1. What Is an S Corp?
2. How to Form an S Corp

Setting up an S Corp requires submitting a form with the IRS that will provide your company with this beneficial tax status. 

What Is an S Corp?

When an S Corp is formed, it creates a legal separation between the owners of a business and the business itself. The owners of an S corporation are called shareholders. If you want to operate your business as an S Corp, you do so by filing a form with the IRS. Once S Corp status has been granted, you will be able to avoid double taxation. This means that only the shareholders of the corporation will be taxed.

S corporations are companies that choose to be taxed under IRS Code Subchapter S. This section of the IRS code provides S corporations with some partnership tax benefits.

There are four restrictions you should consider before electing S Corp status:

  1. S corporations must have less than 100 shareholders.
  2. S corporations must be domestic businesses.
  3. S corporation shareholders can only be US citizens or permanent residents.
  4. S corporations can only have a single class stock. 

How to Form an S Corp

If you follow a few simple steps, you should be able to form your S Corp. First, there are multiple factors that you should consider, including:

  • Where your employees will be hired
  • Where your business bank accounts will be kept
  • Where your company will accept orders
  • Where your physical location will be

After you have decided these issues and chosen the state where you will incorporate your business, you need to make sure your desired company name is available in this state. The easiest way to do this is to research registered business names with the Secretary of State.

Wherever you form your company, the name that you choose should be wholly original, meaning it couldn't possibly be confused with the name of another business. If you've already named your business, you will need to add a descriptor such as “Inc.” when forming your S Corp. If you've chosen a business name that is different from your actual name, you will need to submit a Doing Business As (DBA) form in the county where you will operate. This is also known as a fictitious business name form. After choosing a business name, you will need to make sure your Articles of Incorporation are ready to be filed with your state.

You must file Articles of Incorporation in the state where you are setting up an S Corp. Choosing to file in your home state is a good solution, as this limits the need to file in multiple states. However, if you already do business nationally, incorporating in a state such as Delaware, which is business-friendly, is a good idea. Later, you can register in other states if you need.

If your company doesn't exist yet, there are several steps you can take to start your corporation, including:

  • Naming shareholders and securing an office address
  • Naming a registered agent
  • Deciding how many shares will be issued by your company

After these steps have been completed, you can acquire an Articles of Incorporation form and then fill it out based on the rules in your state. Generally, an Articles of Incorporation form is a very simple document, but there are slight differences from state to state, so you need to be sure you're filling out the form correctly. Once the form is complete, it must be signed by all shareholders of your company and then submitted to your Secretary of State. You also must pay any required fees.

Now you need to develop your corporate bylaws, which will describe how your company will be run, as well as the duties of your company's officer. Many states don't require a corporation to have bylaws, but having these rules in place can be important for your company records.

When you're developing your corporate bylaws, you should make sure to include steps for governing your corporation, including:

  • Describing what decisions need shareholder input
  • How you will let shareholders know a meeting is taking place
  • The number of directors your corporation will have

You don't need to file your corporate bylaws in your state, but you should keep them in your company records, as they may be needed if your corporation is involved in litigation.

If you need help setting up an S Corp, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.