How to Set Up an S Corporation

A small business or even a sole proprietorship can be registered as an S corporation (small business corporation). Doing so can help protect you from personal liability when it comes to business debts and obligations. There are other advantages, too.

Instructions

1. An S corporation does not pay taxes. Instead the profits or losses are distributed to the shareholders who then pay the taxes as individuals. S corporations have many benefits of both being a corporation and of being a small business.

2. Use the forms provided by your state and file your Articles of Incorporation with your state's secretary of state or use an on-line agency that can do this for you. There will be a fee.

3. Elect directors and appoint your officer(s). These positions can be filled by the same person. Again, the forms are standard.

4. Prepare by-laws -- information on the day to day operation of your business.

5. Calculate the shareholders basis and distribute shares to the shareholders. Keep all your papers and records together in a safe place.

6. Remember the S corporation is a separate entity from its directors, officers and shareholders. That keeps you and your business separate for tax advantages and some legal safety.

7. It is best to consult with a good business attorney and accountant when setting up an S corporation or any other legal business format. There are also sites on the Internet that can help.

Resources

• IRS S Corporation forms