How to Set Up an S Corp
The act of forming an S corporation establishes your business as a separate legal entity. S corporations are set up in the same manner as C corporations. One of the biggest benefits of forming an S corporation is the ability of the share owners to pass their portion of business profits and losses to their personal income tax return. S corporations are limited to a maximum of 100 shareholders, all of whom must be residents or citizens of the United States.
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Instructions
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Create a business name for your S corporation. The name you select for your S corporation can't be in use by another company in the same state. You may contact your secretary of state's office, or conduct an online name search to find out if a business name is in use. Unlike regular corporations, S corporations aren't required to use the words corporation, limited, company or incorporated at the end.
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Pick a state where you wish to incorporate. Popular states for incorporation include Delaware and Nevada, due to favorable tax laws for businesses. However, in most cases, it's a good idea to form a corporation in the state you intend to operate in. For example, if you choose to incorporate in Delaware while operating in Illinois, you'll still need to register in Illinois as a foreign corporation. This means you'll be responsible for annual fees and any applicable taxes in both states.
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Elect a board of directors. Directors are responsible for establishing budgets, managing resources, and governing the corporation. If an S corporation has one owner, that person will be listed as the director of the company. In larger corporations, an owner may or may not serve on the board of directors.
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File articles of incorporation at your secretary of state's office. List the names and addresses of the company's directors. The fees to file articles of incorporation vary from state to state. In addition, most states require a corporation to publish a notice of incorporation with their local publication for 3 to 4 consecutive weeks. This is achieved by taking out an ad in the local newspaper where you're incorporating your business. Your notice of incorporation should include the name and address of your S corporation.
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Establish your corporate bylaws. Corporate bylaws refer to the manner in which your S corporation is to be run and operated. In addition, the bylaws of a corporation may include the place and time of meetings, director qualifications, and compensation of corporate officers.
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Submit form 2553 to the IRS. Form 2553 is a small business election granted by the IRS. This form should be signed by all shareholders of the S corporation. Additionally, you must file with the IRS to obtain a tax ID number for your corporation. A tax ID number is also known as an employer identification number, or EIN. A tax ID number is the number the IRS uses to identify your business for tax purposes.
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Obtain any licenses and permits needed to run your S corporation. Depending on your type of business, you may be required to obtain certain federal, state or local licenses to operate your corporation. For example, if your business gives investment advice to clients, you'll need to acquire the proper license from the Securities and Exchange Commission.
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