How to form an S-corporation for Fashion and Apparel

Introduction

S-corporations are a type of business entity that can offer some tax benefits for small businesses. If you’re thinking about starting a fashion brand or an apparel startup, it’s important to understand how S-corp formation works as well as its limitations.

S-corporations provide tax advantages

S-corporations are pass-through entities. This means that they don’t pay corporate income tax and are instead taxed on their net income at the personal income tax rate of their shareholders.

A benefit of being an S Corporation is that you can avoid double taxation because you only pay taxes once: on your personal income tax return. As an owner or officer of an S corporation, you would report your share of profits from the business (called “distributive share”) as part of your taxable income for that year.

S-corporations are not a legal entity

An S corporation is not a legal entity, nor is it a partnership or LLC. A corporation exists as a separate person from its shareholders. In other words, the company itself — as opposed to the shareholders — is taxed. The shareholder-employees of an S corporation are not employees of that business but independent contractors who provide services and sell products to customers on behalf of the company.

That’s why it’s important to understand that while you may be operating your company out of your apartment or office space and using personal equipment, you are technically an employee of your own company!

You can be an independent contractor and form an S-corporation

This is because you don’t have to pay the employer side of Social Security and Medicare taxes on your self-employment income. Instead, you pay the employee side of these taxes on your W2 that gets issued at the end of the year. However, if you have employees (even if they are also contractors), then you will be required to pay both sides of these taxes on their wages as well as yours.

Another benefit from forming an S corporation is that it allows one person in his or her own name without having any liability for anyone else in his or her company – unlike some other types of businesses such as LLCs where each member has personal liability for all debts incurred by this entity unless otherwise stated in their operating agreement with each other beforehand before filing articles with state officials which could lead into legal implications if not planned properly beforehand before starting out this type business structure!

Forming a fashion startup as a corporation can be expensive

If you’re looking to form a fashion startup as an S-corporation, it will probably be necessary to hire a lawyer. That’s because the process of forming a corporation is complicated and requires the assistance of someone who has experience in this field. Additionally, you’ll need to pay that person for their services and expertise.

Founder’s Agreement

In the world of fashion and apparel, a founder’s agreement is an important document used to set up an S-corporation. The founder’s agreement defines how the company will operate and what responsibilities each founder has. It should include a buyout clause that details how to exit the business if one of the founders leaves. As with any contract, it’s important that all parties sign this document before moving forward with forming an S-corporation.

Shareholder Agreements

A shareholder agreement is an agreement that sets out the terms and conditions of your business. It establishes how profits, losses, dividends and other distributions are shared among the shareholders. It also details what each party must do when it comes to making decisions or taking action on behalf of the company.

The main benefit of having a shareholder agreement is that it helps prevent disputes between partners over who owns what, who has control over certain decisions and who makes critical decisions as part of their job description within the company structure.

• Disadvantages: While having an effective S corp formation document can help solve many issues before they occur, sometimes even with a solid plan in place things can go awry—especially if one partner ends up not holding up his/her end of their bargain!

You should talk to a lawyer about forming your company before you make any decisions about legal structure

It’s a good idea to consult a lawyer before you make any decisions about legal structure. You need to understand the implications of each decision and be clear about what you want your business to look like.

In addition, if your company is going to have employees, it may be helpful for you or someone else on your team (like an accountant) to understand how different types of entities will affect the tax liability of those employees.

Conclusion

There is much more to forming a fashion startup as a corporation, and we encourage you to talk to a lawyer before making any decisions about legal structure.