An S corporation Michigan is a C corporation that has qualified for its election to receive a special tax status with the IRS. What makes an S corporation of particular interest is that its income goes directly to the shareholders and avoids the impression of double taxation. A C corporation can elect to become an S corporation at any time.

S Corporation Michigan

An S corporation Michigan is recognized as its own legal entity. The stockholders' financial records are kept completely separate from the business financial records. The The corporation's employees or officers have the authorization to conduct business on the corporation's behalf. Regarding credit application approval, it's likely a lender will have specific requests for newly formed corporations. 

The same applies to corporations with minimal assets and a small record of credit use. Under these conditions, a personal guarantee is necessary from one or more of the stockholders or the officers of the corporation. When a personal guarantee is provided, the signers will be liable for all the corporation's debts. An S corporation allows the income to go directly to the shareholders. Therefore, it avoids the perception of double taxation you get with a C corporation.

Differences Between Michigan C Corporations and S Corporations

The exact moment that a C corporation becomes an S corporation is confusing for many people. Many individuals believe that a corporation must elect to be an S corporation at inception. This is not true. When you form a corporation in Michigan, you'll want to know how a Michigan C corporation becomes a Michigan S corporation. Be aware of the restrictions that apply to S corporations and not C corporations. You'll also want to know the differences between the two types of corporations. 

Corporations chartered by Michigan are C corporations and remain that way if you do nothing further. A C corporation can file to become an S corporation at any time after forming. 

You may elect to become an S corporation months or even years after originally forming the C corporation. You'll need to contact the Michigan income tax agency or speak with your tax advisor to find out how Michigan treats S corporations. 

It's necessary to find out if you need to file a separate S corporation election form. Make this contact before attempting to make the S corporation election for your Michigan corporation. You'll want to find out if there are any taxes that apply to S corporations.

C Corporation and S Corporation Similarities

1. Legal Entities

Both a C corporation and an S corporation are treated as legal entities. This means the business is treated as its own individual, separate from the shareholders. Oftentimes, this means the business receives the same treatment as a human being.

2. Creating a Corporation

C corporations and S corporations are formed in the same way. A Certificate of Incorporation or Articles of Incorporation must be filed with the state.

3. Life

Both S and C corporations have unlimited existence. Both corporation types have a life that will last beyond the death of the owners.

4. Makeup 

The shareholders of S corporations and C corporation are made up of:

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Elected directors 

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Owners of the corporation 

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Appointed officers responsible for the corporation's daily operations.

5. Limited Liability

S corporations and C corporations are protected by limited liability for the obligations, debts, and liabilities the corporation obtains. This applies to shareholders or owners who are not normally held responsible for corporation obligations.

6. Ownership

To transfer ownership of an S corporation or a C corporation, shares of the corporation's stock must be sold.

7. Capital

More capital can be raised by C corporations and S corporations through selling the corporation's stock.

Michigan S Corporation: Advantages

A Michigan S corporation has an independent life. The corporation continues undisturbed, no matter if there is a death or incapacitation of one or more of the stockholders. Regarding initial ownership of a stock, fractional ownership shares can be easily accommodated. Ownership changes within a corporation through gifting, selling, and purchasing stock. This does not perturb the corporation's abilities to conduct business. 

Stockholder records and finances are kept separate from the corporation's records and finances. The risk of equity liquidations that are unrecognized is reduced because of this requirement. According to Subchapter S, an S corporation does not pay income taxes. The loss or income of the corporation is directed to the shareholders. The exceptions to this are few under this taxation election.

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