taxes, s-corporation, c-corporationI’m trying to decide whether to to incorporate my company as a C-Corp or an S-Corp. I’ve got a very successful iOS app bringing in substantial revenue already, and I’d like to start hiring a few other developers to expand the app and develop a sequel. It sounds like a C-Corp is what I’m aiming for in the long term, but an S-Corp sounds more ideal in the short term.
It’s been implied to me that it’s possible to start as an S-Corp for a while, and then become a C-Corp if and when we start looking for investors.
I’m wondering, what are the consequences of such a move? Upon converting the S to a C, would it work exactly as if it had been a C-Corp all along? Or would there be some lasting impact, positive or negative, from having spent some time as an S-Corp?
This was something briefly covered a few months ago in another post:
tax consequences of starting as an LLC and converting to C-corp later
It would be good for you to read the article the OP included in his post, which was here:
Converting to a C Coorporation
Hopefully you'll find this useful, but the fact is, you can still seek out investors with a S-corporation under the JOBS act, which substantially loosened the rules for selling securities to investors without having to go through the registration process.
First and foremost, all corporations start and technically stay a C-Corp for initially incorporated. After your incorporate as a C-Corp you then have the option to elect to be taxed as an S-Corp for tax purposes.
S-Corps are traditionally better for any early stage company. They can be converted to a C-Corp at any time voluntarily. That said, you may involuntarily be changed to a C-Corp if you violate any of the covenants you must abide by to remain taxed as a S-Corp (you can google S-Corp IRS to obtain the list).
If you voluntarily change from an S-Corp to a C-Corp, it is normally by the direction of new investment money (Venture Capital will not invest in S-Corp 99% of the time). There are no serious consequences tax wise.
All content is licensed under CC BY-SA 3.0.