s corporation

Two friends start businesses the same month. One opens a shop in Lagos, registers with the Corporate Affairs Commission, and pays company income tax on whatever the business earns, then pays personal tax again if she takes money out as a dividend. The other moves to Houston, sets up a small consulting company, and elects something called S Corporation status with the American tax authorities. His company itself pays no federal income tax at all. The profit walks straight through to his personal return, and he pays tax on it just once.

That is the whole trick of an S Corporation. It is not really a different type of company, the way a limited liability company is different from a sole proprietorship. It is a tax choice that certain small American companies can make, usually ones owned by a small number of people who are American citizens or residents. Instead of the company being taxed as its own person, the profit and loss get divided among the owners according to their shares and reported on their individual tax filings, avoiding the double taxation that regular corporations often face.

Nigerians in the diaspora bump into this term mostly if they set up a small business in the United States, perhaps a consulting firm in Houston or a hair braiding salon in Atlanta. An accountant might suggest S Corporation status specifically to save on tax, because owners can pay themselves a reasonable salary and take the rest as distributions, which are not subject to the same payroll taxes.

There is no equivalent box to tick for a Nigerian company. The Companies and Allied Matters Act and the Federal Inland Revenue Service treat a registered company as its own taxable person, full stop. So when you hear an aunty in New Jersey mention her S Corp while your own business back in Abuja pays company tax the ordinary way, know that you are both running businesses, just under two entirely different rulebooks.