An S corporation can create an LLC, C corporation, or qualified subchapter S subsidiary as a subsidiary. The biggest difference between C and S corporations is taxes. C corporations pay taxes on income in addition to taxes paid by owners. An S corporation pays no taxes. Instead, owners report business income as personal income.
An S corp can own an LLC or another S corporation. Those separate entities have their own accounts and liability, but are owned by the parent S corp and are disregarded entities for taxes. Would recommend consulting a CPA to explain taxation and required forms to establish properly.
Under the tax code, an S corp can elect to treat a subsidiary as a Qsub. Qsub assets, etc., are treated as S corp items. Qsub continues legal existence but S corp income includes Qsub income, allocated among shareholders and taxed once.
S Corporation Benefits
- Profit around 75k is a good threshold before S corp election since requirement to run payroll and file a separate return creates administrative burden not worth until higher profit.
- S corp benefits include passing through earnings to avoid double taxation and allowing cash method accounting. Shares can transfer without triggering tax. Downside is one class of stock makes preferential equity for some shareholders difficult.
LLC is a legal structure, S corp is tax status either can elect. Evaluating both legal and tax options important when starting business. S corp profits/losses passed to shareholders so no corporate tax. Can be a good way to limit liability.
Subsidiary is 50%+ owned by parent company, separate legal entities with distinct roles. Parent consolidates subsidiary financials. WhatsApp, Oculus etc are Facebook subsidiaries.
Can an S corporation have a subsidiary?
An S corporation can create a qualified subchapter S subsidiary as a subsidiary. The biggest difference between C and S corporations is taxes. S corporations pay no taxes. Instead, owners report business income as personal income.
An S corporation can own a limited liability company or other S corporation. Those separate legal entities have own accounts and liability, but owned by parent S corporation so disregarded entities for taxes.
An S corporation can elect to treat a subsidiary as a qualified subchapter S subsidiary. Assets, etc of the qualified subchapter S subsidiary are treated as S corporation items. The qualified subchapter S subsidiary continues legal existence but S corporation income includes qualified subchapter S subsidiary income, allocated among shareholders and taxed once.
Around 75k profit is a good threshold before S corp election since requirement to run payroll and file a separate return creates administrative burden not worth until higher profit.
S corporation benefits include passing earnings to shareholders to avoid double taxation and allowing cash method accounting. Shares can transfer without triggering tax. One class of stock makes preferential equity for some shareholders difficult.
A limited liability company is a legal structure, an S corporation is a tax status either can elect. Evaluating both legal and tax options is important when starting a business. S corporation profits and losses passed to shareholders so no corporate tax. Can be a good way to limit liability.
A subsidiary is 50% or more owned by a parent company, separate legal entities with distinct roles. A parent consolidates subsidiary financials. WhatsApp and Oculus are Facebook subsidiaries.
An S corporation can save money and limit tax liability. It qualifies if a United States corporation with under 100 shareholders. Not subject to double taxation.