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Rachel Smith Thrifty Furniture, Filed 2004
-Rachel Smith Thrifty Furniture, Filed 2004

S-Corporation

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Overview

An S-Corporation is based off of a C-Corporation. Like a C-Corporation, an S-Corporation is a separate legal entity from the owners, who are also known as shareholders. This provides limited liability protection to its shareholders who are generally not held responsible for business claims, debts and liabilities.

However, an S-Corporation is not a separate tax entity from its shareholders. Instead, the business’s income/loss “passes through” on the owner’s personal tax returns. All taxes owed are paid at the individual level instead of at the corporate level.

Why an S-Corporation is right for my business

You may choose to file an S-Corporation for the following benefits:

  • Limited Liability Protection- An S-Corporation limits your personal liability to no more than the amount of the original investment. Therefore, shareholders of an S-Corporation cannot be held personally liable for business claims, debts, or other liabilities.
  • Management- Three components makeup an S-Corporation: shareholders, directors and officers. An S-Corporation does have ownership restrictions.
  • Easy Transfer of Ownership- Through the sale of stocks an S-Corporation can easily transfer ownership.
  • Raise Capital Easily- In an S-Corporation selling shares of stock makes raising capital easy.
  • Tax Savings- S-Corporation’s business expenses are frequently tax-deductible. Shareholders are treated as employees of an S-Corporation making them able to take advantage of “Self-Employment Tax Savings.” An S-Corporation is commonly audited less than sole proprietorships.
  • Perpetual Existence- Corporations have an unlimited life whereas an S-Corporation does not and must be dissolved in order to no longer exist. The existence of the shareholders does not affect the existence of the S-Corporation.
  • “Pass-Through Taxation”- Corporation’s profits and losses are “passed through” to the owner’s personal tax returns. Taxes are paid with the individual tax rate and at the individual level.

Why an S-Corporation may not be right for my business

You may want to look into filing a different entity type for the following reasons:

  • Extensive business maintenance- An S-Corporation, just like a C-Corporation, has the most extensive record keeping and formality requirements of any other business type. This includes: issuing shares of stocks, holding and documenting annual and initial meetings.
  • S-Corporation Owner Restrictions- Owners (Shareholders) have an obligation to number under 100. Shareholders cannot be another corporation, LLC, partnerships or trusts; they are required to be either a US citizen or US resident.

Final Step to Filing an S-Corporation

After you have filed the Articles of Incorporation and paid all the applicable state fees, an S-Corporation election form (IRS Form 2553) must be filed with the IRS. This form must be completed and filed no later than 75 days after the corporation has:

  • Issued stock to shareholders
  • Acquired assets
  • Conducted business as a corporation

iCorp can file the IRS Form 2553 on the business’s behalf during the order process.

How It Works

Now that you have decided an S corporation best fits your business needs, here is how it works:

  • Select a name and we will check to see if it is available.
  • Choose the state where you wish to file your entity.
  • Determine whether or not you wish iCorp to acquire your EIN and perform the Registered Agent Service.
  • Allocate corporate officers.

These four tasks can all be accomplished by filling out our fast and easy filing application. The fees associated with each product and service will be listed in your order summary and throughout the application.

Our online application will track your status as you proceed and will also save all the information populated page by page.

After the application has been submitted you will receive a confirmation e-mail with your order status and summary.

If we have questions or concerns, we simply give you a follow up call to clarify.

Again, help is only a phone call away. Give one of our knowledgeable representatives a call to assist you with your order: 1-866-689-3989

What Is an S-Corporation?

An S-Corporation is a special form of corporation (Note: The “S” in S-Corporation refers to sub chapter S of the tax code). The formation requirements for an S-Corporation are the same as those for a C-Corporation. Incorporation documents, typically called the Articles of Incorporation or Certificate of Incorporation, must be filed with the appropriate state agency and the necessary state filing fees must be paid. An S-Corporation is a corporation that has elected a special tax status with the Internal Revenue Service (IRS). After the incorporation with the state is complete, the corporation applies for an S-Corporation status by filing Form 2553 with the IRS.

What Are the Disadvantages of an S-Corporation?

  • Extensive business maintenance
    In order to stay compliant with the law and maintain corporate status, ongoing paperwork must be compiled and completed. Also, holding annual corporate meetings and registering meeting minutes must be performed.

Additional Restrictions:

  • S-Corporations must have shareholders who are US Citizens or US Residents.
  • S-Corporations number 100 or less shareholders.
  • S-Corporations can only have one class of stock (cannot be C-Corporations, other S-Corporations, limited liability companies (LLCs), partnerships or certain trusts).

What Are the Advantages of an S-Corporation?

  • Limited personal liability
    Having a S-Corporation limits your personal liability to no more than that of the original investment. The shareholders (owners) of a corporation cannot be held personally liable for business claims, debts, or other liabilities.
  • S-Corporations typically provide a number of advantages:
  • Unlimited owners.
  • Unlimited entity life.
  • Easy transfer of ownership (through the sale of stock).
  • Raise capital more easily (By selling shares of stock).
  • Increased credibility.
  • Lower audit risk (corporations are audited less frequently).
  • Tax deductible expenses.
  • Self-employment tax savings.

Does Forming an LLC (Limited Liability Company) or Corporation Require an Attorney?

No, an attorney is not needed to file your business nor is it a legal requirement. By filing your company with us, we allow you to avoid getting billed exorbitant legal fees. With that said, we do not offer legal advice, and we may advise you to speak to an attorney as we deem fit.

What Is a Registered Agent and Do I Need One?

Almost every state requires a corporation or an LLC to maintain a Registered Agent. The Registered Agent address accepts legal and official documents including but not limited to: franchise tax notices, annual reports, official legal notices (such as a court summons), and more on your company’s behalf. If a Registered Agent is not designated, this may infringe on the company’s ability to gain access to state courts and legally enter into contracts.

Are Non-U.S. Residents Allowed to Own a Corporation or LLC?

No citizenship or residency requirements exist when filing an LLC or C Corporation. An S Corporation restricts non-US residents from being the owner, but any resident alien may be the owner (shareholder).

What Are the Differences Between Officers, Directors and Shareholders?

Three components make up a corporation: officers, directors and shareholders. Each component serves a fundamental role in the corporation. Shareholders elect the Directors and are the owners of the corporation. Directors make the primary decisions of the corporation on behalf of the shareholders and elect the Officers. Officers run the day-to-day operations of the corporation. These components of the corporation can be fulfilled by one person or can be divided.

What Are Bylaws?

Bylaws are not filed with the state, but instead are internal documents containing guidelines for holding corporate meetings. Bylaws are also used to fulfill formalities in accordance with state corporate laws.

How Many Shares of Stock Will My Corporation Need?

Your Articles of Incorporation sets the number of initial shares issued. The number of shares issued is more or less arbitrary and completely up to the shareholder (owner).

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