is gaining the protection of the entity so that your personal finances are safe from being used to settle company debts or pay the company’s bills. Having the right business structure also allows for the business to be considered a separate entity, with its own income and debts separate from other businesses that you may also own.
But don’t assume that just because you’ve set up a legal structure that you and your business are fully protected; that protection is only valid if you follow all the rules. In other words, you are not guaranteed liability protection just because you have created a limited liability company or a corporation. (Note that sole proprietorships and partnerships do not offer the same liability protection and so are excluded from this discussion.)
Today we’ll look at the concept of “piercing the corporate veil” (PCV), which is when a court suspends the liability protection your business entity gives you, what it means, and how you can avoid it.
What Can Happen When You Fail to Keep Business and Personal Accounts Separate
One of most important ways to maintain your personal liability protection is to be scrupulous about keeping business and personal finances separate. Maintain separate checking and savings accounts and use different credit cards for your business and for yourself. The key idea is not to “commingle” your personal finances with your company’s finances. You pay your own bills from your personal account and you make sure to pay the company’s bills from the company’s account.
Let’s say you aren’t meticulous about keeping finances separate. Then your business hits a rough patch and is unable to pay a debt it owes. Since your finances aren’t separate, it may look like you and your business are essentially the same, and you personally may be on the hook. Your assets – including investments, cash, your car, and your house – could be taken to satisfy your company’s debt. That’s why it’s crucial to keep separate accounts.
What Can Happen When You Fail to Keep Individual Businesses Separate
PCV isn’t just an issue of separate business from personal accounts. It’s also a matter of keeping businesses distinct from each other.
Imagine a scenario like this. Alpha Corp. and Bravo Corp. are run by the same management group. About 60% of the shareholders are the same between the two, as well. Alpha Corp. runs into trouble and needs to pay a creditor immediately, but has no money. No problem, because Bravo Corp. has plenty of money. Bravo Corp. writes a check directly to pay Alpha Corp.’s debt.
The companies have now commingled funds. When this happens, they may be considered “alter egos” of one another under the alter ego doctrine, a.k.a. the instrumentality rule. Here are two examples of what can happen next:
- Three shareholders of Bravo Corp. who are not also shareholders of Alpha Corp. are, understandably, not happy that Bravo’s funds are being used to pay off Alpha’s debts. They bring a type of lawsuit called a derivative action against the management group arguing that there’s one giant pool of money, and the companies are in fact not separate.
- Another creditor sues Alpha Corp. for not paying its debt. During discovery, it’s determined that Alpha and Bravo have commingled funds. Now Bravo Corp. can be compelled to pay Alpha Corp.’s debts, as the two are alter egos.
It’s not just about money, either. Even seemingly simple things as sharing the same mailing address, office space, and letterhead may lead to trouble, as the “blurred identity theory” addresses situations where individual businesses don’t have individual identities. The two companies may be confused with each other as their identities are “blurred” into one another.
Proving PCV in Court
The concept of piercing the corporate veil (also known as “lifting the corporate veil”) was put to the test in the 1976 case that originated in South Carolina, DeWitt Truck Brokers v. W. Ray Flemming Fruit Co. The U.S. Court of Appeals for the Fourth Circuit upheld the District Court’s decision to pierce the corporate veil and impose individual liability on the owner. Flemming was found personally liable for debts owed by his company after it was discovered the business did not follow basic corporate protocols and that he, as the dominant shareholder, had drawn a salary, leaving the company undercapitalized and in debt.
In its decision, the court reiterated that while it recognizes a corporation is a separate entity that’s distinct from its owners and officers, it can “decline” to recognize that autonomy when doing so would “produce injustices or inequitable consequences.” Still, it will do so “reluctantly” and “cautiously.”
