What are the best tips for setting up an S Corporation?

The IRS restricts the number and type of owners an S company can have.

The best tips for creating an S corporation are to use government funds to register, select the right time of year to do the fiscal election, and establish initial provisions for a purchase. An S company makes a special federal income tax option with the US Internal Revenue Service (IRS). The method for opening an S company is the same as for any company, except for the additional step required to make the choice.

Corporations in the United States are incorporated under state law. A corporation chooses a state, files the articles of association with the business division of the secretary of state’s office, and pays a registration fee. Once the state accepts the application, the company is considered registered and officially in business. An S company starts as a regular company and is formed by filling out standard paperwork with a status.

All states use the Internet to provide complete instructions and templates to fill out incorporation paperwork. Setting up an S company in any state is a simple matter of following the instructions and filling in some basic information in a form that can be downloaded from the state’s website. The best tip for any new business owner is to visit the website and file the paperwork in person, without hiring a third party to manage the process.

An S corporation comes into existence when a regular corporation makes a subchapter S choice under the United States Internal Revenue Code with the Internal Revenue Service (IRS). One of the most important features of this election is that it changes the way the corporation is treated for federal income tax purposes. After the election, income and losses are passed on to the owners of the company to be listed on their personal tax returns in proportion to their shareholding, rather than the company filing a tax return on its own. This choice can be made at any time during the corporation’s existence, but its effective date depends on the month the paperwork was filed. Another tip for the incorporation of an S company is to make the election within 60 days from the date of filing the articles of association so that it takes effect immediately.

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The IRS restricts the number and type of owners an S company can have. This is very different from the shares of a normal company, which can be freely transferred to any person or entity anywhere in the world. If the S corporation’s shares are transferred to an ineligible person, this immediately and automatically cancels the IRS tax option, and the corporation must account for its income and losses from that point forward as a regular corporation. Another key tip for creating an S company is to establish a shareholder purchase agreement that requires the owner to sell the shares back to the company if they want to go out of business to protect the company’s tax status from ineligible transfers.

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