Why S-Corporations Are Popular With Small Business Owners
Posted July 29, 2025 in Business Law
Small business owners have a narrow margin for error. One wrong choice could cost you money you can’t afford to lose. S-corporations are a solid choice for Colorado small business owners, as this structure avoids double taxation for the business owner and affords considerable protection of the owner’s personal assets from seizure in a lawsuit or for business debts.
The structure you choose for your enterprise offers benefits before you even open your doors. Our Lakewood, CO business formation lawyer can explain how an S-corporation makes the most sense for your enterprise, outlining how its benefits help protect your investment and everything you’re working hard to build. We’re giving you an overview of why S-corps are so popular with emerging enterprises in the Centennial State.
Tax Advantages of S-Corporations
S-corps, unlike C-corporations, aren’t subject to corporate income tax. Instead, the entity’s profits and losses are passed through to the business owner’s personal tax returns, which avoids the double taxation that may occur with C-corp owners.
By electing an S-corp business status, owners can strategically distribute their income between dividends and personal salary, which may lower their overall tax liability. Owners may be eligible for the Qualified Business Income (QBI) deduction and reduce their tax bill further.
Taking a portion of the business income as dividends, rather than salary, helps reduce the self-employment tax they may have to pay, which can be a considerable portion of their income.
Personal Asset Liability Protection
S-corporations offer limited liability protection for owners, akin to those of an LLC. Your personal assets are shielded, so if you lose a lawsuit or incur business debt you cannot repay, your home, personal vehicle, and bank accounts are usually safe.
This is because S-corporations are considered a separate legal entity, and as such, yours can enter into contracts, own property, and yes, be sued in its own name. So, the business is legally separate from you, even though you’re the owner. Be careful, though; there are instances when the owner of an S-corp can be personally sued. If you comingle your personal assets with those of the business, a court could consider that you “pierced the corporate veil.” In a worst-case scenario, a court could consider the S-corp as a “shield” and determine that you used the business to hide personal assets. Follow your business attorney’s guidance to avoid comingling your personal assets with business monies.
Considerations When Launching an S-Corp
There are some drawbacks for business owners choosing an S-corp. This type of business requires more formal business procedures than an LLC, including maintaining specially detailed records of business dealings and a requirement to hold regular meetings of stakeholders or investors.
If you’re considering taking your business public, an S-corp may not be the best choice, as the law limits the number and type of shareholders allowed. We also noted that an S-corporation offers valuable “pass-through” tax benefits, but this may lead the IRS to scrutinize your business and personal tax returns more closely.
As a business owner, you may find that an S-corporation’s benefits outweigh any potential drawbacks. Our Colorado business formation can help you with the initial set-up of your business and guide you through the business formation process. Call Volpe Law LLC today for a complimentary discovery call. Keep in mind, we are not tax lawyers. This blog is informational only. In addition to legal counsel, you will want to consult with qualified tax professionals prior to deciding on the best entity for your business!