What You Need to Know About S Corporations in California
Are you looking to start a new business in California? If so, you may have heard about S corporations. However, contrary to popular belief, an S corporation is not a business structure — it is a tax status. Any standard corporation or C corporation formed in California can become an S corporation by electing under federal law to be taxed under Subchapter S.
Here is some important information regarding S corporations:
- Your company must choose to operate as an S corporation.
- If you form your business as a corporation, your shareholders are not responsible for the losses and debts incurred by the company. Furthermore, creditors may only seek assets for payment from the corporation.
- S corporations are limited by the types of owners allowed, which may not exceed 100 shareholders.
- Whether your business is a corporation, partnership or LLC ultimately determines the management structure of your S corporation.
- Under its S corporation status, your company does not pay federal income tax.
- According to the law in California, there is a 1.5 percent tax on an S corporation’s net income.
- Before forming an S corporation, you are required to have a separate bank account and separate records.
- Unless your company is newly incorporated or qualified, your corporation in California must pay an annual minimum $800 franchise tax.
Starting a business requires knowledge about your industry, finances and the law. Our knowledgeable business attorneys can guide you through each step of forming a corporation, from filing articles of incorporation to choosing the right business model.