1. What Is a Corporation?
2. The Downsides of Forming a Corporation
3. S Corporation
4. The Disadvantage of an S Corporation
5. Forming an S Corporation

Wondering how to form a corporation in Oklahoma? Begin by filing articles of incorporation with the Oklahoma secretary of state. The moment the articles of incorporation have been filed, processed, and approved, the corporation is legally formed.

What Is a Corporation?

A corporation, like any legal entity, can be taxed, can be sued, and can be a contractual partner. Any corporation licensed by a state where it is headquartered is seen by the law as a unique entity separate from its owners.

The shareholders own the corporation. Its shareholders set up a board of directors to administer its major policies and decisions.

A corporation's shareholders have limited liability for its debts or business decisions. Typically, the risk of shareholders is limited to their investment in the company's stock. The only exception is the corporation's officers, who can be held responsible for their administrative actions (or inactions), such as failing to fulfill the corporation's tax obligations.

The Downsides of Forming a Corporation

The disadvantages of forming a corporation may include:

  • The incorporation process typically taking longer.
  • It is more expensive than other kinds of organization formation.
  • The federal government, state governments, and some local governments all monitor corporations. As a result, forming a corporation may take more paperwork in keeping with various regulations.
  • Forming a corporation can lead to higher taxation.
  • Dividends distributed to shareholders aren't deductible from the income of the business, which makes them liable to double taxation.

S Corporation

An Oklahoma S corporation is only a regular corporation that converts into an S corporation when its owners file for special taxation with the Internal Revenue Service (IRS). They submit Form 2553 after submitting all required documents to the government of its home state.

The status of an S corporation gives an entity the protection from liability that a corporation has. In addition, it permits the entity to pay taxes like a sole proprietor or a partnership. That means the owner of an S corporation pays taxes at the personal level (not the corporate level) and his or her salary is the profit. With S corporations:

  • The number of shareholders can't exceed 75.
  • Every shareholder must be a U.S. citizen.
  • Shareholders must be individuals, not other corporate entities or estates.

Tax-exempt, charitable organizations are the only exception. Many tax and legal professionals suggest S corporation status for small companies, especially startups. That's because it provides them with protection from liability and lowers their tax load.

If their business suffers a loss in its initial year, the loss can typically be passed through to their income tax return at the personal level. S corporations offer several other tax benefits as well. One of which is the ability to deduct the interest you earned and purchased an S corporation stock with, which is also known as investment interest expense.

There are different tax laws for different states. Your state's tax division's treasury department will inform you of how S corporations pay their taxes. It's also recommended to consult your tax advisor or accountant.

The Disadvantage of an S Corporation

An S corporation has the disadvantage of having a limit to the number of deductions it allows its owners to make for fringe benefits, such as:

  • Insurance
  • Health
  • Deferred compensation plans
  • Group term life insurance.

A C corporation can make these deductions for the benefit of all shareholder-employees. However, an S corporation can't for a shareholder-employee whose share is 2 percent or more of the corporation's stock.

Forming an S Corporation

A limited liability company (LLC) can be used to form an S corporation. LLCs don't need standard board meetings or meetings of stockholders, which makes them substantially easier to run.

To create an LLC, submit the company's articles of organization with a fee of $100 to Oklahoma's secretary of state. If an LLC isn't your preferred organizational structure to form an S corporation with, you can use a conventional corporation.

To create an S corporation from a regular corporation, you first have to create a corporation by submitting a certificate of incorporation (or articles of incorporation) with a filing fee of $50 to the Oklahoma secretary of state. Then, you'll have to apply for an Employer Identification Number (EIN) by submitting an SS-4 form to the Internal Revenue Service (IRS).

You can find a downloadable version of the SS-4 form on the website of the IRS. After acquiring an EIN from the IRS for your company, you can file for S corporation status.

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