An introduction to the benefits of the Small Business Corporation

If you own a business that operates as either a sole proprietorship or a partnership--rather than as a limited liability company or corporation--you suffer in two big ways.

Dangers of sole proprietorships and partnerships

The first problem: You are legally liable for all the debts of the proprietorship or partnership as an owner or co-owner of the business. Specifically, no matter what happens, in some cases no matter who is at fault, no matter what the amount, you are liable.

In a worst-case scenario, you could lose almost everything you have.

But that's not the only problem with operating an un-incorporated business. In addition to the income taxes you pay on your business income, you also pay a second heavy tax on all your business profits, the self-employment tax.

Many small business owners, in fact, pay more in self-employment taxes than they pay in federal income taxes.

That's the bad news, so to speak.

Advantages of electing subchapter S status

Fortunately, you also have some good news. You can often fix both problems easily, quickly, and often inexpensively.

How? First, you can setup a limited liability company and use it to run your business. This largely solves the unlimited liability problem. A limited liability company, or LLC, means you aren't liable for the debts and obligations of the business merely because you own some or all of the business.

Second, you can use a quirk of recent tax laws to have your LLC taxed as a small business corporation by making a subchapter S election. But let me explain.

A limited liability company, or LLC, lets its owners select the tax treatment they want for their business. For example, an llc with a single owner can be a sole proprietorship, a regular corporation (also known as a C corporation), or a small business corporation (also known as an s corporation). And an LLC with multiple owners can be a partnership, a regular corporation, or a small business corporation.

This tax flexibility means you can pick the tax treatment that saves you the most taxes--often times, thousands of dollars a year in self-employment taxes if you elect to have your LLC treated as an S corporation.

Here's the bottom line: If you're starting a new business or if you operate an existing business, you must investigate the limited liability company option and the subchapter s election you can make for your limited liability company.

You owe it to yourself.

You owe it to your family.

Where the S Corporations Explained Website Fits

This web site serves two purposes: The site supplies general information about Subchapter S corporations, or small business corporations, which you can use to begin your investigation.

Tip: Do peek at the FAQ. It supplies more general information about S corporations than any other website we're aware of... roughly a book's worth of friendly tax information in non-accountant's language.

This web site also sells do-it-yourself kits for forming a small business corporation. These kits, instantly available as downloadable documents if you have a PayPal account or a credit card, make sense if you're on a tight budget and can't afford to spend several hundred dollars (or several thousand dollars) on an attorney, accountant or online paralegal service.