How to Start a Type S Corporation
An S corporation is a type of corporation that allows business owners to pass any business losses through their personal federal income tax return. If the S corporation makes a profit, that also passes through the owners personal federal income tax return. An S corporation allows the company profits to avoid double taxation, which occurs with C corporations. Starting a type S corporation is something that you can do on your own, or with the assistance of a business attorney.
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Instructions
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Select a business name to use for your S corporation. Contact your secretary of state to do a business name search to see if the name you want to use is available. If the name is already taken, you must choose another. Some states have a business name search option on their secretary of state website. If you are not starting the business immediately, you can file a business name reservation to hold onto the name. The fee for this varies by state but averages around $20 as of February 2010.
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Choose a state in which to incorporate your business. You can use the state in which you are currently, the state where you plan to do business, or you can choose a state that has better corporation laws. According to FindLaw.com, Delaware is a popular state in which to incorporate as it has corporation laws that are friendly to businesses.
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Appoint directors for your S corporation as required by law. There is no set number of directors that you must have and the amount typically depends on the size of the business. You can even have just one director. It is advisable to have an odd number of directors for voting purposes. The directors set the corporation's business path.
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Create the articles of incorporation, by-laws and shareholder agreement if you have shareholders. The articles of incorporation are the charter for the S corporation and can be prepared by a business attorney if you do not want to do it yourself. Some state's secretary of state websites have forms for the articles of incorporation that you can fill out. The by-laws are simply the standard operating procedures for the S corporation. Submit these documents to your state's secretary of state with the required incorporation fee, which varies by state.
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Download IRS Form 2553 from the IRS website. On this form you need to select S Corporation tax status and return the form to the IRS using the address on the form instructions. Once you have done this, you can get your business licenses if your city or state requires them, and your business checking account.
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