Minnesota S-Corp FAQ: Benefits, Disadvantages, Taxation & Formation

Many Minnesota small businesses choose to form an S Corp because of its pass-thru taxation benefits, payroll tax benefits, and reliability as a traditional business entity. An LLC can also be taxed as an S Corp and reap the S Corp taxation benefits.

If you need to form a Minnesota S Corp or have legal issues involving an S Corp in Minnesota, contact attorney Aaron Hall for a phone consultation.

S Corp Basics

S Corp is short for “S Corporation.” Technically, an S Corp is a corporation that has elected S Corp tax treatment under Subchapter S of Chapter 1 of the Internal Revenue Code.

S Corp Benefits

An S Corp combines the limited liability benefits of a corporation with the pass-thru taxation status traditionally afforded to partnerships. Also, the IRS allows an S Corp owner who works for the business to cap payroll taxes at the owner’s salary level rather than imposing the self-employment tax on all income under the self-employment tax threshold ($102,000 in 2008).

S Corp Taxation

An S Corp is not taxed at the business level as a C Corporation would be (double taxation). Rather, the profit or loss passes through the business to the owners, and is taxed as income to the owners. The IRS provides information regarding the appropriate tax forms for S Corps.

S Corp Disadvantages

There are a few disadvantages to an S Corp:

  • An S Corp must file quarterly estimated payroll taxes.
  • An S Corp must maintain some corporate formalities to keep its limited liability protection.
  • Unlike a sole proprietorship or partnership, an S Corp is created by filing with the Secretary of State.

Minnesota S Corp Formation

A Minnesota S Corp is formed by drafting Articles of Incorporation, Bylaws, and related formation documents and filing them with the Minnesota Office of the Secretary of State. Next, the business registers with the IRS to obtain an EIN and registers with other appropriate agencies (for example, the Minnesota Department of Revenue if the business will charge sales tax) as required by law.

Minnesota S Corp Business Attorney

Our business attorneys have formed countless small businesses, advised them on tax matters, litigated business disputes, and drafted complex business contracts.

If you are considering forming a small business or have a small business legal issue related to Minnesota, you are welcome to contact us.