New Hampshire S-Corp
Learn the Benefits of an S-Corp
When you decide to start a business, there are a number of business entities to choose from. Each has its own advantages and disadvantages, which we will introduce to you here. Prospective business owners should consult with professionals, such as a business attorney and accountants, before making the final decision. But educating yourself about the different types of corporations can help you assess what is the right business structure for you beforehand.
But first, are you ready to incorporate? It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Typically, “material size” means a business with revenue above $100,000. Once you know you’re ready, you have the option between choosing to classify your business as a C-Corporation or an S-Corporation. While S-Corps used to be the way to go for small businesses (it’s even been nicknamed the “Small BusinesS-Corporation”), thanks to the 2017 Tax Cuts and Jobs Act, C-Corps may now offer lower corporate tax rates to smaller business. Now, S-Corps are sometimes advisable for larger businesses. But keep in mind that C-Corps give you more options to expand and raise money, which can be very beneficial to a larger business. You may want to discuss the differences with a financial advisor or lawyer who can help break down all of the costs to help you assess what will work best for you.
Whether you choose to structure your business entity as a C or S-Corporation will determine how much you’ll pay in taxes, the ways you’re permitted to raise money, and the ease with which you can expand as your business grows. The standard and most common type of corporation is a C-Corporation. In fact, a C-Corp is the default type of corporation, and all S-Corps begin as a C-Corp or LLC. When you initially incorporate, your company will automatically become a standard C-Corp, and only after you file multiple forms can you transition to an S-Corp for federal tax purposes.
If there is an issue with a product, an S-Corp protects you. Compensation can only be taken from the S-Corp’s assets, not your personal assets.
Start Your S-Corp Now
How do you know which type of corporation you want to register your business as when they are both so similar? Both types of corporations offer owners protection from individual liability, so shareholders (and directors, officers, and employees) are typically not personally responsible for business debts. C-Corps and S-Corps require similar paperwork. In addition, both are owned by shareholders, have a Board of Directors with annual meetings, and are managed by executive officers. It is also a requirement that both types of corporations pay annual fees, set up bylaws, and issue stock. Basically, an S-Corporation is the legal equivalent of a regular C-Corporation. Both have the same rights. They just pays taxes differently.
But why opt for an S-Corp? What are the benefits of setting up your New Hampshire business as an S-Corp?
The main difference between a C and S-Corporation is that an S-Corp is not treated as a disregarded entity. It is a pass-through tax entity. While a C-Corp’s tax attributes are determined at the entity level, an S-Corp determines its own income, deductions, credits, etc. It spreads out the tax attributes among its owners (or to its sole owner) as part of shared ownership. Likewise, within an S-Corporation, the profits are passed on to the shareholders, who are then taxed based on their personal returns. Unlike a C-Corporation, an S-Corporation is required to file an annual information tax return. A few other differences are that S-Corps must have no more than 100 shareholders (all individuals, not corporations), have only one class of stock, and be owned by U.S. citizens or resident aliens.
There are advantages to setting up your business as a New Hampshire S-Corp. Registering as an S-Corporation offers you:
- The ability to operate as a corporation even if the owner leaves the company or passes away.
- Pass-through taxation, as owners report their share of the profits and losses on their individual tax returns.
- A way out of being taxed twice, the way you would be in a C-Corporation. There is no double taxation occurring--once as income and again as dividend income. You save more money!
- The opportunity to issue shares of stock to increase the value of your business.
- A deduction of 20% of all S-Corp income on your personal tax return, which can significantly reduce your tax burden.
- The ability to write off the S-Corp’s losses on shareholders’ individual tax returns.
- Annual tax filing requirements, unlike C-Corps which must file every quarter.
- Corporate status, which means shareholders, directors, and officers are protected from sharing liability as long as there is no evidence of fraud or other misdeeds
But there are a few disadvantages to starting an S-Corp. One of those is the fact that, unlike a C-Corp, there are restrictions on ownership if you create a New Hampshire S-Corp. S-Corporations can only be owned by United States citizens or resident aliens. Additionally, an S-Corp permits only 100 shareholders, while for a C-Corp, there is no limit. But overall, the benefits far outweigh the setbacks, and an S-Corporation is an excellent choice for many entrepreneurs looking to start a business in New Hampshire.
Learn the Benefits of an S-Corp
Educating yourself about the different types of corporations can help you assess what is the right business structure for you. It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Decide on a Registered Agent
Next, figure out who the Registered Agent for your S-Corp should be. The State of New Hampshire requires every S-Corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between your S-Corp and the Secretary of State’s office. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business.
A Registered Agent can be either an individual who is a resident of New Hampshire or a business entity that is authorized to conduct business in the state (but not your own business). This can be you or someone else within your company, but keep in mind that this person will be through whom the state has contact with your business. This agent will receive legal documents (known as “Service of Process”) that pertain to your business. You are legally required to have one.
- Possess a physical street address located in New Hampshire (no P.O. Box address).
- Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.
Although the most comfortable option for a Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on the state of California’S-Corporation website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a New Hampshire Registered Agent Service. We also offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Registered Agent
Next, figure out who the Registered Agent for your S-Corp should be. The State of New Hampshire requires every S-Corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.
Submit Your
Articles of Incorporation
To create an S-Corp in New Hampshire, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of New Hampshire. It establishes the basic elements of the corporation, such as the name and address of the corporation, the number and classes of stock, and certain indemnification provisions. Prior to filing, the Articles of Incorporation must be signed by each incorporator in order to authenticate it. The document can be repealed or amended with the approval of the Board of Directors.
If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an S-Corp during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.
Once your completed New Hampshire Articles of Incorporation form is accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of New Hampshire.
Submit Your Articles of Incorporation
To create an S-Corp in New Hampshire, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of New Hampshire.
Obtain an Employer
Identification Number
Next, your S-Corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Fortunately, you do not have to waste time dealing with the IRS on your own. Going through the IRS directly to get your EIN can be complicated, confusing, and frustrating. GovDocFiling alleviates the angst and aggravation of filing government documents, including apply for an EIN, or Tax ID number. Plus, GovDocFiling has one low price for same-day processing and delivery of your EIN (other Tax ID filing services charge more than $300 for same-day service!). Easily apply for your EIN/Tax ID online here. In addition, if you have any questions about obtaining an EIN, we offer 24/7 email and phone support to help you through the process. Emails are answered quickly at info@govdocfiling.com.
If you know your S-Corp will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.
Obtain an Employer Identification Number
Next, your S-Corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your S-Corporation. Basically, bylaws are rules of operation that create the company’s structure, ensuring that employees, shareholders, and executives are in the loop about how the business will be run.
Key points are covered in the corporate bylaws document, such as when annual meetings will be held, the size of your Board of Directors, and how this form will be amended if need be. In addition, member duties are explained and solutions to common disputes between parties are offered. Voting rights and salaries are discussed, and “what if” scenarios are presented. Having bylaws allows you to set up a structure that works for your business’s unique needs instead of adhering to default regulations within the state.
While bylaws are not required in some states, they are required in New Hampshire. It is important to establish a set of bylaws that ensure your business runs smoothly. Filling out and filing this document prior to starting an S-Corporation in New Hampshire provides protection for your business.
You can use our corporate bylaws generator to get a sense of what goes into a typical set of bylaws. To ensure it is done correctly, you can have a lawyer look over your bylaws prior to submission to ensure all necessary rules and scenarios are covered. Get legal advice from our partner Rocket Lawyer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your S-Corporation.
Elect a Board of Directors
New Hampshire requires one or more director(s). The Board of Directors, while they are not involved in the daily tasks of running a business, represent or govern the corporation. Their duties include handling finances and fulfilling legal requirements, as well as determining the mission of the company.
People who do not work for your company can be a part of your Board of Directors. In fact, many businesses turn to lawyers or other business owners to fill in a spot on their Board of Directors. That way, they receive outside expertise from them, plus they may come with their own additional business contacts.
These board members must adhere to something called “the duty of loyalty,” which means that directors and officers of an S-Corporation can only make decisions without any personal economic conflict. The duty of loyalty is breached if something like a self-interested transaction occurs or a business opportunity is stolen. Plus, there is also the “duty of care” to consider. Members of the Board of Directors must make decisions that are in the best interests of the corporation at all times. For example, making a decision that causes serious losses for the shareholders would mean they are in violation of their duty of care and they can be sued for this.
Your board members will have to hold meetings to make important decisions, such as issuing shares or amending something in the Articles of Incorporation. The Board of Directors typically receives equal voting rights (some states, like Delaware, are an exception) when making these decisions. During the first meeting of the S-Corporation's Board of Directors, directors can appoint officers, decide on bylaws, select a corporate bank, and more. All subsequent meetings must be held annually, though, of course, if more are needed, more can be held.
Minutes of the meeting, which is the recorded documentation of what was discussed or what happened during a meeting, must be recorded to exhibit transparency in business operations, but they do not need to be filed with the state. Instead, these should be kept with your other corporate records, such as Articles of Incorporation and bylaws. These documents should be saved for at least seven years in order to protect your company.
