business associations questions (c) 2014 william h. widen

A Subchapter S Corporation Detour

No feedback is yet provided for these questions. LOOK UP RELEVANT PROVISIONS IN THE INTERNAL REVENUE CODE, 26 U.S.C. s. 1361

Hint: a link to the relevant IRC section appears on the Helpful Links Page!

Reasons for a Subchapter S Detour

The subchapter S corporation is no longer the business entity of choice for small businesses. Most new small businesses will instead form as limited liability companies. So, why bother students with the details of subchapter S status? There are two reasons. First, the practical reasons that bar review courses continue to require students to learn something about subchapter S corporations. This is, presumably, because the bar review courses think that a state might ask subchapter S questions on a bar exam. This is true in Florida, for example. Second, and more importantly for pedagogical purposes, looking at a few of the subchapter S rules early in a Business Associations class gives students exposure to the types of complex statutory schemes that often impact business organizations. The patient student who is a careful reader can easily answer these "detour" questions by simply looking at the relevant staturory sections. You can easily see how a bar examiner might create technical "gotcha" questions AND how carefully a corporate lawyer may need to read! Lastly, a short and quick review of some of the subchapter S rules may give you some idea of why the subchapter S corporation is no longer the business organization of choice for achieving pass-through tax status.