How to Create an S Corp
An S corporation is the most widely used type of corporate structure for small businesses. S corporations create a number of structural advantages for shareholders, particularly tax-exempt status. The profits of an S corporation are not taxed by the federal government but are passed through to the shareholders, who claim their share of this income on their personal tax form. As a result, S corporations avoid the double taxation that larger companies face. Starting an S corporation is a relatively straightforward process once you have the necessary forms.
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Instructions
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Create a shareholder agreement between you and the other shareholders in the company. The shareholder agreement is an important legal document that will help prevent costly shareholder disputes in the future. Discuss the shareholder agreement with your lawyer throughout the drafting process to ensure the resulting agreement is comprehensive.
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Fill out a Certificate of Incorporation and file it with the Secretary of State in the state where you will incorporate your business. Your company can incorporate in any state you choose. Some states also require you to submit your shareholder agreement along with the Certificate of Incorporation.
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Fill out IRS Form 2553, which is titled Election by a Small Business Corporation. Select S corporation status on this form when completing it. You can obtain Form 2553 by contacting the IRS or by downloading it from the IRS' website.
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Pick the month in which you would like your company's fiscal year to end, and include this information on Form 2553.
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Send your completed form to the IRS office in the state of incorporation.
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Tips & Warnings
Make note of your Employer Identification Number, which you will receive from the Secretary of State, and include this number on your IRS Form 2553.
Remember that small corporations can only maintain S corporation status if they meet certain requirements: the corporation must have no more than 75 shareholders, only one class of stock is permitted, all shareholders must be U.S. residents, and all shareholders must be individuals and not other corporate entities. Should your company fail to meet any of these requirements, your company will automatically lose S corporation status, and you will be subject to federal income taxes.
