FAQ's: S-Corporation

An S-Corporation is a C-Corporation that has elected S-Corporation tax status with the IRS and state, where applicable. S-Corporation tax status is mostly elected in order to avoid double taxation on the company profits. The income of an S-Corporation flows to the owner(s) or shareholders of the company where the income is taxed at the personal level only.

There are a few restrictions as to whether a C-Corporation can elect S-Corporation tax status. An S- Corporation must have only one class of stock, must not have more than 100 shareholders, must be U.S. citizens or residents (no entity shareholders), and profits and losses must be allocated to shareholders proportionately to each one’s interest in the business. If a C-Corporation meets these requirements it can apply for S-Corporation tax status.

Creating an S-Corporation is the same as forming a C-Corporation. Articles of Incorporation or a Certificate of Incorporation must be prepared and submitted to the respective Department of State for filing. The information required in the formation document varies per state. When forming your company we will request the mandatory information from you in order to complete the filing. View our State Specific Information page for details on what information is required for your filing. The company becomes an S-Corporation after if files a federal and state, if required, S-Corporation election.

To form an S-Corporation, only one officer, shareholder, and director is required and the positions can be held by one individual. You can have as many or a little or as many people as you want but some states have restrictions on the number of directors that you can have based on the number of shareholders the company has. When Accumera forms your company we will act as the initial incorporator.

In order to avoid double taxation (once to the corporation and again to the shareholders). We suggest that you speak with your tax professional to determine if you should elect S-Corporation tax status for your corporation.

IRS form 2553 must be completed and filed with the IRS within 75 days after forming your new company in order to be taxed as an S-Corporation within the initial tax year. If a state tax department S-Corporation election is required in your state it is suggested to file that at the same time you submit your federal election.

Pass-through taxation is when a company is not directly taxed, but the owners/shareholders business are taxed personally. Pass-through taxation helps businesses because its lets the income of the business flow to the owners as profit and the partners pay their taxes based on their interest in the company.

Authorized shares of stock is the total amount of shares that the corporation has the authority to disburse to the shareholders of the corporation. The authorized shares of stock is listed in the Articles of Incorporation or a Certificate of Incorporation. You are not required to disburse all of the shares after your company is formed. You can reserve some to give out at a later time to certain shareholders in order to give some shareholders more of an advantage over the corporation.

When Accumera forms your company we will automatically authorize 200 shares of stock for your company. This is normally enough for business to run properly. If you wish to issue more stock it is certainly allowed but it may result in a higher filing fee when filing.

A share’s par value is the minimum value of the stock. Most shares of stock have a $.01, $1.00, or no par value. For public companies, the value of the stock depends on how much investors are willing to pay. For private companies, the par value is based on the overall value of the company.

S-Corporations are organized by shareholders, directors, and officers. The shareholders, own the company and elect the directors who are the ones who are in charge of the decision making for the company. The officers of the company are elected by the directors are the ones that are in charge of managing the everyday operations of the company.

In most states, only one director is required, you can have more than one though. Other states base how many directors are needed by how many shareholders the company has. View our State Specific Information page for details specific to your state.

In most states your S-Corporation is required to have a Registered Agent who can accept service of process on behalf of the company. If required your company must have a Registered Agent in every state where your company is registered. Further, you must maintain the Registered Agent with the Secretary of State in order to keep your company active. Accumera can provide you with registered agent services as required in your state.

Form 2553, titled Election by a Small Business Corporation, is the IRS form that needs to be completed and filed in order for your C-Corporation to elect S-Corporation tax status.

The corporate bylaws is a document that states the internal rules and regulations for how your corporation will operate. Each state has different requirements for what must be included in the corporate bylaws. Included with Accumera’s corporate kit are state specific bylaws that you can use for your company. Please note that corporate bylaws do not get submitted or filed with the respective Department of State.

States require that all corporations hold annual meetings with shareholders and directors and record the minutes of each meeting. The method and date on which these meetings are held is typically recorded in the corporate bylaws. These meetings are held to elect new directors or officers and discuss any other business the company has. By following this formality the corporation will maintain its corporate identity/protection. Contact us if you would like assistance with drafting your annual corporate minutes.