How to Open an S Corporation

Like all companies, S corporations must obtain all relevant business licenses and permits.

According to the Internal Revenue Service, S corporations are "corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes." S corporations offer several distinct advantages over other types of businesses. First, there are cost savings due to the fact that only the wages of shareholders who are employees are subject to employment tax. Second, there are tax credits available: Some of your incurred expenses can be written off as business expenses. Lastly, S corporations allow businesses to lead an "independent life," which means if a shareholder leaves the company or sells his shares, the company can keep doing business relatively undisturbed.

Things You'll Need

• Form 2553
• State license and permit forms

Instructions

1. File your business as a corporation. Register your business as a corporation by first registering your business name with the IRS. Then fill out an articles of incorporation form at your state's secretary of state office. States have different legal requirements for starting a corporation, so check with your secretary of state for details. For example, many states require that corporations name company directors and issue stock certificates to initial shareholders during the process of registering the corporation.

2. Get an employer identification number, which is a federal tax identification number that's used to identify a business entity. Corporations must file an EIN with the IRS by calling 800-829-4933.

3. Make sure your business meets the required criteria before filing for S corporation status. To become an S corporation, your business needs to be located in United States, have no more than 100 allowable shareholders, have only one class of stock and cannot be an ineligible corporation, such as a bank, insurance company or other financial institution.

4. File Form 2553 so your corporation can become an S corporation. Fill out all the election information, which includes your business information, EIN, selected tax year and name and title of the chief legal contact in your company. The form must be signed by all shareholders of your corporation before you file. Lastly, you can designate beneficiary and trust information if you choose.

5. File for the necessary licenses and permits required within your state. Go to the U.S. Small Business Administration's website and use its Business Licenses and Permits search tool to find applicable licenses and permits.

References

• Internal Revenue Service: S Corporations
• Business.gov: S Corporation

Resources

• U.S. Small Business Administration: Business Licenses and Permits
• U.S. Small Business Administration: Business Name Registration (Doing Business As)