A 7-Step Guide to Starting an S Corporation

If you are considering starting your own business, why not go for an S corporation? An S corporation is a small business with special tax treatment from the Internal Revenue Service (IRS).

Setting up this type of business involves simple steps, like choosing your business name and registered agent, filing articles of incorporation, and electing your business as an S corp. You can turn to a document filing service provider like Swyft repositories who can file documents for you.

Why form an S Corp?

An S corporation is a corporation taxed as a flow-through entity. This means that the company does not have to pay income tax and that its profits are passed on to shareholders in the form of wages or dividends. For this reason, S corporations tend to be more tax efficient than other forms of business, but they can also be more expensive to operate and manage.

An S corporation may be the best choice for your business if you have fewer than 100 shareholders or if you plan to reinvest most or all of your profits back into the business since you are looking for capital gains rather than dividends.

Read on to learn how to start an S corporation:

Before you can apply for S corporation status, you will need a business name. The IRS will check your business name to make sure it meets their guidelines. If the agency finds a potential violation of these rules, they will send you an approval letter and ask you to change your business name before beginning operations.

Avoid choosing a generic term in your name (e.g., “coffee” or “food truck”), as this could lead to branding issues down the line. Also, legal fees are not cheap.

Your new business name should include all relevant information about the organization, such as its location, industry, and purpose of operation. However, remember that certain words are prohibited when registering an S corporation.

• Choose your registered agent

The next step is to choose a registered agent. The role of a registered agent is to review your business legal documents and provide proof of service. They also send you these documents if you request them.

For example, if you receive a lawsuit or other summons, the court will send it to the registered agent instead of directly to your home address or business address (if different). They then notify you that something has been filed against your business and provide instructions on how best to handle it, including payment solutions.

You can choose someone who lives in your state as your registered agent or hire a third-party service that provides similar services at reasonable rates.

• Create an operating agreement

An operating agreement is a document that details the rights and responsibilities of each partner. It should include provisions for all major decisions, including handling disputes between members, how new partners can join the business, and what happens when a partner leaves or dies.

An operating agreement can help avoid misunderstandings between partners about the amount of money each member will be entitled to receive from profits, who has decision-making power over various aspects of business operations (e.g., hiring employees) and other important decisions.

• File an S Corp Election with the IRS

To file an S corporation, you will need a business license and a tax identification number. You can apply for your EIN by going to the IRS website.

Once approved, you will be assigned a Federal Tax Identification Number (TIN). If you plan to do business in more than one state, make sure each location has its own TIN.

The next step is to obtain a business license from each city or county where your business operates. Some cities require businesses to obtain licenses before they begin operating; others allow them when they start making money, so as not to discourage startups from setting up in their jurisdictions.

Each jurisdiction will have its own rules on the cost and documentation needed to accompany the application, so check with each individually before applying for yours.

• File your Articles of Incorporation

Filing your articles of association is the first step to creating an S corporation. Articles of incorporation are filed in the state where your business will operate, and they must include specific information about your business.

You can find forms online, at the Secretary of State’s office, or you can hire an attorney to help you through this process.

• Issue shares to owners and directors

Issuing shares to owners and directors is a straightforward process. If you have multiple owners, you can issue separate shares in their names. If the company has no shareholders yet but you want to issue share certificates now, enter the number of shares issued.

When it is time for your company to issue new shares or reissue expired or lost certificates, all existing shareholders must sign an agreement acknowledging that they will authorize their first and last name (if applicable), as well as their social security number if requested by the company with which they wish to do business.

This allows them to accept payments from customers and allow customers to be informed of the owner of a particular business entity through public databases, which display essential details about businesses operating in specific geographic regions. using search queries.

• Get the Employer Identification Number (EIN)

Once you have decided to form a S corporation and have filed the necessary paperwork with your state, the next step is to obtain a Federal Employer Identification Number (EIN). An EIN is a nine-digit number that the IRS assigns to business owners for tax purposes.

To obtain an EIN, you will need to provide information such as your name, date of birth, and social security number. If you are filing as a sole proprietor or partnership, it will be quite easy. But if you work with other people in your small business, you’ll want them all close at hand so they can provide their information as well.

Once done and successfully submitted, print a copy of the form confirmation page and any other requested documents in case you need them later.

Conclusion

With an S corporation, your shareholders’ assets are protected and you don’t have to pay federal taxes at the corporate level. However, some believe that setting up an S corporation is a long process. As long as you follow this guide, you’ll find that starting an S corporation isn’t so bad after all.