To start with, S Corp, which is also known as an S Corporation is a type of business structure, which makes the businesses completely different legal entities from the owners. Here the owners are popularly known as shareholders and one can elect to operate the S Corporation through IRS. Here only the shareholders are taxed and not the corporation.
While most of the smaller businesses consider some other formats, but forming the S Corporation can give a business the best of pass through the corporate benefits and taxation. Besides, by forming an S Corp, a business can also protect itself by the LLC. But starting an S Corporation is not that difficult as the Incfile reviews can be your guide in this case.
Here is how to form an S Corporation:
To create the structure an S corporation, it is necessary to form a corporation first in any state as per the corporation laws of that state. This thing includes selecting the corporate name, drafting articles of the incorporation, registering that corporation with the secretary of the state of incorporation, organizing the corporate bylaws, choosing the directors, arranging the first meeting of the board of directors and then issuing stock to the shareholders of that corporation. But this process mostly varies from one corporation to another or from one state to another.
But it is important to remember that not all the corporations under the state law qualify for the S Corp status. To be eligible for electing the status of electing this status, a corporation should:
- It should have just one class of stock
- The corporation must not have more than 100 shareholders
- Besides, the corporation should have estates, individuals or some exempt organizations and trusts as the shareholders. But no nonresident alien should be added as the shareholder.
The next step of becoming an S Corp is by filling the S Corporation election with IRS. The election is mainly made on the IRS Form 2553. This should be signed properly by every shareholder and therefore should be filed on time (within 2 and ½ months of setting up the business or within 2 and ½ months of the new tax year). In case any of the shareholders reside in any community property state, then the spouse of the shareholder should also sign the form. Then the IRS will accept or deny the election and the result will be notified in writing. Besides, in some cases, the local and state tax agencies may need the companies to file some added forms. One should check with the state to learn about the specific requirements.
Responsibilities of S Corp:
Although there are a number of benefits of setting up and having an S Corp, here the business owner will have more responsibilities than the owners of the partnership businesses or sole proprietorship. So, the S Corp owners should file reports every year with the state showing losses and profits. Besides, these business owners should also pay some franchise taxes.