Elect a Board of Directors
First, familiarize yourself with the roles within an S-Corporation. There are three groups:
- Shareholders
- Board of Directors
- Officers
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything--if there are multiple shareholders and directors. If a corporation has only one shareholder or director, the decision-making, of course, falls on that person without the need for a group meeting. Officers, on the other hand, do not operate in groups. An officer holding the position of president, chief executive officer, or treasurer, for example, is an agent of the corporation and has the authority to act on behalf of the corporation on his or her own. Within smaller S-Corps, directors are sometimes also officers and shareholders. In that case, even though the same person is serving in multiple roles, each role has very different responsibilities and is treated as such.
Shareholders are the owners of the corporation, and they elect the Board of Directors. The directors, in unison, oversee and direct corporation affairs and make business decisions. They employ officers who carry out the Board of Directors’ decisions. Officers are responsible for the day-to-day operations of the company. An officer can be terminated by the Board of Directors at any time. Keep in mind that, in New Hampshire, a President and Secretary are required.
New Hampshire requirements state that there should be a minimum of one officer in all corporations--or as stated in the bylaws. One person may hold multiple offices. If there are multiple officers, one officer is responsible for maintaining all corporate records.
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything - if there are multiple shareholders and directors.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt. Unlike taking out a business loan, you do not pay interest that eats at your profits each month. The value of your business assets can be assessed by taking a look at what amount of your business assets are owned by shareholders vs. lenders. Corporations that have a higher proportion of the company owned by lenders makes an investment in the business appear riskier. If shareholders do invest in your business and purchase stock, keep in mind that if your business fails, you would have to pay back your loans and shareholders.
While there are many advantages to issuing stock, keep in mind that shareholders have an ownership stake in the company. This means that they have certain rights, such as the ability to participate in voting and the assurance that they will be collecting dividends. Profits will be shared and decisions will have to be made in unison. The more stock you issue to shareholders, the smaller your ownership in the business (and the less of a say you have in business major business decisions). On the plus side, when your business grows, you can buy out the other shareholders and get your ownership back.
Issuing stock is not a requirement for S-Corporations, but a privilege that you can make use of if you choose. Doing so can help you fund your business if you are growing and have large, expensive projects planned in the near future. In that case, you can decide how much capital you need and figure out how many shares you’d like to issue and at what price per share. You will already have a number for how many shares you have to offer (that was decided when you filed your Articles of Incorporation). To properly assess the accurate value of each share, determine your company’s net worth first. This will help you figure out what percentage of ownership you believe each share is worth.
Typically, appointed Board of Directors can issue stock whenever and to whomever, as long as the recipient has a brokerage account and is over 18 years old. But within an S-Corp, there are a few more limitations that a C-Corp does not have. While C-Corporations can be owned by any individual or legal entity--foreign or domestic--S-Corporations can only be owned by United States citizens or resident aliens. On top of that, an S-Corp does not allow an unlimited number of shareholders. It maxes out at 100. Also, S-Corps are not permitted to be owned by a C-Corp, another S-Corp, an LLC, a partnership, or many trusts. Lastly, unlike in a C-Corp where shareholders have the option between different stock classes (common, preferred, income, value, growth), an S-Corp only permits one stock class (common).
Another thing that can limit you here is if you’ve chosen to classify your S-Corp as a private corporation. This is typically a smaller corporation where the stock isn't offered to the public. A publiC-Corporation is authorized to sell their stock to the public, while a private company can’t trade its share on public stock exchanges. But a private corporation is not always small. Many big companies are privately held--such as Dell, Koch Industries, Deloitte, and Cargill. It can be harder for private corporations to raise funds, but it can be important in order to maintain family ownership.
Whoever your corporation may sell stock to, it’s important to have a shareholder agreement for protection. This would explain the shareholder’s rights and voting power within the S-Corporation. You will want to decide and let you shareholders know what kind of say they have in the organization or management of the company when they are issued stock. New Hampshire requires an annual shareholder meeting--unless directors are elected by written consent.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt.
Familiarize Yourself with the
State’s Taxes and Licenses
Typically, most states treat an S-Corporation like a “pass-through entity,” but that is not the case in New Hampshire. NH does not recognize the federal S election. Instead, the state treats S-Corporations like traditional corporations (C-Corps). This means that the state requires New Hampshire S-Corporation members to pay the same taxes that New Hampshire C-Corporations do. New Hampshire S-Corporations must pay both the business profits tax (BPT) and the business enterprise tax (BET).
The BPT is charged at a flat rate contingent on how much the state had collected prior and lately has been ranging from 7.5% to 7.9%. Businesses that had $50,000 or less in New Hampshire gross receipts are not required to file a BPT return. The BET is based on a business’s enterprise value tax base and is charged at a flat rate also contingent on how much the state had collected prior. Typically, the rate ranges from .50% to .675%. This tax must be paid by businesses that have an enterprise value tax base of more than $104,000 or more than $208,000 of gross business receipts. Rates can vary, so be sure to stay up-to-date by regularly checking the New Hampshire Department of Revenue Administration.
As for personal income, New Hampshire only taxes interest and dividend income. Each individual shareholder does not owe state tax on whatever portion of the corporation’s net income he or she ultimately receives. So while your New Hampshire S-Corp may be responsible for paying two different types of state taxes, the remaining income that passes through to you afterwards will not be taxed again on your personal state tax return.
Good news for new business owners in New Hampshire--the state does not have a sales tax. But there are various other taxes that you may need to pay. You can review what those are on the New Hampshire Department of Revenue website.
In addition, there may be extra fees for certain insurances, permits, and licenses. For example, you may need worker’s compensation insurance or a building permit, depending on the state’s laws and the type of business you own. Most New Hampshire permits and licenses can be found on the New Hampshire Government website. Find out the requirements for S-Corps in the state you plan to run your business in. Different cities or counties may require certain permits and licenses that other regions do not. Contact your city or county to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.
Familiarize Yourself with the State’s Taxes and Licenses
Typically, most states treat an S-Corporation like a “pass-through entity,” but that is not the case in New Hampshire. NH does not recognize the federal S election. Instead, the state treats S-Corporations like traditional corporations (C-Corps). This means that the state requires New Hampshire S-Corporation members to pay the same taxes that New Hampshire C-Corporations do. New Hampshire S-Corporations must pay both the business profits tax (BPT) and the business enterprise tax (BET).
File an Annual Report
Like most states, the State of New Hampshire requires all S-Corp owners to file an Annual Report. It is due by April 1, payable to the New Hampshire Secretary of State (SOS) with a fee of $100. The report may be filed by mail or online on the New Hampshire Secretary of State’s website. Filing this form is necessary for maintaining an active business status.
The report can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, etc.–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses.
File an Annual Report
Like most states, the State of New Hampshire requires all S-Corp owners to file an Annual Report. It is due by April 1, payable to the New Hampshire Secretary of State (SOS) with a fee of $100.
Raise Funds for Your Corporation
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your S-Corp are:
- Personal savings and assets
- Informal loans from family and friends
- Peer-to-peer lending sites or crowdfunding
- Conventional bank loan
- Short-term credit card loans
- Government-sponsored grants/loan programs
- Issuing stock to shareholders
Many new S-Corporation owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.
Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.
If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.
You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.
Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.
There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.
Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.
Lastly, you can invite people to your team. S-Corporations may have a single person as the company's owner, or an unlimited number of shareholders participating in the ownership of the business. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your bylaws and ensure that you are still the primary owner of the S-Corp.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your business is not a New Hampshire S-Corp requirement, but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.
Start S-Corp formationIf the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.
But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.
In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.
If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.
The Benefits of Having an Online Presence
If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.
While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few quick New Hampshire corporation name tips:
- Follow S-Corp naming guidelines. A corporation’s name usually has to include words, like Corporation, Incorporated, Company, or Limited; or abbreviations, like Corp., Inc., Co., or Ltd. It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
- Find a unique name. If you’re creating an S-Corporation in the State of New Hampshire, you will need an original name that is not in use by another corporation. To check if a name has already been taken, you can search the New Hampshire Name Availability Database. You may reserve a name for 120 days by filing an Application for Reservation of Name with the New Hampshire Secretary of State. The application must be filed by mail. The filing fee is $15.
- Make sure it is available as a web domain. This way, you can find out if another company outside of New Hampshire has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your business is not a New Hampshire S-Corp requirement, but it is recommended to any business owner operating in the modern world.
Begin Operating Your Business
Once you become an official S-Corporation in the state of New Hampshire, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings. This is mandatory if you don’t want your new business to run into any issues. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.
Next, make sure you’ve obtained all necessary permits, licenses, and insurances that your NH corp might need—and you’re good to go! Begin operating your New Hampshire business with peace of mind, knowing that you are protected by an S-Corp in case anything unforeseeable affects your new business venture.
Begin Operating Your Business
Once you become an official S-Corporation in the state of New Hampshire, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings.
Nevada S-Corp
Learn the Benefits of an S-Corp
When you decide to start a business, there are a number of business entities to choose from. Each has its own advantages and disadvantages, which we will introduce to you here. Prospective business owners should consult with professionals, such as a business attorney and accountants, before making the final decision. But educating yourself about the different types of corporations can help you assess what is the right business structure for you beforehand.
But first, are you ready to incorporate? It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Typically, “material size” means a business with revenue above $100,000. Once you know you’re ready, you have the option between choosing to classify your business as a C-Corporation or an S-Corporation. While S-Corps used to be the way to go for small businesses (it’s even been nicknamed the “Small BusinesS-Corporation”), thanks to the 2017 Tax Cuts and Jobs Act, C-Corps may now offer lower corporate tax rates to smaller business. Now, S-Corps are sometimes advisable for larger businesses. But keep in mind that C-Corps give you more options to expand and raise money, which can be very beneficial to a larger business. You may want to discuss the differences with a financial advisor or lawyer who can help break down all of the costs to help you assess what will work best for you.
