Fettner Thompson

CALL US: (713) 626-7277

INFO@FETTNERTHOMPSON.COM

Business Entity – What Houston Lawyers Recommend

May 21, 2010 by David Fettner Leave a Comment

As business lawyers we are often asked about the differences between “C” Corporations and “S” Corporations.  A “C” Corporation is the default choice for business corporations.  Publicly traded corporations are “C” Corporations.  Corporations provide shareholders protection from being held personally liable for a corporation’s debts in many situations.  If the corporation is sued or files for bankruptcy, the shareholders are not held personally liable for the debts of the corporation (unless there are guarantees or extenuating circumstances).  This is true whether you choose “C” or “S” tax treatment.

The difference between “C” and “S” Corporations is how they are treated for tax purposes.  “C” Corporations are  subject to the corporate income tax.  If the “C” Corporation passes on some of its profits to shareholders in the form of a dividend, the shareholders are required to pay tax on that dividend.  Therefore, any profits that are distributed to shareholders are taxed twice, once as income to the corporation and once as income for the individual shareholder.

“S” Corporations, on the other hand, are structured so that profits and losses “pass through” to the shareholders.  Profits and losses in an “S” Corporation are not taxed at the corporate level, and instead are taxed only once as income or a loss for each individual shareholder.  For example, shareholder #1 owns 50% of an “S” Corporation that has $50,000.00 profit this year.  Shareholder #1 must declare $25,000.00 income on his personal income tax return.  However, there are tax risks involved for shareholders of “S” Corporations in certain circumstances.  If an “S” Corporation earns profits but does not distribute those profits to the shareholders, the shareholders are still required to report those profits on their personal income tax returns even though they did not receive any money.   The time to choose “C” or “S” designation is when you incorporate.  However, the IRS will sometimes allow late designations or changes in designation.

If you are considering starting a new business or are incorporating an existing business, consult a business lawyer in your jurisdiction about what business entity would be best for your business.

Filed Under: Archives, Recent Posts

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Contact Us

(713) 626-7277
info@fettnerthompson.com
6700 Sands Point Drive Houston, Texas 77074
Get Directions

RSS- RECENT POSTS

Loading RSS Feed

Tip of the day

    

Pursuant to Texas law, any person who has held shares in the corporation for at least six months immediately preceding a demand to examine and copy corporate books and records, or who holds at least five percent of all the outstanding shares of the corporation is entitled to examine and copy the corporation's relevant books, records of account, minutes, and share transfer records. Terms of Use

  • Attorneys
    • David A. Fettner
    • James E. Thompson
  • Practice Areas
    • Appellate
    • Collections
    • Commercial Litigation
    • Commercial Transactions
    • Corporate
    • Real Estate
    • Registered Agent
  • Links
  • Blog
    • Archives
    • Recent Posts
  • Contact Us
  • Reviews
  • Terms of Use
  • Sitemap
  • Contact Us

Copyright 2010 Fettner Thompson All Rights Reserved
6700 Sands Point Drive, Houston, Texas 77074 | Phone: (713) 626-7277 | Fax: 888-876-2292

MENU
  • Attorneys
    • David A. Fettner
    • James E. Thompson
  • Practice Areas
    • Appellate
    • Collections
    • Commercial Litigation
    • Commercial Transactions
    • Corporate
    • Real Estate
    • Registered Agent
  • Links
  • Blog
    • Archives
    • Recent Posts
  • Contact Us
  • Reviews