S-Corporation Information & FAQs
What is an S-Corporation?
An S-Corporation is simply a C-Corporation that has elected to be treated as a pass through entity in order to avoid double taxation. An S-Corp is still a separate and distinct legal entity from itís owners and conducts business under itís own name. When operated and maintained properly the owners (shareholders) of an S-Corp can not be held personally liable for itís debts and liabilities. This means that the shareholders personal assets are protected and they will not be required to settle any corporate debt or court judgments against the corporation with their own money.
Pass Through Taxation
S-Corps offer owners (shareholders) the same personal liability protection as that of a C-Corp with advantage of pass through taxation similar to that of sole proprietorship. An S-Corps income or loss is passed directly to the owners and is reported on their personal tax returns.
Restrictions Placed on S-Corps
While they do benefit from pass through taxation there are restrictions placed ownership. S-Corps are restricted to one class of stock and can not have more than 100 shareholders. Shareholders are also required to be US citizens or legal residents of the US. Additionally, S-Corps must use the calendar year as their fiscal year except under special circumstances.
How does a corporation elect S-status?
To elect S-status for your corporation the IRS requires that you file the Form 2553 - Election by a Small Business Corporation. The form must be filed within 75 days of your corporation's formation date. The signatures of all shareholders are required on the form in order to file for and obtain S-status.
Note: A few states require that your corporation file an additional S-Corp election form in order for your entity to be taxed as an S-Corp at the state level. Please check with your state's tax department.
Are there any differences in the structure of an S-Corp vs a C-Corp?
No, the structure of an S-Corp is the same as that of a C-Corp. It is Important to remember that an S-Corp is simply a C-Corp that has elected to be taxed as a pass through entity.
- The shareholders are the owners and elect directors who then appoint officers.
- One person can act as sole director and hold all offices.
- One person can own all shares but corporation is still required execute formalities.
What are the name requirements for an S-Corporation?
It is important to pick a unique name for your company. The standard applied by the state is that your name can not be deceptively similar to an existing companyís name. Further, you will be required to use a corporate indicator at the end of the name such as Incorporated, Corporation, Inc. or Corp. (i.e. My Unique Name, Inc. or My Unique Name Corp.)
How long does incorporating take?
This depends on many factors including which state, current filing volume and what type of service you request. Standard filings generally take about 3 to 5 weeks to be filed in most states. You can speed up the filing process by utilizing the states expedited filing procedures.
What is an EIN?
The IRS requires business entities to obtain an Employee Identification Number. The EIN is commonly known as your companies tax ID #. The EIN will be required in order to open bank and credit accounts, hire employees or set up benefit plans. Your company will use itís tax id # much like you use your Social Security Number.
What is a Registered Agent?
A registered agent is a person or entity responsible for accepting official legal and tax correspondence on your companyís behalf. You can act as you own agent as long as you have a physical address in the state your corporation is formed in and are available during normal business hours.
Does my state require me to publish notice after my S-Corp is formed?
There are a few states that require notice to be published in a local newspaper after an entity has been formed. Arizona, Georgia, Nebraska and Pennsylvania require publication for both corporations and LLCs. New York requires only LLCs to publish notice. In New York the fees vary greatly based on location of the business.
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