Whether you choose to structure your business entity as a C or S-Corporation will determine how much you’ll pay in taxes, the ways you’re permitted to raise money, and the ease with which you can expand as your business grows. The standard and most common type of corporation is a C-Corporation. In fact, a C-Corp is the default type of corporation, and all S-Corps begin as a C-Corp or LLC. When you initially incorporate, your company will automatically become a standard C-Corp, and only after you file the necessary forms can you be classified as an S-Corp for federal tax purposes.
If there is an issue with a product, an S-Corp protects you. Compensation can only be taken from the S-Corp’s assets, not your personal assets.
Start Your S-Corp NowHow do you know which type of corporation you want to register your business as when they are both so similar? Both types of corporations offer owners protection from individual liability, so shareholders (and directors, officers, and employees) are typically not personally responsible for business debts. C-Corps and S-Corps require similar paperwork. In addition, both are owned by shareholders, have a Board of Directors with annual meetings, and are managed by executive officers. It is also a requirement that both types of corporations pay annual fees, set up bylaws, and issue stock. Basically, an S-Corporation is the legal equivalent of a regular C-Corporation. Both have the same rights. They just pays taxes differently.
But why opt for an S-Corp? What are the benefits of setting up your Nevada business as an S-Corp?
The main difference between a C and S-Corporation is that an S-Corp is not treated as a disregarded entity. It is a pass-through tax entity. While a C-Corp’s tax attributes are determined at the entity level, an S-Corp determines its own income, deductions, credits, etc. It spreads out the tax attributes among its owners (or to its sole owner) as part of shared ownership. Likewise, within an S-Corporation, the profits are passed on to the shareholders, who are then taxed based on their personal returns. Unlike a C-Corporation, an S-Corporation is required to file an annual information tax return. A few other differences are that S-Corps must have no more than 100 shareholders (all individuals, not corporations), have only one class of stock, and be owned by U.S. citizens or resident aliens.
There are advantages to setting up your business as a Nevada S-Corp. Registering as an S-Corporation offers you:
- The ability to operate as a corporation even if the owner leaves the company or passes away.
- Pass-through taxation, as owners report their share of the profits and losses on their individual tax returns.
- A way out of being taxed twice, the way you would be in a C-Corporation. There is no double taxation occurring--once as income and again as dividend income. You save more money!
- The opportunity to issue shares of stock to increase the value of your business.
- A deduction of 20% of all S-Corp income on your personal tax return, which can significantly reduce your tax burden.
- The ability to write off the S-Corp’s losses on shareholders’ individual tax returns.
- Annual tax filing requirements, unlike C-Corps which must file every quarter.
- Corporate status, which means shareholders, directors, and officers are protected from sharing liability as long as there is no evidence of fraud or other misdeeds
But there are a few disadvantages to starting an S-Corp. One of those is the fact that, unlike a C-Corp, there are restrictions on ownership if you create a Nevada S-Corp. S-Corporations can only be owned by United States citizens or resident aliens. Additionally, an S-Corp permits only 100 shareholders, while for a C-Corp, there is no limit. But overall, the benefits far outweigh the setbacks, and an S-Corporation is an excellent choice for many entrepreneurs looking to start a business in Nevada.
Learn the Benefits of an S-Corp
Educating yourself about the different types of corporations can help you assess what is the right business structure for you. It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Decide on a Registered Agent
Next, figure out who the Registered Agent for your S-Corp should be. The State of Nevada requires every S-Corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between your S-Corp and the Secretary of State’s office. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business.
A Registered Agent can be either an individual who is a resident of Nevada or a business entity that is authorized to conduct business in the state (but not your own business). This can be you or someone else within your company, but keep in mind that this person will be through whom the state has contact with your business. This agent will receive legal documents (known as “Service of Process”) that pertain to your business. You are legally required to have one.
- Possess a physical street address located in Nevada (no P.O. Box address).
- Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.
Although the most comfortable option for a Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on the state of California’S-Corporation website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a Nevada Registered Agent Service. We also offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Registered Agent
Next, figure out who the Registered Agent for your S-Corp should be. The State of Nevada requires every S-Corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.
Submit Your
Articles of Incorporation
To create an S-Corp in Nevada, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Nevada. It establishes the basic elements of the corporation, such as the name and address of the corporation, the number and classes of stock, and certain indemnification provisions. Prior to filing, the Articles of Incorporation must be signed by each incorporator in order to authenticate it. The document can be repealed or amended with the approval of the Board of Directors.
If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an LLC during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.
Submit Your Articles of Incorporation
To create an S-Corp in Nevada, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Nevada.
Obtain an Employer
Identification Number
Next, your Nevada S-Corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Fortunately, you do not have to waste time dealing with the IRS on your own. Going through the IRS directly to get your EIN can be complicated, confusing, and frustrating. GovDocFiling alleviates the angst and aggravation of filing government documents, including apply for an EIN, or Tax ID number. Plus, GovDocFiling has one low price for same-day processing and delivery of your EIN (other Tax ID filing services charge more than $300 for same-day service!). Easily apply for your EIN/Tax ID online here. In addition, if you have any questions about obtaining an EIN, we offer 24/7 email and phone support to help you through the process. Emails are answered quickly at info@govdocfiling.com.
If you know your S-Corp will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.
Obtain an Employer Identification Number
Next, your Nevada S-Corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your S-Corporation. Basically, bylaws are rules of operation that create the company’s structure, ensuring that employees, shareholders, and executives are in the loop about how the business will be run.
Key points are covered in the corporate bylaws document, such as when annual meetings will be held, the size of your Board of Directors, and how this form will be amended if need be. In addition, member duties are explained and solutions to common disputes between parties are offered. Voting rights and salaries are discussed, and “what if” scenarios are presented. Having bylaws allows you to set up a structure that works for your business’s unique needs instead of adhering to default regulations within the state.
While bylaws are required in some states, there is no obligation to file your bylaws with the Nevada Secretary of State. Nevertheless, it is important to establish a set of bylaws that ensure your business runs smoothly. Filling out and filing this document prior to starting an S-Corporation in Nevada provides protection for your business.
You can use our corporate bylaws generator to get a sense of what goes into a typical set of bylaws. To ensure it is done correctly, you can have a lawyer look over your bylaws prior to submission to ensure all necessary rules and scenarios are covered. Get legal advice from our partner Rocket Lawyer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your S-Corporation.
Elect a Board of Directors
Nevada law requires one or more director(s). The Board of Directors, while they are not involved in the daily tasks of running a business, represent or govern the corporation. Their duties include handling finances and fulfilling legal requirements, as well as determining the mission of the company.
People who do not work for your company can be a part of your Board of Directors. In fact, many businesses turn to lawyers or other business owners to fill in a spot on their Board of Directors. That way, they receive outside expertise from them, plus they may come with their own additional business contacts.
These board members must adhere to something called “the duty of loyalty,” which means that directors and officers of an S-Corporation can only make decisions without any personal economic conflict. The duty of loyalty is breached if something like a self-interested transaction occurs or a business opportunity is stolen. Plus, there is also the “duty of care” to consider. Members of the Board of Directors must make decisions that are in the best interests of the corporation at all times. For example, making a decision that causes serious losses for the shareholders would mean they are in violation of their duty of care and they can be sued for this.
Your board members will have to hold meetings to make important decisions, such as issuing shares or amending something in the Articles of Incorporation. The Board of Directors typically receives equal voting rights (some states, like Delaware, are an exception) when making these decisions. During the first meeting of the S-Corporation's Board of Directors, directors can appoint officers, decide on bylaws, select a corporate bank, and more. All subsequent meetings must be held annually, though, of course, if more are needed, more can be held.
Minutes of the meeting, which is the recorded documentation of what was discussed or what happened during a meeting, must be recorded to exhibit transparency in business operations, but they do not need to be filed with the state. Instead, these should be kept with your other corporate records, such as Articles of Incorporation and bylaws. These documents should be saved for at least seven years in order to protect your company.
Elect a Board of Directors
First, familiarize yourself with the roles within an S-Corporation. There are three groups:
- Shareholders
- Board of Directors
- Officers
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything--if there are multiple shareholders and directors. If a corporation has only one shareholder or director, the decision-making, of course, falls on that person without the need for a group meeting. Officers, on the other hand, do not operate in groups. An officer holding the position of president, chief executive officer, or treasurer, for example, is an agent of the corporation and has the authority to act on behalf of the corporation on his or her own. Within smaller S-Corps, directors are sometimes also officers and shareholders. In that case, even though the same person is serving in multiple roles, each role has very different responsibilities and is treated as such.
Shareholders are the owners of the corporation, and they elect the Board of Directors. The directors, in unison, oversee and direct corporation affairs and make business decisions. They employ officers who carry out the Board of Directors’ decisions. Officers are responsible for the day-to-day operations of the company. An officer can be terminated by the Board of Directors at any time. In Nevada, a President, secretary, and treasurer are required.
