What Is an S Corp in California?

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S Corporation (S Corp) Overview

An S corporation combines limited liability with pass-through taxation, avoiding double taxation at the individual level.

  • Requirements for S Corps
    • Domestic corporation
    • One class of stock
    • Less than 100 shareholders
    • Not an ineligible corporation

Operating as an S Corporation in California

  • Exemption from the $800 California franchise tax in the first year
  • Pass-through income and losses to shareholders
  • Administration by the Franchise Tax Board
  • Complex filing and ownership requirements compared to C Corps and LLCs

LLC vs. S Corporation in California

  • Limited Liability Company (LLC)

    • Easier establishment
    • Personal liability protection
    • Pass-through taxation to owners

  • S Corporation (S Corp)

    • Pass-through entity taxation
    • Avoids double taxation
    • More complex filing and ownership requirements

Qualifications for S Corporation

  • Requirements include domestic status, one stock class, and fewer than 100 shareholders.
  • Pass-through of profits to shareholders.
  • Benefits over C Corps and LLCs but may face complex filing.

Conclusion

Consider ownership needs, tax implications, and regulatory requirements when choosing between an LLC and an S Corp in California. Consult a small business attorney for guidance.

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