Q: Does an S Corporation protect your personal assets? It has become obvious I need help with this. Any ideas you have would be very much appreciated.
A: Generally, yes, a corporation will protect the business owner’s personal assets. The “S” in “S Corp” is merely a way of designating the way in which the corporation will be taxed.
However, there are circumstances where people can come after the business owner personally, despite operating as an S Corp. They include:
- Payment of payroll taxes
- Payment of sales taxes
- Failing to maintain certain corporate formalities–for example, not having a separate bank account for the business, not preparing annual minutes for the corporation, not issuing stock certificates, inadequate capitalization or siphoning the assets from the corporation in a way that leaves it unable to pay its debts.
There are other entities (like an LLC) that can protect your assets, too–again, provided you follow the formalities. But asset protection is not the only reason to choose an entity. Speak with your attorney and your accountant to figure out which form would best meet your needs.