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything - if there are multiple shareholders and directors.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt. Unlike taking out a business loan, you do not pay interest that eats at your profits each month. The value of your business assets can be assessed by taking a look at what amount of your business assets are owned by shareholders vs. lenders. Corporations that have a higher proportion of the company owned by lenders makes an investment in the business appear riskier. If shareholders do invest in your business and purchase stock, keep in mind that if your business fails, you would have to pay back your loans and shareholders.
While there are many advantages to issuing stock, keep in mind that shareholders have an ownership stake in the company. This means that they have certain rights, such as the ability to participate in voting and the assurance that they will be collecting dividends. Profits will be shared and decisions will have to be made in unison. The more stock you issue to shareholders, the smaller your ownership in the business (and the less of a say you have in business major business decisions). On the plus side, when your business grows, you can buy out the other shareholders and get your ownership back.
Issuing stock is not a requirement for S-Corporations, but a privilege that you can make use of if you choose. Doing so can help you fund your business if you are growing and have large, expensive projects planned in the near future. In that case, you can decide how much capital you need and figure out how many shares you’d like to issue and at what price per share. You will already have a number for how many shares you have to offer (that was decided when you filed your Articles of Incorporation). To properly assess the accurate value of each share, determine your company’s net worth first. This will help you figure out what percentage of ownership you believe each share is worth.
Typically, appointed Board of Directors can issue stock whenever and to whomever, as long as the recipient has a brokerage account and is over 18 years old. But within an S-Corp, there are a few more limitations that a C-Corp does not have. While C-Corporations can be owned by any individual or legal entity--foreign or domestic--S-Corporations can only be owned by United States citizens or resident aliens. On top of that, an S-Corp does not allow an unlimited number of shareholders. It maxes out at 100. Also, S-Corps are not permitted to be owned by a C-Corp, another S-Corp, an LLC, a partnership, or many trusts. Lastly, unlike in a C-Corp where shareholders have the option between different stock classes (common, preferred, income, value, growth), an S-Corp only permits one stock class (common).
Another thing that can limit you here is if you’ve chosen to classify your S-Corp as a private corporation. This is typically a smaller corporation where the stock isn't offered to the public. A publiC-Corporation is authorized to sell their stock to the public, while a private company can’t trade its share on public stock exchanges. But a private corporation is not always small. Many big companies are privately held--such as Dell, Koch Industries, Deloitte, and Cargill. It can be harder for private corporations to raise funds, but it can be important in order to maintain family ownership.
Whoever your corporation may sell stock to, it’s important to have a shareholder agreement for protection. This would explain the shareholder’s rights and voting power within the S-Corporation. You will want to decide and let you shareholders know what kind of say they have in the organization or management of the company when they are issued stock. Nevada does not require S-Corporations to have an annual shareholder meeting.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt.
Familiarize Yourself with the
State’s Taxes and Licenses
Both C-Corporations and S-Corporations established in Nevada need to pay corporate income tax on the federal level. This tax rate in Nevada follows a bracket system that is based on the corporation's income level. These tax brackets are different from the brackets that apply to personal income tax in.
As of 2015, each business entity that exceeds $4,000,000 in gross revenue in Nevada is required to file the Commerce Tax return. The Nevada Revenue Plan passed in 2015 includes an increase in the corporation annual business fee, an expanded payroll tax, and the new Commerce Tax. The Plan also made temporary payroll tax and sales tax increases permanent. More information can be found on the State of Nevada Department of Taxation website. The state also has various other taxes. For example, if your business sells goods or services, you will have to pay a sales tax of 4.6%.
In addition, Nevada law requires all private employers with one or more employees to have workers' compensation insurance. Plus, different cities or counties may require certain permits and licenses. Licenses and permits per city are listed on the Nevada Department of Business and Industry website.
Here are some of the most common licenses and permits you may need.
- Building Permit
- Business License
- Health Permit
- Occupational Permit
- Zoning Permit
Find out from your city or county if there are any other permits you might need to obtain before you begin operating your business.
Familiarize Yourself with the State’s Taxes and Licenses
Both C-Corporations and S-Corporations established in Nevada need to pay corporate income tax on the federal level. This tax rate in Nevada follows a bracket system that is based on the corporation's income level. These tax brackets are different from the brackets that apply to personal income tax in.
File an Annual List
The State of Nevada requires you to file an Annual Report--which is typically called an Annual List in Nevada. This asks some information on your S-Corp, particularly regarding any necessary updates that were made during the past year. You must file your Annual List by the end of your registration anniversary month, with a minimum of a $150 fee payable to the Nevada Secretary of State. Fees vary based on the value of the current, total authorized stock recorded with the SOS. A detailed fee breakdown can be found here. Keep in mind that all of the information you put on the form is accessible to the public on the Secretary of State’s website.
The report can be rather complex– sometimes requiring the deciphering of gross receipts, dividends, interest, losses, etc.–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses.
File an Annual List
The State of Nevada requires you to file an Annual Report--which is typically called an Annual List in Nevada. This asks some information on your S-Corp, particularly regarding any necessary updates that were made during the past year.
Raise Funds for Your Corporation
You can’t start a business with zero capital. There are legal fees, Nevada corp or LLC document filing fees, taxes, employees to pay, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your S-Corp are:
- Personal savings and assets
- Informal loans from family and friends
- Peer-to-peer lending sites or crowdfunding
- Conventional bank loan
- Short-term credit card loans
- Government-sponsored grants/loan programs
- Issuing stock to shareholders
Many new S-Corporation owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.
Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.
If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.
You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.
Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.
There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.
Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.
Lastly, you can invite people to your team. S-Corporations may have a single person as the company's owner, or an unlimited number of shareholders participating in the ownership of the business. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your bylaws and ensure that you are still the primary owner of the S-Corp.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. There are legal fees, Nevada corp or LLC document filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your Nevada business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.
Start S-Corp formationIf the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.
But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.
In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.
If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.
The Benefits of Having an Online Presence
If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.
While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few quick tips:
- Follow S-Corp naming guidelines. A corporation’s name usually has to include words, like Corporation, Incorporated, Company, or Limited; or abbreviations, like Corp., Inc., Co., or Ltd. It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
- Find a unique name. If you’re creating an S-Corporation in the State of Nevada, you will need an original name that is not in use by another corporation. To check if a name has already been taken, you can look it up online on the Nevada SOS website here.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Nevada has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Nevada business is not a Nevada S-Corp requirement, but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service.
Begin Operating Your Business
Once you become an official S-Corporation in the state of Nevada, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings. This is mandatory if you don’t want your new business to run into any issues. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.
Next, make sure you’ve obtained all necessary permits, licenses, and insurances that your NV corp might need—and you’re good to go! Begin operating your Nevada business with peace of mind, knowing that you are protected by an S-Corp in case anything unforeseeable affects your new business venture.
Begin Operating Your Business
Once you become an official S-Corporation in the state of Nevada, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings.
Nebraska S-Corp
Learn the Benefits of an S-Corp
When you decide to start a business, there are a number of business entities to choose from. Each has its own advantages and disadvantages, which we will introduce to you here. Prospective business owners should consult with professionals, such as a business attorney and accountants, before making the final decision. But educating yourself about the different types of corporations can help you assess what is the right business structure for you beforehand.
But first, are you ready to incorporate? It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Typically, “material size” means a business with revenue above $100,000. Once you know you’re ready, you have the option between choosing to classify your business as a C-Corporation or an S-Corporation. While S-Corps used to be the way to go for small businesses (it’s even been nicknamed the “Small BusinesS-Corporation”), thanks to the 2017 Tax Cuts and Jobs Act, C-Corps may now offer lower corporate tax rates to smaller business. Now, S-Corps are sometimes advisable for larger businesses. But keep in mind that C-Corps give you more options to expand and raise money, which can be very beneficial to a larger business. You may want to discuss the differences with a financial advisor or lawyer who can help break down all of the costs to help you assess what will work best for you.
Whether you choose to structure your business entity as a C or S-Corporation will determine how much you’ll pay in taxes, the ways you’re permitted to raise money, and the ease with which you can expand as your business grows. The standard and most common type of corporation is a C-Corporation. In fact, a C-Corp is the default type of corporation, and all S-Corps begin as a C-Corp or LLC. When you initially incorporate, your company will automatically become a standard C-Corp, and only after you file multiple forms can you transition to an S-Corp for federal tax purposes.
If there is an issue with a product, an S-Corp protects you. Compensation can only be taken from the S-Corp’s assets, not your personal assets.
Start Your S-Corp NowHow do you know which type of corporation you want to register your business as when they are both so similar? Both types of corporations offer owners protection from individual liability, so shareholders (and directors, officers, and employees) are typically not personally responsible for business debts. C-Corps and S-Corps require similar paperwork. In addition, both are owned by shareholders, have a Board of Directors with annual meetings, and are managed by executive officers. It is also a requirement that both types of corporations pay annual fees, set up bylaws, and issue stock. Basically, an S-Corporation is the legal equivalent of a regular C-Corporation. Both have the same rights. They just pays taxes differently.
But why opt for an S-Corp? What are the benefits of setting up your state of Nebraska business as an S-Corp?
