Set Up an S Corp: Everything You Need to Know
The steps to set up an S Corp include the following.3 min read
The steps to set up an S Corp include the following:
- Incorporate your business.
- Meet eligibility requirements.
- File form 2553 with the IRS.
- Gain S Corp status.
Incorporating Your Business
Decide which state you'll incorporate in. Once you do that, choose an available business name in that state. Your company name has to be unique and distinguishable from existing names.
You'll have to file Articles of Incorporation with the state. These are usually one-page documents. The information you'll include in them may differ slightly from one state to the next. Your articles must include the following:
- Your business name and address
- The purpose of your business
- The amount of shares your company may issue
- Your registered agent's name and address
- Incorporator's name and address
Include a designator in your business name that identifies it as a corporation, such as Incorporated, Inc., Corp., Company, or Co. Send in your articles with any applicable fees to the state, or file online if desired.
After your articles are filed, draft corporate bylaws, which will detail the following:
- How your corporation will be governed
- Which business decisions the shareholders will make
- Notification rules for shareholder meetings
- The number of directors your corporation will have
- Other governance issues
You generally don't have to file your bylaws with the state, but it's recommended to have them for your own records.
Keep minutes at all shareholder and director meetings. Minutes keep records of important business decisions made in your meetings. These decisions may include appointing officers and board members, as well as approving key resolutions.
You may need to obtain local and state permits, depending on your business and city and state requirements.
Following are requirements you must meet to be eligible for S Corp status:
- Be a domestic corporation
- Issue just one class of stock
- Have a max of 100 shareholders
- Have unanimous shareholder consent to S Corp election
- Have eligible shareholders, i.e. individuals or certain trusts and estates
- Have or be willing to adopt an approved tax year
Once your business is legally incorporated, you're officially operating a corporation. As long as your corporation meets the eligibility requirements, you can elect S Corp status. You do this by filing form 2553 with the IRS.
This form provides the government with basic information about your corporation, including the following:
- State of incorporation
- Corporation name and address
- Incorporation date
- Corporation fiscal year
You have the following timeline restrictions for making the S Corp election:
- You must elect within 75 days of the beginning of your tax year.
- If you elect after 75 days of the start of the tax year, the election will take effect the following year.
- You can request a late election if you can show a valid cause for not filing on time.
Be sure to carefully follow all directions for completing form 2553. Signatures of all of your corporation's shareholders must be included, and you must choose which tax year you'd like to operate under. There's no fee to file the form. Once completed, send it to the appropriate office based on your business's principal location.
Your company will be recognized as an S Corp in many states for state tax purposes as long as you file the appropriate documentation. Within 60 days of making the election, you'll find out if your application was approved. If you requested a tax year other than approved ones due to “business purposes,” it may take an additional 90 days for your application to be approved.
Once you're approved for S Corp status, it remains in effect until it's revoked or terminated.
After incorporating your business, electing S Corp status isn't especially difficult. To be sure you're making the best decision for your company, consider consulting with a tax and/or legal professional. Some small businesses are better suited to this election than others. While the tax benefits are often a deciding factor, you should also think about the goals you have for your company, especially concerning growth and investment opportunities.
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