A few years ago I established an SCorp, but since I am the sole owner of shares, it seems that there are no real protections afforded to me by having an SCorp. Being the sole shareholder apparently allows my corporate veil to be pierced if there is an incident. Additionally I am finding it extremely difficult to represent the company in the smallest of legal actions without the serious expense of hiring an attorney. Also, the business I run is virtually tax exempt, because its a service industry. So the franchise tax seems to be another needless burden. Am I thinking about this correctly? What are the real pros and cons of operations an SCorp if you are the only one with the equity?
There are pros and cons to every situation. If you have set the corporation up correctly and got proper advice and education from your attorney, having the S corp benefits would outweigh the burdens both from a legal perspective and a tax perspective. S corps are a federal tax creation. So you filed and are registered as a corporation, unless you went the sole member LLC route.
Many of the advantages are tax advantages.
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
It is not true that because you are the sole shareholder of the "S" corporation that a judgment creditor of the corporation can simply pierce the corporate veil and hold you responsible for the corporation's debt. The plaintiff must establish that the corporation is nothing other than your alter ego. If nothing else, the corporation is a hurdle between some future plaintiff against the corporation and your personal assets. Of course, to make that hurdle strong you need to maintain the corporation's books and records, not co-mingle its accounts with your own, not pay personal expenses out of the corporation, and make sure it is adequately capitalized. There may be benefits of having an "S" corporation vs. a sole proprietorship as to the new Section 199A 20% deduction of qualified business income. You need to discuss this with a tax attorney in your neighborhood.
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