In an S-corp can there be 1 share holder and what are the negatives if so?

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In an S-corp can there be 1 share holder and what are the negatives if so?

Asked on June 24, 2009 under Business Law, New York

Answers:

Nicholas Ponzini / Ponzini & Ponzini, LLP

Answered 11 years ago | Contributor

A subchapter S-corporation may have just a single shareholder up to a maximum of 100 shareholders.  There are no dissadvantages directly related to having just a single shareholder, however there are many pros and cons to weigh before selecting an appropriate entity.

One of the drawbacks to an S-corporation in a small business context is the fact that a shareholder who performs work for the company is strongly urged to draw a formal salary.  Therefore the entity must employ a payroll service or perform the extra administrative tasks associated with keeping track of payroll taxes. 

An LLC for instance, is not encumbered with this drawback, as its members do not (and in fact should not) draw a formal salary.

However, there are many other advantages and dissadvantages to both the S-corporation and LLC that a proper answer would require a carefull analysis of the business's industry, objctives and ownership.  A proper analysis would afford its owners with the maximum legal protection possible, while taking advantage of tax mitigation strategies open to each particular entity.

Please feel free to contact me for a further discussion.


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