What You Need to Consider Turning Your Business into an S Corporation
As a business person, your main goal is to be able to lead your organization properly. It is an excellent consideration to start a business jointly with other people where your business income will be shared in the contribution ratio. Remember, nothing is meant to stay the same for a long time. The best choice you can consider starting from could be an S Corporation before going to the LLC or the C corporation. The following aspects point to you why it is best to start with an S corporation.
You have to consider moving your business to an S corporation because the burden of company obligations does not fall on you. As an owner, you only have to pay a small portion of the company debt. It is beneficial to start an S corporation because the burden of loans and credit repayment are taken care of by the corporation itself as a legal person. Your assets are safe because they are tied to the business operation of the company.
It is also prudent to start an S corporation because of the many tax benefits. Taxes are suitable for raising country revenue, but they can be detrimental to the life of a new business venture. It is not a pleasant experience if you cannot make it to pay your taxes on time,and then the government imposes hefty fines on you which you have to pay or else your business license could be revoked. It is possible for you to pass the profits or loss to the shareholders who can report it in their income tax returns. The business can, therefore, be offset its losses with shareholders returns which is ideal because it will help a new business not to suffer losses when it is just beginning. An S corporation makes the shareholders pay tax once.
It is wise for you to start an S corporation because you can have several financiers at the same time. An S corporation is going to make it possible for you to undertake important activities that you could not have undertaken without the investors. This means that your business will avoid borrowing to raise capital. The disadvantages of borrowing is that lenders might deny you money because of your credit rating. You will also have to pay high interests periodically and on time, failure to which the interests rates are increased. Additionally, it is easier for you to establish credibility with the various company stakeholders if it is an S corporation.
More so, consider starting an S corporation because there is free transfer of ownership without underlying tax penalties. It is possible for the shareholder to be the staff of the company without affecting their status.