The main difference between a C and S-Corporation is that an S-Corp is not treated as a disregarded entity. It is a pass-through tax entity. While a C-Corp’s tax attributes are determined at the entity level, an S-Corp determines its own income, deductions, credits, etc. It spreads out the tax attributes among its owners (or to its sole owner) as part of shared ownership. Likewise, within an S-Corporation, the profits are passed on to the shareholders, who are then taxed based on their personal returns. Unlike a C-Corporation, an S-Corporation is required to file an annual information tax return. A few other differences are that S-Corps must have no more than 100 shareholders (all individuals, not corporations), have only one class of stock, and be owned by U.S. citizens or resident aliens.
There are advantages to establishing an S-Corp in Nebraska. Registering as an S-Corporation offers you:
- The ability to operate as a corporation even if the owner leaves the company or passes away.
- Pass-through taxation, as owners report their share of the profits and losses on their individual tax returns.
- A way out of being taxed twice, the way you would be in a C-Corporation. There is no double taxation occurring--once as income and again as dividend income. You save more money!
- The opportunity to issue shares of stock to increase the value of your business.
- A deduction of 20% of all S-Corp income on your personal tax return, which can significantly reduce your tax burden.
- The ability to write off the S-Corp’s losses on shareholders’ individual tax returns.
- Annual tax filing requirements, unlike C-Corps which must file every quarter.
- Corporate status, which means shareholders, directors, and officers are protected from sharing liability as long as there is no evidence of fraud or other misdeeds
But there are a few disadvantages to starting an S-Corp. One of those is the fact that, unlike a C-Corp, there are restrictions on ownership if you start a Nebraska S-Corp. S-Corporations can only be owned by United States citizens or resident aliens. Additionally, an S-Corp permits only 100 shareholders, while for a C-Corp, there is no limit. But overall, the benefits far outweigh the setbacks, and an S-Corporation is an excellent choice for many entrepreneurs looking to start a business in Nebraska.
Learn the Benefits of an S-Corp
Educating yourself about the different types of corporations can help you assess what is the right business structure for you. It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Decide on a Registered Agent
Next, figure out who the Registered Agent for the corporation should be. The State of Nebraska requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between the Nebraska Secretary of State and the corporation. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business.
A Registered Agent can be either an individual who is a resident of Nebraska or a business entity that is authorized to conduct business in the state (but not your own business). This can be you or someone else within your company, but keep in mind that this person will be through whom the state has contact with your business. This agent will receive legal documents (known as “Service of Process”) that pertain to your business. Your Registered Agent’s information would go on your most important Nebraska Secretary of State corporation forms.
- Possess a physical street address located in Nebraska (no P.O. Box address).
- Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.
Although the most comfortable option for a Nebraska Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on Nebraska’S-Corporation website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a Nebraska Registered Agent Service. We also offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Registered Agent
Next, figure out who the Registered Agent for the corporation should be. The State of Nebraska requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.
Obtain an Employer
Identification Number
Next, your Nebraska S-corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Fortunately, you do not have to waste time dealing with the IRS on your own. Going through the IRS directly to get your EIN can be complicated, confusing, and frustrating. GovDocFiling alleviates the angst and aggravation of filing government documents, including apply for an EIN, or Tax ID number. Plus, GovDocFiling has one low price for same-day processing and delivery of your EIN (other Tax ID filing services charge more than $300 for same-day service!). Easily apply for your EIN/Tax ID online here. In addition, if you have any questions about obtaining an EIN, we offer 24/7 email and phone support to help you through the process. Emails are answered quickly at info@govdocfiling.com.
If you know your S-Corp will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.
Obtain an Employer Identification Number
Next, your Nebraska S-corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Submit Your
Articles of Incorporation
To create an S-Corp in Nebraska, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Nebraska. It establishes the basic elements of the corporation, such as the name and address of the corporation, the number and classes of stock, and certain indemnification provisions. Prior to filing, the Articles of Incorporation must be signed by each incorporator in order to authenticate it. The document can be repealed or amended with the approval of the Board of Directors.
If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an S-Corp during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.
Once your completed Nebraska Articles of Incorporation form is accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of Nebraska.
Afterwards, all newly formed S-Corps must publish what is called a “Notice of Organization” in a newspaper with general circulation. The newspaper needs to be near your S-Corp’s location and the ad must run for 3 weeks. After the advertisement has finished its 3-week run, make sure that the newspaper mails you an Affidavit of Publication. Mail a copy of the Affidavit to the Nebraska Secretary of State and keep the original with your business records at all times.
Submit Your Articles of Incorporation
To create an S-Corp in Nebraska, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Nebraska.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your NE S-Corp. Basically, bylaws are rules of operation that create the company’s structure, ensuring that employees, shareholders, and executives are in the loop about how the business will be run.
Key points are covered in the corporate bylaws document, such as when annual meetings will be held, the size of your Board of Directors, and how this form will be amended if need be. In addition, member duties are explained and solutions to common disputes between parties are offered. Voting rights and salaries are discussed, and “what if” scenarios are presented. Having bylaws allows you to set up a structure that works for your business’s unique needs instead of adhering to default regulations within the state.
While bylaws are not required in some states, they are required in Nebraska. It is important to establish a set of bylaws that ensure your business runs smoothly. Filling out and filing this document prior to starting an S-Corporation in Nebraska provides protection for your business.
You can use this corporate bylaws generator to get a sense of what goes into a typical set of bylaws. To ensure it is done correctly, you can have a lawyer look over your bylaws prior to submission to ensure all necessary rules and scenarios are covered. Get legal advice from our partner Rocket Lawyer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation.
Elect a Board of Directors
Nebraska law requires one or more director(s). The Board of Directors, while they are not involved in the daily tasks of running a business, represent or govern the corporation. Their duties include handling finances and fulfilling legal requirements, as well as determining the mission of the company.
People who do not work for your company can be a part of your Board of Directors. In fact, many businesses turn to lawyers or other business owners to fill in a spot on their Board of Directors. That way, they receive outside expertise from them, plus they may come with their own additional business contacts.
These board members must adhere to something called “the duty of loyalty,” which means that directors and officers of an S-Corporation can only make decisions without any personal economic conflict. The duty of loyalty is breached if something like a self-interested transaction occurs or a business opportunity is stolen. Plus, there is also the “duty of care” to consider. Members of the Board of Directors must make decisions that are in the best interests of the corporation at all times. For example, making a decision that causes serious losses for the shareholders would mean they are in violation of their duty of care and they can be sued for this.
Your board members will have to hold meetings to make important decisions, such as issuing shares or amending something in the Articles of Incorporation. The Board of Directors typically receives equal voting rights (some states, like Delaware, are an exception) when making these decisions. During the first meeting of the S-Corporation's Board of Directors, directors can appoint officers, decide on bylaws, select a corporate bank, and more. All subsequent meetings must be held annually, though, of course, if more are needed, more can be held.
Minutes of the meeting, which is the recorded documentation of what was discussed or what happened during a meeting, must be recorded to exhibit transparency in business operations, but they do not need to be filed with the state. Instead, these should be kept with your other corporate records, such as Articles of Incorporation and bylaws. These documents should be saved for at least seven years in order to protect your company.
Elect a Board of Directors
First, familiarize yourself with the roles within an S-Corporation. There are three groups:
- Shareholders
- Board of Directors
- Officers
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything--if there are multiple shareholders and directors. If a corporation has only one shareholder or director, the decision-making, of course, falls on that person without the need for a group meeting. Officers, on the other hand, do not operate in groups. An officer holding the position of president, chief executive officer, or treasurer, for example, is an agent of the corporation and has the authority to act on behalf of the corporation on his or her own. Within smaller S-Corps, directors are sometimes also officers and shareholders. In that case, even though the same person is serving in multiple roles, each role has very different responsibilities and is treated as such.
Shareholders are the owners of the corporation, and they elect the Board of Directors. The directors, in unison, oversee and direct corporation affairs and make business decisions. They employ officers who carry out the Board of Directors’ decisions. Officers are responsible for the day-to-day operations of the company. An officer can be terminated by the Board of Directors at any time.
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything - if there are multiple shareholders and directors.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt. Unlike taking out a business loan, you do not pay interest that eats at your profits each month. The value of your business assets can be assessed by taking a look at what amount of your business assets are owned by shareholders vs. lenders. Corporations that have a higher proportion of the company owned by lenders makes an investment in the business appear riskier. If shareholders do invest in your business and purchase stock, keep in mind that if your business fails, you would have to pay back your loans and shareholders.
While there are many advantages to issuing stock, keep in mind that shareholders have an ownership stake in the company. This means that they have certain rights, such as the ability to participate in voting and the assurance that they will be collecting dividends. Profits will be shared and decisions will have to be made in unison. The more stock you issue to shareholders, the smaller your ownership in the business (and the less of a say you have in business major business decisions). On the plus side, when your business grows, you can buy out the other shareholders and get your ownership back.
Issuing stock is not a requirement for S-Corporations, but a privilege that you can make use of if you choose. Doing so can help you fund your business if you are growing and have large, expensive projects planned in the near future. In that case, you can decide how much capital you need and figure out how many shares you’d like to issue and at what price per share. You will already have a number for how many shares you have to offer (that was decided when you filed your Articles of Incorporation). To properly assess the accurate value of each share, determine your company’s net worth first. This will help you figure out what percentage of ownership you believe each share is worth.
