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S corporation

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An S corporation (S corp for short) is a simplified version of a C corp with lower costs to set up and manage. As such, it’s more attractive to smaller organizations. With an S corp, profits pass through the corporation to the owners, so it’s not susceptible to double taxation.

Another key benefit is that as an owner, you can receive money from the corporation as employee pay or as dividends paid to investors. The money you take out in pay is subject to income tax and self-employment tax, whereas the money you receive in distributions is taxed at capital-gains rates (typically lower than income tax rates) and isn’t subject to self-employment tax.

One important disadvantage of an S corp, compared with a C corp, is that an S corp can sell only up to 100 shares, which limits its ability to raise capital for growth by selling shares to investors.

Launching & Building a Brand For Dummies

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