Question

1. List five advantages and five disadvantages of making an S election. Explain each item.

2. Which of the following events cause an S election to terminate?

The S corporation earning 100 percent of its gross receipts in its first tax year from passive sources

The S corporation issuing nonvoting stock that has a dividend preference

The S corporation purchasing 100 percent of the single class of stock of a second domestic corporation that has conducted business activities for four years

An individual stockholder donating 100 shares of S corporation stock to a charity that is exempt from tax under Sec. 501(c)(3)

The S corporation earning tax-exempt interest income

Answer 1

Answer 1 :

Advantages of S Corporation Election :

There's a reason the greater part of the organizations in the United States have progressed toward becoming S Corporations. The benefits of a S Corporation decision are many:

1. You just need one individual to shape a S Corporation. In a few states, you require something like two individuals to frame a LLC.
2. A S Corporation dependably exists. Dissimilar to LLCs that generally have restricted life expectancies.
3. You are allowed to give away your stock in S Corporations. This implies the investors of S Corporations can pitch their enthusiasm without getting the endorsement of alternate investors.
4. Regarding independent work charges in contrast with LLCs, S Corporations are useful.
5. S Corporation races shield proprietors from any risk, claims, or obligation regarding the company's obligation.
6. While proprietors of single proprietorships and organizations need to cover independent work government obligation, S Corporations have their benefits lessened by the sum paid to proprietors as representatives. Their aggregate independent work assess bill is much lower.

Disadvantages of S Corporation Election :

In spite of the considerable number of preferences of choosing a S Corporation, there are as yet a couple of weaknesses to documenting as a S Corporation:

1. S Corporations need to pursue the tenets of every single other partnership, which means higher legitimate and impose benefit expenses.
2. There is significantly more printed material for a S Corporation than for a LLC. You have to document articles of joining, hold chief and investor gatherings, track every single corporate moment, and given investors a chance to cast a ballot on every single significant choice.
3. S Corporations are just permitted to issue regular stock, which can make issues while attempting raise capital.
4. S Corporations are not permitted to petition for a first sale of stock.  

Answer 2 :

The correct answer for the given statement is Option (B). The S corporation issuing nonvoting stock that has a dividend preference

B. Yes, 2 classes of stock would terminate S-election