Typically, appointed Board of Directors can issue stock whenever and to whomever, as long as the recipient has a brokerage account and is over 18 years old. But within an S-Corp, there are a few more limitations that a C-Corp does not have. While C-Corporations can be owned by any individual or legal entity--foreign or domestic--S-Corporations can only be owned by United States citizens or resident aliens. On top of that, an S-Corp does not allow an unlimited number of shareholders. It maxes out at 100. Also, S-Corps are not permitted to be owned by a C-Corp, another S-Corp, an LLC, a partnership, or many trusts. Lastly, unlike in a C-Corp where shareholders have the option between different stock classes (common, preferred, income, value, growth), an S-Corp only permits one stock class (common).
Another thing that can limit you here is if you’ve chosen to classify your S-Corp as a private corporation. This is typically a smaller corporation where the stock isn't offered to the public. A publiC-Corporation is authorized to sell their stock to the public, while a private company can’t trade its share on public stock exchanges. But a private corporation is not always small. Many big companies are privately held--such as Dell, Koch Industries, Deloitte, and Cargill. It can be harder for private corporations to raise funds, but it can be important in order to maintain family ownership.
Whoever your corporation may sell stock to, it’s important to have a shareholder agreement for protection. This would explain the shareholder’s rights and voting power within the S-Corporation. You will want to decide and let you shareholders know what kind of say they have in the organization or management of the company when they are issued stock. Nebraska requires an annual shareholder meeting.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt.
Familiarize Yourself with the
State’s Taxes and Licenses
Income from pass-through entities, such as a Nebraska Limited Liability Company and Nebraska S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns. In that case, each individual S-Corp member would then have to pay taxes on his or her share of the S-Corp’s income. The S-Corp itself does not pay federal income taxes.
Likewise, Nebraska recognizes the federal S-Corporation election and does not require S-Corporations to pay income tax. Instead, all of the shareholders owe state tax on their share of the company’s income. S-Corps are also required to pay the state’S-Corporation occupation tax. There are two versions of the “occupation tax” in Nebraska. One is set by the city imposing it with the rates varying from city to city. The other is administered by the Secretary of State and is imposed on all corporations doing business in Nebraska (more on that one in the section about Biennial Reports).
There are also other various taxes that a Nebraska business may have to pay. For example, employers owe payroll tax on employees wages. Additionally, Nebraska has a state sales and use tax rate of 5.5%. Most tax-related information can be found on the Official Nebraska Government Website. The Nebraska Department of Revenue (DOR) website has additional useful tax info.
Plus, there may be extra fees for certain insurances, permits, and licenses, depending on the state’s laws and the type of business you own. For example, you may need worker’s compensation, unemployment insurance, building permits, etc. Most Nebraska licenses and permits can be found here. Find out the requirements for S-Corps in the state you plan to run your business in. Keep in mind that different cities or counties may require certain permits and licenses that other regions do not. Contact your city or county to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.
Familiarize Yourself with the State’s Taxes and Licenses
Income from pass-through entities, such as a Nebraska Limited Liability Company and Nebraska S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
File a Biennial Occupation Tax Report
Like most states, the State of Nebraska requires all S-Corp owners to file a report that updates all the information that the Nebraska Secretary of State has on file. While most states require this report to be submitted annually for S-Corps, Nebraska requires a submission biennially--each even numbered year. The report is due by March 1, along with a fee that is based on property values in the state (a minimum of $52, plus an extra $3 for credit cards). Online filing is available on the Nebraska Secretary of State website. Filing a Biennial Report is necessary for maintaining an active status after starting an S-Corp in Nebraska. Not filing the report or paying the fee will result in being presented a Nebraska S-Corp dissolution form, after which the state will dissolve your business.
Biennial Reports can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, and all Nebraska S-Corp fees–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses.
File a Biennial Occupation Tax Report
Like most states, the State of Nebraska requires all S-Corp owners to file a report that updates all the information that the Nebraska Secretary of State has on file. While most states require this report to be submitted annually for S-Corps, Nebraska requires a submission biennially--each even numbered year.
Raise Funds for Your Corporation
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your S-Corp are:
- Personal savings and assets
- Informal loans from family and friends
- Peer-to-peer lending sites or crowdfunding
- Conventional bank loan
- Short-term credit card loans
- Government-sponsored grants/loan programs
- Issuing stock to shareholders
Many new S-Corporation owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.
Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.
If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.
You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.
Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.
There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.
Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.
Lastly, you can invite people to your team. S-Corporations may have a single person as the company's owner, or an unlimited number of shareholders participating in the ownership of the business. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your bylaws and ensure that you are still the primary owner of your Nebraska S-Corporation.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your Nebraska business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.
Start S-Corp formationIf the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.
But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.
In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.
If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.
The Benefits of Having an Online Presence
If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.
While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few Nebraska corporation name tips:
- Follow S-Corp naming guidelines. A corporation’s name usually has to include words, like Corporation, Incorporated, Company, or Limited; or abbreviations, like Corp., Inc., Co., or Ltd. It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
- Find a unique name. If you’re creating an S-Corporation in the State of Nebraska, you will need an original name that is not in use by another corporation. To check if a name has already been taken, you can search the Business Name Search Database. If you are not ready to file your Nebraska S-Corp today but want to reserve a name to ensure that it is not taken, you can file a Name Reservation Form along with a $10 fee (plus $5 per page), which will reserve the business name for you for 120 days.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Nebraska has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Nebraska business is not a Nebraska S-Corp requirement, but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service.
Begin Operating Your Business
Once you become an official S-Corporation in the state of Nebraska, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings. This is mandatory if you don’t want your new business to run into any issues. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.
Next, make sure you’ve obtained all necessary permits, licenses, and insurances that your NE corp might need—and you’re good to go! Begin operating your Nebraska business with peace of mind, knowing that you are protected by an S-Corp in case anything unforeseeable affects your new business venture.
Begin Operating Your Business
Once you become an official S-Corporation in the state of Nebraska, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings.
Montana S-Corp
Learn the Benefits of an S-Corp
When you decide to start a business, there are a number of business entities to choose from. Each has its own advantages and disadvantages, which we will introduce to you here. Prospective business owners should consult with professionals, such as a business attorney and accountants, before making the final decision. But educating yourself about the different types of corporations can help you assess what is the right business structure for you beforehand.
But first, are you ready to incorporate? It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Typically, “material size” means a business with revenue above $100,000. Once you know you’re ready, you have the option between choosing to classify your business as a C-Corporation or an S-Corporation. While S-Corps used to be the way to go for small businesses (it’s even been nicknamed the “Small BusinesS-Corporation”), thanks to the 2017 Tax Cuts and Jobs Act, C-Corps may now offer lower corporate tax rates to smaller business. Now, S-Corps are sometimes advisable for larger businesses. But keep in mind that C-Corps give you more options to expand and raise money, which can be very beneficial to a larger business. You may want to discuss the differences with a financial advisor or lawyer who can help break down all of the costs to help you assess what will work best for you.
Whether you choose to structure your business entity as a C or S-Corporation will determine how much you’ll pay in taxes, the ways you’re permitted to raise money, and the ease with which you can expand as your business grows. The standard and most common type of corporation is a C-Corporation. In fact, a C-Corp is the default type of corporation, and all S-Corps begin as a C-Corp or LLC. When you initially incorporate, your company will automatically become a standard C-Corp, and only after you file multiple forms can you transition to an S-Corp for federal tax purposes.
If there is an issue with a product, an S-Corp protects you. Compensation can only be taken from the S-Corp’s assets, not your personal assets.
Start Your S-Corp NowHow do you know which type of corporation you want to register your business as when they are both so similar? Both types of corporations offer owners protection from individual liability, so shareholders (and directors, officers, and employees) are typically not personally responsible for business debts. C-Corps and S-Corps require similar paperwork. In addition, both are owned by shareholders, have a Board of Directors with annual meetings, and are managed by executive officers. It is also a requirement that both types of corporations pay annual fees, set up bylaws, and issue stock. Basically, an S-Corporation is the legal equivalent of a regular C-Corporation. Both have the same rights. They just pays taxes differently.
But why opt for an S-Corp? What are the benefits of setting up your state of Montana business as an S-Corp?
The main difference between a C and S-Corporation is that an S-Corp is not treated as a disregarded entity. It is a pass-through tax entity. While a C-Corp’s tax attributes are determined at the entity level, an S-Corp determines its own income, deductions, credits, etc. It spreads out the tax attributes among its owners (or to its sole owner) as part of shared ownership. Likewise, within an S-Corporation, the profits are passed on to the shareholders, who are then taxed based on their personal returns. Unlike a C-Corporation, an S-Corporation is required to file an annual information tax return. A few other differences are that S-Corps must have no more than 100 shareholders (all individuals, not corporations), have only one class of stock, and be owned by U.S. citizens or resident aliens.
There are advantages to establishing an S-Corp in Montana. Registering as an S-Corporation offers you:
- The ability to operate as a corporation even if the owner leaves the company or passes away.
- Pass-through taxation, as owners report their share of the profits and losses on their individual tax returns.
- A way out of being taxed twice, the way you would be in a C-Corporation. There is no double taxation occurring--once as income and again as dividend income. You save more money!
- The opportunity to issue shares of stock to increase the value of your business.
- A deduction of 20% of all S-Corp income on your personal tax return, which can significantly reduce your tax burden.
- The ability to write off the S-Corp’s losses on shareholders’ individual tax returns.
- Annual tax filing requirements, unlike C-Corps which must file every quarter.
