subject: Incorporation 101: What is S-Corporation? [print this page] Retaining Profits of S-Corporation Retaining Profits of S-Corporation
S-Corporations (much like regular C-Corporations) are allowed to retain their net profits as operating capital. However, all profits are considered as if they were distributed to shareholders, and as a result shareholders might be taxed on income they never received (whereas a shareholder of C-corporation is taxed on dividends only when those dividends are actually paid out).
Converting S-Corp Back to C-Corp
S-Corporation status is not permanent and can be reversed back if so desired. For example, if the business becomes more profitable and there are tax advantages to being a regular C-Corporation, S-Corporation registration status can be dropped after a certain amount of time.
