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Formation (Election) of an S-Corp

PostedOctober 30, 2023

s corp benefitsBy Jason Watson, CPA
Posted Tuesday, October 31, 2023 (boo!)

There is a misconception floating around out there that an S Corp is a standalone entity. Not true. There are several entity types, and the three most common are-

  • Limited Liability Companies (LLCs), either as a single-member or multi-member
  • Partnerships, including all the variants (LP, LLP, LLLP, etc.), and
  • Corporations (C Corps), including Professional Corporations (PCs).

Each can elect to be treated as an S Corp for taxation purposes under subchapter S of the revenue code.

So, while we might talk about your “S Corp”, we are truly talking about your LLC, partnership or C Corp being treated as an S Corp for taxation. Also, the words member and shareholder are synonymous as well from a conversational perspective- for an LLC, the state considers owners to be members, but the IRS considers the owners to be shareholders when issues like distributions, basis, etc. are discussed. Same is true for equity accounts on the balance sheet.

Jason Watson, CPA, is a Partner and the CEO of WCG CPAs & Advisors, a boutique yet progressive tax, accounting and business consultation firm located in Colorado serving small business owners and taxpayers worldwide.

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