How Do I Create an S Corp?

Starting an S Corporation (S Corp) can be a smart move for small business owners looking to save on taxes and protect personal assets. This guide will break down the steps to create an S Corp and answer common questions to help you get started.

What is an S Corporation?

An S Corporation is not a business entity but a tax designation available to certain corporations and limited liability companies (LLCs) that meet IRS requirements. As a pass-through entity, an S Corp allows income, deductions, and credits to “pass through” to shareholders, avoiding the double taxation that traditional C Corporations face.

Steps to Create an S Corporation

1.Choose Your State of Incorporation

Decide where you want to incorporate. While many businesses incorporate in their home state, some choose states like Delaware or Nevada for their business-friendly laws.

2.Name Your Business

Select a unique name that complies with your state’s rules. Typically, the name should include identifiers like “Inc.,” “Corporation,” or “Corp.”

3.File Articles of Incorporation

Present your Articles of Incorporation to your state’s Secretary of State. This document includes your business’s name, address, and purpose. If you’re forming an LLC, file Articles of Organization instead.

4.Get an Employer Identification Number (EIN)

Apply for an EIN from the IRS. This number is essential for tax filing, hiring employees, and opening a business bank account.

5.Elect S Corporation Status

To choose S Corporation status, submit Form 2553, Election by a Small Business Corporation, to the IRS. Make sure all shareholders sign the form and submit it within 75 days of incorporation or by the start of the next tax year.

6.Create Corporate Bylaws

Draft bylaws that outline how your S Corporation will operate. These rules typically cover decision-making processes, shareholder meetings, and record-keeping requirements.

7.Hold an Initial Meeting and Issue Shares

Hold your first organizational meeting, appoint directors, and distribute stock certificates to shareholders.

8.Stay Compliant

Meet ongoing requirements like filing annual reports, keeping accurate records, and holding regular shareholder meetings to maintain good standing.

State-Specific Considerations

How Do I Set Up an S Corp in Florida?

To form an S Corp in Florida, file Articles of Incorporation with the Florida Division of Corporations, pay a filing fee, and follow state-specific naming rules. Then, to choose S Corporation status, submit Form 2553 to the IRS.

How Do I Set Up an S Corp in California?

In California, you’ll file Articles of Incorporation with the Secretary of State, pay an annual franchise tax, and submit a Statement of Information. Don’t forget to file Form 2553 with the IRS.

S Corp vs. LLC

An S Corporation is a tax election, while an LLC is a legal entity. LLCs are easier to manage and offer flexibility, while S Corporations provide tax savings on self-employment taxes for certain income.

S Corp vs. C Corp

The main difference is in taxation. S Corporation avoid double taxation because income passes through to shareholders, while C Corps are taxed at both corporate and individual levels.

S Corp Taxes Simplified

S Corporations are exempt from corporate federal income tax. Rather, shareholders receive profits and losses, which they then record on their individual tax returns. Shareholders can also reduce self-employment taxes by taking a reasonable salary and classifying the remaining income as distributions.

S Corporation Requirements

In order to be eligible for S Corporation status, your company needs to:

Be a domestic corporation.
Have no more than 100 shareholders.
Include only eligible shareholders (individuals, certain trusts, and estates).
Issue only one class of stock.

Form 2553 S Corporation

Form 2553 is the document you’ll file with the IRS to elect S Corp status. You can download it from the IRS website and submit it within the required timeframe.

S Corporation Examples

Many small businesses—consultancies, real estate agencies, marketing firms—opt for S Corp status to save on taxes while maintaining liability protection.

How to Check S Corp Status Online?

To verify your S Corporation status, contact the IRS or check your business’s standing on your state’s Secretary of State website.