S Corporation or Sub S Corp.

The S corporation is a regular corporation for state law purposes. Under the Subchapter S of the Internal Revenue Code, this type of corporation is a device commonly used by close corporations in which the shareholders have elected to be an S corporation and, therefore, a partnership for income tax purposes. It is advisable that the shareholder’s accountant make this election. The corporation itself is subject to taxation on its income unless the business entity and its shareholders make the election to be an S corporation.

The federal income tax law sets very technical rules for S corporations in terms of the qualification and maintenance of S corporation status. S corporation shareholders are generally not liable for claims and debts against the corporation. This is unless the shareholders have otherwise agreed to be obligated for such debts by personal guarantees. Dallas business lawyer Thomas P. Finley, Jr. works with business clients and their accountants, devising S corporations in Texas.

C Corporation

A Texas C corporation is formed by filing the required documents for formation to the Texas Secretary of State. It is an artificial person or legal entity, created by statute and existing separate and apart from its owners or shareholders so that it may make contracts, own property, and sue and be sued in its own name. By incorporating a business, the separation protects the shareholders from any liability for debts and other corporation obligations.

Typically, a corporation has a board of directors elected by the shareholders. The board oversees the business dealings and strategy. They also select officers to handle the corporation’s day-to-day management. Corporations differ widely in complexity and the number of shareholders. Texas corporations vary in type and can include: (1) the individual owner corporation, in which one person owns all stock. (2) the close corporation, in which only a few owners hold the stocks, which are not traded publicly; and (3) the public issue corporation, in which shares of stock are held in many hands and sold to the public.

A corporation can have a continuous existence, unlike a sole proprietorship or partnership. As a general rule, a shareholder’s death or the sale of stock by one owner to another will not affect the business operation’s continuity. Corporate shareholders are also not liable for claims against the corporation exceeding the amount of their individual investment. Dallas business lawyer Thomas P. Finley, Jr. regularly assists small business owners in the formation of corporations in Texas.