Bases for PCV noted in the DeWitt decision include:
- Fraud
- Inadequacy of capital
- Complete domination of the corporate entity
- Instrumentality theory (discussed above)
- Failure to observe corporate formalities
- Non-payment of dividends
- Insolvency of the debtor corporation at the time
- Siphoning of funds by the dominant shareholder
- Non-functioning of the other officers and directors
- Absence of corporate records
- Existence of the corporation as a façade for the operations of the dominant stockholder(s)
Ultimately, the court may pierce the corporate veil when “a number” of the above factors exist in order to right an injustice or unfairness.
How to Avoid PCV
You can make it less likely for a plaintiff/complainant to win (and less likely to sue in the first place) over this issue if you follow proper procedures.
- Keep finances separate between individual and company or company and company
- Move funds between entities through loans or other above-the-board methods
- Keep distinct business identities through separate addresses, trademarks, letterheads, etc. for each company
- *Hold regular shareholder meetings
- *Keep minutes
- *Pay dividends if applicable
*Applicable to corporations, not LLCs.
It’s not difficult to follow protocols to avoid PCV, it just takes discipline. When people get lazy and let basic things slip, that’s when problems arise.
Speak with a corporate attorney about your business
This is a very general overview of some elements of PCV; the topic is extensive and can become very complex. Maintaining the liability protection your business entity gives you is one of the most important things you can do. Make sure you’ve got your bases covered by speaking with a corporate attorney like Gem McDowell.
Gem handles a wide range of corporate law issues and advises on business matters. Contact Gem at their Mount Pleasant office today by calling (843) 284-1021 or filling out this contact form online. They are ready to help you with your business.
Did You Choose the Wrong Business Type?
Picking what kind of business you’re going to be – “choice of entity” – is one of the first and most important things you do when you start a business. It’s an area where many business owners can get into trouble because they don’t know what they don’t know. Beyond basic issues of personal liability and how many people are in your company, there are subtleties you may miss if you don’t know the law.
Here are some common business types, and why they may be the wrong choice for your business. (If you think you’ve already set up your business as the wrong entity, don’t worry; Gem and his associates can help you.)
Sole proprietors and partnerships
The benefits of sole proprietorship and partnerships
Many businesses default to these business types because they don’t require any formal federal or state paperwork to set up. (You should still look into whether you need licenses and permits, though.) If you start selling baby blankets online and making money, you’re automatically a sole proprietor. If you and your buddies start roasting coffee and selling it, you’re in a partnership. It’s very easy, which is why these are still very common business structures.
What to watch out for
The major drawback – and it’s a big one – of being one of these two types of business entity is that you have no liability protection. Your personal assets are not protected in case your business is sued or goes into debt. That means that you can lose your money, your home, your car, and any other assets you have if the business gets into trouble. For partnerships, you take even more risk, because you’re not just reliable for your own actions and debts you incur, you’re liable for those of your partners, too.
The bottom line
It’s better to choose a different business structure altogether than to accept the risk of putting your personal assets on the line.
Limited liability companies (LLCs)
The benefits of LLCs
The big benefit is liability protection. With an LLC, as long as you maintain a separation between business and personal accounts, you will be (in most cases) protected from being held personally liable for the debts of your business. An LLC is flexible because you can have a single-person LLC or an LLC with multiple people. For taxes, the income (or loss) “passes through” to the owners to include on their personal tax returns.
For all these reasons, the LLC is an ideal business structure for many companies.
What to watch out for
With LLCs, there’s more than meets the eye. Did you know that there are four ways to establish a limited liability company in South Carolina? Most people don’t. And when most people set up the business themselves, they inadvertently set it up as the wrong type of LLC.
An LLC can either be “term” or “at will” and can be “member managed” or “manager managed.” Let’s say you and your friend are in an LLC together and you don’t yet have a buy-sell agreement. If your friend dies, and your LLC is set up as “at will” instead of “term,” you have only a limited time to buy out their portion of the business, or the business dissolves.
Or let’s say you’re in an LLC with your business partner and your LLC is set up as “member managed.” Even if that person owns just 1% of the business, they can go to the bank and take out money in your company’s name, which you’re now on the hook for.
The bottom line
The LLC is a great business structure, but you need to make sure it’s set up as the correct type of LLC. There are four possible types of LLC, and only one is ideal.
