How to Set up an S Corporation

Introduction

An S Corporation, or S Corp, is a type of business structure that combines the limited liability protection of a corporation with the tax benefits of a partnership or sole proprietorship. If you’re looking to set up an S Corp, there are several important steps you should take to ensure that your business is set up correctly.

Choose a Business Name

The first step in setting up an S Corp is to choose a business name. Your business name must be unique and not already in use by another business. You can check the availability of a business name by searching for it on the Secretary of State’s website.

File Articles of Incorporation

Once you have chosen a business name, you will need to file articles of incorporation with the Secretary of State. The articles of incorporation will include the business name, the registered agent’s name and address, and the names and addresses of the incorporators.

Create an Operating Agreement

An operating agreement is a document that outlines the rights and responsibilities of the shareholders, the management structure of the corporation, and any other important information about the business. The operating agreement is not required by law, but it is highly recommended to have one.

Obtain an EIN

An Employer Identification Number (EIN) is a unique number assigned to your business by the Internal Revenue Service (IRS). It is used to identify your business for tax purposes.

Comply with State and Local Regulations

S Corps are required to comply with state and local regulations. These include obtaining business licenses and permits, registering for state taxes, and complying with other regulations that may be specific to your business. It’s important to research the regulations that apply to your specific business and comply with them accordingly.

Hold an Organizational Meeting

An organizational meeting should be held to adopt the bylaws, elect the initial board of directors and issue shares of stock to the shareholders.

File an S Corp Election with the IRS

After you have completed the previous steps, you can file an S Corp election with the IRS. This is done by filing Form 2553, which must be filed within the first 75 days of the tax year.

Keep Records

It’s important to keep accurate records of all business transactions, including financial records, meeting minutes, and other important documents. This will help you stay organized and make it easier to file taxes and comply with other regulations.

Comply with Annual Requirements

S Corps are required to hold annual meetings and file annual reports with the state. It is also important to keep the business updated with any changes in the business such as changes in ownership, directors, and officers.

Conclusion

Setting up an S Corp can be a complex process. It’s recommended to seek the advice of a business attorney and accountant to ensure that you are following the correct procedures. Remember that each state has its own laws and regulations, so it’s important to research and comply with the requirements specific to your state. By properly setting up your S Corp, you can ensure that your business is protected and positioned for success.

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