What Exactly is an S-Corporation?

Many entrepreneurs and startup founders think they need to decide between forming an S-Corporation (S Corp) or a C-Corporation when they start a new business. This is a misconception.

S-corporations are not their own type of corporation. They are not their own type of entity. You don’t go to the secretary of state and form an S-corporation. What you do is form a corporation or Limited Liability Company and then you approach the IRS and choose to designate that corporation or LLC as an S corp for tax purposes. So an S-corporation is not it’s own thing.

When you are deciding what kind of company to create, what kind of entity to form, don’t worry too much about S-corporation. You are generally deciding between corporation, which we call C-corporation ( a default corporation) or a limited liability company (LLC).

Afterwards, go to the IRS and you choose to call it an S-corp only for purposes of taxation, so you kind of bolt it on. It is more of something you do with your accountant after the fact than something you do with your lawyer upfront.

Author: Brett Cenkus

Brett Cenkus is a business attorney with 18+ years experience based in Austin, Texas. He has worked with a variety of businesses and has clients throughout Texas as well as many technology clients throughout the United States. Brett is a Harvard Law graduate with a sharply seasoned mind and an entrepreneurial heart. As a founder of 6 companies himself, he is especially passionate about helping startups succeed. In 2016 Brett was named the winner in the Individual category for RecognizeGood’s Ethics in Business & Community Award. He offers businesses solutions that are in sync with their culture, goals and values. You can learn more about Brett by visiting the About page on this website.