- Corporate status, which means shareholders, directors, and officers are protected from sharing liability as long as there is no evidence of fraud or other misdeeds
But there are a few disadvantages to starting an S-Corp. One of those is the fact that, unlike a C-Corp, there are restrictions on ownership if you start a Montana S-Corp. S-Corporations can only be owned by United States citizens or resident aliens. Additionally, an S-Corp permits only 100 shareholders, while for a C-Corp, there is no limit. But overall, the benefits far outweigh the setbacks, and an S-Corporation is an excellent choice for many entrepreneurs looking to start a business in Montana.
Learn the Benefits of an S-Corp
Educating yourself about the different types of corporations can help you assess what is the right business structure for you. It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Decide on a Registered Agent
Next, figure out who the Registered Agent for the corporation should be. The State of Montana requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between the Montana Secretary of State and the corporation. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business.
A Registered Agent can be either an individual who is a resident of Montana or a business entity that is authorized to conduct business in the state (but not your own business). This can be you or someone else within your company, but keep in mind that this person will be through whom the state has contact with your business. This agent will receive legal documents (known as “Service of Process”) that pertain to your business. Your Registered Agent’s information would go on your most important Montana Secretary of State corporation forms.
- Possess a physical street address located in Montana (no P.O. Box address).
- Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.
Although the most comfortable option for a Montana Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on Montana’S-Corporation website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a Montana Registered Agent Service. We also offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Registered Agent
Next, figure out who the Registered Agent for the corporation should be. The State of Montana requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.
Obtain an Employer
Identification Number
Next, your Montana S-corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Fortunately, you do not have to waste time dealing with the IRS on your own. Going through the IRS directly to get your EIN can be complicated, confusing, and frustrating. GovDocFiling alleviates the angst and aggravation of filing government documents, including apply for an EIN, or Tax ID number. Plus, GovDocFiling has one low price for same-day processing and delivery of your EIN (other Tax ID filing services charge more than $300 for same-day service!). Easily apply for your EIN/Tax ID online here. In addition, if you have any questions about obtaining an EIN, we offer 24/7 email and phone support to help you through the process. Emails are answered quickly at info@govdocfiling.com.
If you know your S-Corp will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.
Obtain an Employer Identification Number
Next, your Montana S-corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Submit Your
Articles of Incorporation
To create an S-Corp in Montana, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Montana. It establishes the basic elements of the corporation, such as the name and address of the corporation, the number and classes of stock, and certain indemnification provisions. Prior to filing, the Articles of Incorporation must be signed by each incorporator in order to authenticate it. The document can be repealed or amended with the approval of the Board of Directors.
If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an S-Corp during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.
Once your completed Montana Articles of Incorporation form is accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of Montana.
Submit Your Articles of Incorporation
To create an S-Corp in Montana, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Montana.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your MT S-Corp. Basically, bylaws are rules of operation that create the company’s structure, ensuring that employees, shareholders, and executives are in the loop about how the business will be run.
Key points are covered in the corporate bylaws document, such as when annual meetings will be held, the size of your Board of Directors, and how this form will be amended if need be. In addition, member duties are explained and solutions to common disputes between parties are offered. Voting rights and salaries are discussed, and “what if” scenarios are presented. Having bylaws allows you to set up a structure that works for your business’s unique needs instead of adhering to default regulations within the state.
While bylaws are not required in most states, they are required in Montana. It is important to establish a set of bylaws that ensure your business runs smoothly. Filling out and filing this document prior to starting an S-Corporation in Montana provides protection for your business.
You can use this corporate bylaws generator to get a sense of what goes into a typical set of bylaws. To ensure it is done correctly, you can have a lawyer look over your bylaws prior to submission to ensure all necessary rules and scenarios are covered. Get legal advice from our partner Rocket Lawyer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation.
Elect a Board of Directors
Montana law requires one or more director(s). The Board of Directors, while they are not involved in the daily tasks of running a business, represent or govern the corporation. Their duties include handling finances and fulfilling legal requirements, as well as determining the mission of the company.
People who do not work for your company can be a part of your Board of Directors. In fact, many businesses turn to lawyers or other business owners to fill in a spot on their Board of Directors. That way, they receive outside expertise from them, plus they may come with their own additional business contacts.
These board members must adhere to something called “the duty of loyalty,” which means that directors and officers of an S-Corporation can only make decisions without any personal economic conflict. The duty of loyalty is breached if something like a self-interested transaction occurs or a business opportunity is stolen. Plus, there is also the “duty of care” to consider. Members of the Board of Directors must make decisions that are in the best interests of the corporation at all times. For example, making a decision that causes serious losses for the shareholders would mean they are in violation of their duty of care and they can be sued for this.
Your board members will have to hold meetings to make important decisions, such as issuing shares or amending something in the Articles of Incorporation. The Board of Directors typically receives equal voting rights (some states, like Delaware, are an exception) when making these decisions. During the first meeting of the S-Corporation's Board of Directors, directors can appoint officers, decide on bylaws, select a corporate bank, and more. All subsequent meetings must be held annually, though, of course, if more are needed, more can be held.
Minutes of the meeting, which is the recorded documentation of what was discussed or what happened during a meeting, must be recorded to exhibit transparency in business operations, but they do not need to be filed with the state. Instead, these should be kept with your other corporate records, such as Articles of Incorporation and bylaws. These documents should be saved for at least seven years in order to protect your company.
Elect a Board of Directors
First, familiarize yourself with the roles within an S-Corporation. There are three groups:
- Shareholders
- Board of Directors
- Officers
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything--if there are multiple shareholders and directors. If a corporation has only one shareholder or director, the decision-making, of course, falls on that person without the need for a group meeting. Officers, on the other hand, do not operate in groups. An officer holding the position of president, chief executive officer, or treasurer, for example, is an agent of the corporation and has the authority to act on behalf of the corporation on his or her own. Within smaller S-Corps, directors are sometimes also officers and shareholders. In that case, even though the same person is serving in multiple roles, each role has very different responsibilities and is treated as such.
Shareholders are the owners of the corporation, and they elect the Board of Directors. The directors, in unison, oversee and direct corporation affairs and make business decisions. They employ officers who carry out the Board of Directors’ decisions. Officers are responsible for the day-to-day operations of the company. An officer can be terminated by the Board of Directors at any time.
Montana requirements state that there should be as many officers as stated in the bylaws, but a minimum of one. One person may hold multiple offices. If there are multiple officers, one officer is responsible for maintaining all corporate records.
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything - if there are multiple shareholders and directors.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt. Unlike taking out a business loan, you do not pay interest that eats at your profits each month. The value of your business assets can be assessed by taking a look at what amount of your business assets are owned by shareholders vs. lenders. Corporations that have a higher proportion of the company owned by lenders makes an investment in the business appear riskier. If shareholders do invest in your business and purchase stock, keep in mind that if your business fails, you would have to pay back your loans and shareholders.
While there are many advantages to issuing stock, keep in mind that shareholders have an ownership stake in the company. This means that they have certain rights, such as the ability to participate in voting and the assurance that they will be collecting dividends. Profits will be shared and decisions will have to be made in unison. The more stock you issue to shareholders, the smaller your ownership in the business (and the less of a say you have in business major business decisions). On the plus side, when your business grows, you can buy out the other shareholders and get your ownership back.
Issuing stock is not a requirement for S-Corporations, but a privilege that you can make use of if you choose. Doing so can help you fund your business if you are growing and have large, expensive projects planned in the near future. In that case, you can decide how much capital you need and figure out how many shares you’d like to issue and at what price per share. You will already have a number for how many shares you have to offer (that was decided when you filed your Articles of Incorporation). To properly assess the accurate value of each share, determine your company’s net worth first. This will help you figure out what percentage of ownership you believe each share is worth.
Typically, appointed Board of Directors can issue stock whenever and to whomever, as long as the recipient has a brokerage account and is over 18 years old. But within an S-Corp, there are a few more limitations that a C-Corp does not have. While C-Corporations can be owned by any individual or legal entity--foreign or domestic--S-Corporations can only be owned by United States citizens or resident aliens. On top of that, an S-Corp does not allow an unlimited number of shareholders. It maxes out at 100. Also, S-Corps are not permitted to be owned by a C-Corp, another S-Corp, an LLC, a partnership, or many trusts. Lastly, unlike in a C-Corp where shareholders have the option between different stock classes (common, preferred, income, value, growth), an S-Corp only permits one stock class (common).
Another thing that can limit you here is if you’ve chosen to classify your S-Corp as a private corporation. This is typically a smaller corporation where the stock isn't offered to the public. A publiC-Corporation is authorized to sell their stock to the public, while a private company can’t trade its share on public stock exchanges. But a private corporation is not always small. Many big companies are privately held--such as Dell, Koch Industries, Deloitte, and Cargill. It can be harder for private corporations to raise funds, but it can be important in order to maintain family ownership.
Whoever your corporation may sell stock to, it’s important to have a shareholder agreement for protection. This would explain the shareholder’s rights and voting power within the S-Corporation. You will want to decide and let you shareholders know what kind of say they have in the organization or management of the company when they are issued stock. Like most states, Montana requires an annual shareholder meeting.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt.
