S Corp Registration: Everything You Need to Know
S corp registration is an election made through the Internal Revenue Service to be considered for S corporation status.3 min read
S corp registration is an election made through the Internal Revenue Service to be considered for S corporation status. If the election is approved, the corporation is treated as a pass-through entity for federal tax purposes.
Overview of an S Corporation
As a small business begins to grow and enjoy success, the tax rate grows along with it. As a company experiences this growth and expansion, owners may consider forming an S corporation, or S Corp.
The advantage of an S corporation is the tax advantages it offers while preserving ownership flexibility.
To create an S corporation requires the owner(s) to file a set of Articles of Incorporation with the Secretary of State where the business will be located.
An S corporation functions in the same way as a C corporation in that the corporation does issue stock and it is governed like a corporation with officers, shareholders, and directors.
When it comes to protections, the shareholders (owners) are treated to the same liability protection afforded to shareholders in a C corporation. S corporation shareholders' personal bank accounts or personal assets cannot be seized to use as payment for business liabilities.
With a regular corporation, there is taxation at the corporate and individual level. This is referred to as double taxation. With an S corporation, this double taxation does not occur. When filing, the individual tax rate is used on the income or losses passed through to the shareholder(s).
To keep S corporation status, the corporation must maintain the following:
- The company is required to be a domestic corporation.
- The corporation can only have 100 shareholders or fewer.
- Only those eligible to be shareholders can be part of the S corporation.
- Only one class of stock can be available through the S corporation.
Steps to Register an S Corporation
Before starting the steps, you must determine which state will be the base point where the business is to be incorporated. Several things to consider include:
- The physical location of the business.
- The location where employees will be hired.
- Which location will be responsible for the company's bank accounts.
- The states the company will be doing business with.
Step 1. Business Name
Check with the Secretary of State (SOS) website for your area to determine if the business name you've chosen is actually available. Use the search option on the SOS website.
The name of the company should stand out from other businesses so there is little to no confusion. For those who already have a business name, once it is created as an S corporation, the addition of "Inc." or "Incorporated" will be added to the end of the name.
For business names other than an owner's actual name, a fictitious business name, also called a "DBA" or "doing business as," must be filed with the applicable county.
Step 2. Articles of Incorporation
Articles of incorporation are created and filed in the state in which the S corporation is to be formed. The articles are filed with the SOS.
It is standard for many businesses to choose their home state to incorporate a business. This provides the convenience of not having to make payments and file reports in multiple states.
For those businesses that have a national network, it is possible to incorporate in a business-friendly state such as Delaware and then register in additional states as needed to do business.
In the articles, include the name of the business plus either incorporated, corporation, company, or limited, or an abbreviation of one of these words.
State the number of shares of stock the corporation can issue.
Include the name and address of the registered agent and the names and addresses of the incorporators.
File the articles with the SOS and pay the applicable filing fee.
Step 3. Additional Steps
Prepare the bylaws that summarize the rules and operating procedures for the corporation. These are not required but recommended to have in your files.
Keep thorough corporate minutes of all meetings with the board and the shareholders.
Apply to the Internal Revenue Service for an Employer Identification Number (EIN).
Verify with the state if there are any state or local permits required to operate the business.
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