What is an S corporation?

The “S corporation” is a very popular structure for many “small” businesses.  Small refers to the number of owners rather than the size or profitability of the business.  For example, the “Chicago Cubs” is operated as an S corporation.

To start an S corp, you start a regular corporation and then you file for S corporation status soon thereafter using a special form for the purpose (IRS Form 2553).

There are a LOT of S corps in the US… 

In the US, in 2004, there were 3.5 million S corporations with 6.1 million total shareholders.  So we can see that the typical S corporation is owned by about 1.7 people.  That tells me that there are a ton of businesses out there, maybe yours?, that are S corps with one or two owners total.

These 3.5 million S corps were responsible for over $4.5 trillion in reeipts (these are 2004 numbers) and of that almost $500 Billion was income for the owners (officer salaries and net profits added together).  Another almost $500 billion was paid as wages to other employees that worked for them.  So you can see that S corps, although individually small, represent a good sized chunk of our economy…

Remember this the next time you hear a politician spouting off about the “Evil Rich” people.  The vast majority of these evil producers are small to medium sized business owners who do most of the hiring and investing in equipment and inventory in our economy.  If the burdens become too great, the risk/reward ratio shifts and it will freeze up the incentive for new growth and employment.  

And personal small businesses are the trend of the future.  It is important that all small business owners understand the rules of the game…

Rob Northrup

Is Your Corporation Protecting You?

PS: Next time we’ll talk about why an S Corp is preferred by many business owners…