Are Tax Forms Enough?

In response to the article, “Stumbling Past April 30…“, that appeared in the June 2009 issue of another Two Cents, a re-occurring question has surfaced.

another Two Cents | Vol 3 Issue 6

To comply with most states’ statutory corporate reporting requirements, as discussed in that article (annual financials must be disclosed to shareholders), it seems many are operating under the assumption, or erroneous advice, that by tendering a copy of the current 1120s, the S-corporation’s functional equivalent to the famous 1040 federal income tax form, to current shareholders is sufficient compliance. It is not.

The 1120s is deficient in a variety of ways because it only reveals a skeleton version of net profit or loss. It lacks all the substantive information stockholders in a corporation need to understand and are entitled to know. To name a few: what assets exist, what obligations are due, what debt was retired or incurred, who holds what corporate position, what was the year’s business like and what are the business plans for next year. A number, profit or loss, no matter how it is calculated or presented says too little to comply.

The S-corporation offers strong benefits to its owners. With those perks comes certain responsibilities. Among them is keeping shareholders advised, in writing, of the company’s business and financial outlook. They are, after all, the owners of the company.

Your S-corporation will serve you well if you take care of the foundation on which it is built. If you need help with annual financial reporting or other S-corporation issues, contact JACS.