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Compare and Contrast S Corporations and Partnerships

Compare and contrast the requirements for the formation and termination of an S corporation and a partnership. What is the effect on both the business entity and its owners?

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Forming an S corporation is one option for the small businessman who wants to protect his personal assets but doesn't want the taxes that must be paid under a C corporation, which is a business structure used by large businesses. Incorporation forms must still be filed with state and federal governments.

An S corporation is one that allows businesses to pass on corporate income, losses, deductions and credits to shareholders on their federal income taxes, according to the Internal Revenue Service. This means the income is only taxed once by the federal government and not as corporate income and then again as personal income when it is passed on to shareholders.

Under IRS rules, an S corporation must be a domestic corporation and can have no more than 100 shareholders. All shareholders must be citizens of the United States.

An S corporation offers advantages other than tax liability. A major one is that it protects shareholders' assets from liability. Should the business be sued or get heavily into debt, only the business assets may be seized.

Business owners who want to incorporate under S rules need to file documents with their respective state government as well as the IRS. Each state has different ...

Solution Summary

An S corporation is one that allows businesses to pass on corporate income, losses, deductions and credits to shareholders on their federal income taxes, according to the Internal Revenue Service. This means the income is only taxed once by the federal government and not as corporate income and then again as personal income when it is passed on to shareholders

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