Corporations
The benefits of corporations
As a business entity, the corporation is great because it’s robust and can grow easily with capital from investors. Most of the brand name companies you know are corporations. You can choose to be a C-Corp or an S-Corp depending on how you want to be taxed. This is a great choice for a company looking to grow with outside investors and shareholders.
What to watch out for
If you’re a regular corporation, you’ll be required to have a board of directors, hold regular meetings, keep meeting minutes, and have those minutes available to shareholders to review. Failure to do these things can lead to a Plaintiff’s lawyer asking a court to “pierce the corporate veil” when the company is sued. That is, blurring the line between what’s business and what’s personal. In the worst-case scenario, you could be personally liable and find yourself paying off the company’s debts with your own assets.
But you can sidestep these problems entirely by electing to become a “statutory close corporation” by filing with the State of South Carolina. Every corporation in South Carolina is eligible. You get the benefits of being a corporation, but you won’t be required to have a board of directors and hold meetings if you don’t want to.
The bottom line
If you’re already a corporation but your company is not meticulous about holding board meetings and maintaining minutes, look into becoming a statutory close corporation. And even if you are meticulous, it’s just one more layer of protection for you.
Get Help Setting Up Your Business
The majority of companies are not set up in a way that’s optimal for the business owner, says Mount Pleasant business attorney Gem McDowell. If you want to discuss choice of entity for a new or existing business, call Gem and his associates at (843) 284-1021 today. They can help you evaluate your options and choose the entity that’s right for your business.
What’s the Difference Between a C-Corp and an S-Corp?
Deciding what kind of entity you want to be is one of the first steps when creating a new business. If you’ve already decided that your business should be a corporation, rather than a limited liability company or something else, you still have to decide whether you want to be a C corporation (C-Corp) or an S corporation (S-Corp).
The Differences Between a C-Corp and an S-Corp
A C-Corp is probably what you think of when you think of corporations; the big ones, like GM and ExxonMobil, are C-Corps. They can have an unlimited number of shareholders, and anyone may buy shares, including other companies and people in foreign countries.
An S-Corp, however, has limits on how many people may be shareholders (currently 100) and who may hold shares, since corporations, partnerships and non-resident aliens may not be shareholders. (There are other differences between the two, and you can read more on the IRS website about C corporations and S corporations.)
The main difference is in taxation. A C-Corp is taxed at the corporate level and if dividends are distributed to shareholders, those shareholders are taxed on those distributions. S-Corps seek to avoid this “double taxation” by being taxed differently. Instead, the S-Corp’s income “passes through” to the shareholders, who pay taxes on the income only once. (Same for losses.)
How to Become an S-Corp
First you need to incorporate in your state as a corporation, which by default is a C-Corp. You don’t need to file anything with the IRS or the federal government to become a corporation. But you do need to file a Form 2553 with the IRS if you want to change your status to an S-Corp. What you’re really doing is asking the IRS to tax you under a different section of the code. (The C in C-Corp is because those corporations are taxed under Chapter 1, subsection C of the IRS code; S-Corps are taxed under Chapter 1, subsection S.)
Pros and Cons of Becoming an S-Corp
Assuming that you’re deciding between being a C-Corp and an S-Corp (and not an LLC or other business entity), the two main things to consider are taxation and shareholders. Electing S-Corp status will let you avoid corporate-level taxes but may also restrict the growth of your company by putting limits on who and how many may become shareholders. You will also have to be sure to follow the IRS’s guidelines so that you don’t do anything to lose your S-Corp status.
There’s no one-size-fits-all answer to this question, so it’s a good idea to speak with the other shareholders, a business attorney and an accountant to decide if becoming an S-Corp is the best option for your company.
Learn More About Becoming an S-Corp
Call 843-284-1021 to speak with business attorney Gem McDowell and his associatess at Gem McDowell Law Group in Charleston. They can advise you on the pros and cons of becoming an S-Corp and provide legal advice on a variety of other issues in business law.
