Formation (Election) of an S-Corp

Jason Watson, CPA

1 year ago

By 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 Senior Partner 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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