Familiarize Yourself with the
State’s Taxes and Licenses
Income from pass-through entities, such as a Montana Limited Liability Company and Montana S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns. In that case, each individual S-Corp member would then have to pay taxes on his or her share of the S-Corp’s income. The S-Corp itself does not pay federal income taxes, but there are other various taxes that the business will have to pay. For example, employers owe payroll tax on employees wages. Good news for prospective business owners in Montana: the state does not have a general sales, use, or transaction tax.
In addition, there may be extra fees for certain insurances, permits, and licenses, depending on the state’s laws and the type of business you own. For example, you may need worker’s compensation, unemployment insurance, building permits, etc. Unemployment insurance information can be found on the Montana Department of Labor and Industry website, with additional information here. You can find a list of state licenses on the Montana Department of Revenue website. Find out the requirements for S-Corps in the state you plan to run your business in. Keep in mind that different cities or counties may require certain permits and licenses that other regions do not. Contact your city or county to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.
Familiarize Yourself with the State’s Taxes and Licenses
Income from pass-through entities, such as a Montana Limited Liability Company and Montana S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
File an Annual Report
Like most states, the State of Montana requires all S-Corp owners to file an Annual Report. It is due on or before April 15 of each year, along with a fee payable to the State of Montana. The MT filing fee is $20 if paid by 5pm on April 15, $35 if afterwards.
Online filing is available on the Montana Secretary of State website. Filing an Annual Statement is necessary for maintaining an active status after starting a business in Montana. Not filing an Annual Statement or paying the fee will result in being presented a Montana S-Corp dissolution form, after which the state will dissolve your business.
The statement can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, and all Montana S-Corp fees–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses.
File an Annual Report
Like most states, the State of Montana requires all S-Corp owners to file an Annual Report. It is due on or before April 15 of each year, along with a fee payable to the State of Montana. The MT filing fee is $20 if paid by 5pm on April 15, $35 if afterwards.
Raise Funds for Your Corporation
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your S-Corp are:
- Personal savings and assets
- Informal loans from family and friends
- Peer-to-peer lending sites or crowdfunding
- Conventional bank loan
- Short-term credit card loans
- Government-sponsored grants/loan programs
- Issuing stock to shareholders
Many new S-Corporation owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.
Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.
If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.
You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.
Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.
There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.
Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.
Lastly, you can invite people to your team. S-Corporations may have a single person as the company's owner, or an unlimited number of shareholders participating in the ownership of the business. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your bylaws and ensure that you are still the primary owner of your Montana S-Corporation.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your Montana business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.
Start S-Corp formationIf the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.
But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.
In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.
If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.
The Benefits of Having an Online Presence
If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.
While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few Montana corp name tips:
- Follow S-Corp naming guidelines. A corporation’s name usually has to include words, like Corporation, Incorporated, Company, or Limited; or abbreviations, like Corp., Inc., Co., or Ltd. It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
- Find a unique name. If you’re getting an S-Corp in Montana you will need an original name that is not in use by another corporation. To check if a name has already been taken, you can search the Business Name Search Database.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Montana has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Montana business is not a Montana S-Corp requirement, but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service.
Begin Operating Your Business
Once you become an official Montana corporation, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings. This is mandatory if you don’t want your new business to run into any issues. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.
Next, make sure you’ve obtained all necessary permits, licenses, and insurances that your MT corp might need—and you’re good to go! Begin operating your Montana business with peace of mind, knowing that you are protected by an S-Corp in case anything unforeseeable affects your new business venture.
Begin Operating Your Business
Once you become an official Montana corporation, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings.
Missouri S-Corp
Learn the Benefits of an S-Corp
When you decide to start a business, there are a number of business entities to choose from. Each has its own advantages and disadvantages, which we will introduce to you here. Prospective business owners should consult with professionals, such as a business attorney and accountants, before making the final decision. But educating yourself about the different types of corporations can help you assess what is the right business structure for you beforehand.
But first, are you ready to incorporate? It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Typically, “material size” means a business with revenue above $100,000. Once you know you’re ready, you have the option between choosing to classify your business as a C-Corporation or an S-Corporation. While S-Corps used to be the way to go for small businesses (it’s even been nicknamed the “Small BusinesS-Corporation”), thanks to the 2017 Tax Cuts and Jobs Act, C-Corps may now offer lower corporate tax rates to smaller business. Now, S-Corps are sometimes advisable for larger businesses. But keep in mind that C-Corps give you more options to expand and raise money, which can be very beneficial to a larger business. You may want to discuss the differences with a financial advisor or lawyer who can help break down all of the costs to help you assess what will work best for you.
Whether you choose to structure your business entity as a C or S-Corporation will determine how much you’ll pay in taxes, the ways you’re permitted to raise money, and the ease with which you can expand as your business grows. The standard and most common type of corporation is a C-Corporation. In fact, a C-Corp is the default type of corporation, and all S-Corps begin as a C-Corp or LLC. When you initially incorporate, your company will automatically become a standard C-Corp, and only after you file the necessary forms can you be classified as an S-Corp for federal tax purposes.
If there is an issue with a product, an S-Corp protects you. Compensation can only be taken from the S-Corp’s assets, not your personal assets.
Start Your S-Corp NowHow do you know which type of corporation you want to register your business as when they are both so similar? Both types of corporations offer owners protection from individual liability, so shareholders (and directors, officers, and employees) are typically not personally responsible for business debts. C-Corps and S-Corps require similar paperwork. In addition, both are owned by shareholders, have a Board of Directors with annual meetings, and are managed by executive officers. It is also a requirement that both types of corporations pay annual fees, set up bylaws, and issue stock. Basically, an S-Corporation is the legal equivalent of a regular C-Corporation. Both have the same rights. They just pays taxes differently.
But why opt for an S-Corp? What are the benefits of setting up your Missouri business as an S-Corp?
The main difference between a C and S-Corporation is that an S-Corp is not treated as a disregarded entity. It is a pass-through tax entity. While a C-Corp’s tax attributes are determined at the entity level, an S-Corp determines its own income, deductions, credits, etc. It spreads out the tax attributes among its owners (or to its sole owner) as part of shared ownership. Likewise, within an S-Corporation, the profits are passed on to the shareholders, who are then taxed based on their personal returns. Unlike a C-Corporation, an S-Corporation is required to file an annual information tax return. A few other differences are that S-Corps must have no more than 100 shareholders (all individuals, not corporations), have only one class of stock, and be owned by U.S. citizens or resident aliens.
There are advantages to setting up your business as a Missouri S-Corp. Registering as an S-Corporation offers you:
- The ability to operate as a corporation even if the owner leaves the company or passes away.
- Pass-through taxation, as owners report their share of the profits and losses on their individual tax returns.
- A way out of being taxed twice, the way you would be in a C-Corporation. There is no double taxation occurring--once as income and again as dividend income. You save more money!
- The opportunity to issue shares of stock to increase the value of your business.
- A deduction of 20% of all S-Corp income on your personal tax return, which can significantly reduce your tax burden.
- The ability to write off the S-Corp’s losses on shareholders’ individual tax returns.
- Annual tax filing requirements, unlike C-Corps which must file every quarter.
- Corporate status, which means shareholders, directors, and officers are protected from sharing liability as long as there is no evidence of fraud or other misdeeds
But there are a few disadvantages to starting an S-Corp. One of those is the fact that, unlike a C-Corp, there are restrictions on ownership if you create a Missouri S-Corp. S-Corporations can only be owned by United States citizens or resident aliens. Additionally, an S-Corp permits only 100 shareholders, while for a C-Corp, there is no limit. But overall, the benefits far outweigh the setbacks, and an S-Corporation is an excellent choice for many entrepreneurs looking to start a business in Missouri.
Learn the Benefits of an S-Corp
Educating yourself about the different types of corporations can help you assess what is the right business structure for you. It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Decide on a Registered Agent
Next, figure out who the Registered Agent for your S-Corp should be. The State of Missouri requires every S-Corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between your S-Corp and the Secretary of State’s office. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business.
A Registered Agent can be either an individual who is a resident of Missouri or a business entity that is authorized to conduct business in the state (but not your own business). This can be you or someone else within your company, but keep in mind that this person will be through whom the state has contact with your business. This agent will receive legal documents (known as “Service of Process”) that pertain to your business. You are legally required to have one.
- Possess a physical street address located in Missouri (no P.O. Box address).
- Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.
Although the most comfortable option for a Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on the state of California’S-Corporation website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a Missouri Registered Agent Service. We also offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Registered Agent
Next, figure out who the Registered Agent for your S-Corp should be. The State of Missouri requires every S-Corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.
Submit Your
Articles of Incorporation
To create an S-Corp in Missouri, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Missouri. It establishes the basic elements of the corporation, such as the name and address of the corporation, the number and classes of stock, and certain indemnification provisions. Prior to filing, the Articles of Incorporation must be signed by each incorporator in order to authenticate it. The document can be repealed or amended with the approval of the Board of Directors.
If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an S-Corporation during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.
Submit Your Articles of Incorporation
To create an S-Corp in Missouri, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Missouri.
Obtain an Employer
Identification Number
Next, your S-Corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Fortunately, you do not have to waste time dealing with the IRS on your own. Going through the IRS directly to get your EIN can be complicated, confusing, and frustrating. GovDocFiling alleviates the angst and aggravation of filing government documents, including apply for an EIN, or Tax ID number. Plus, GovDocFiling has one low price for same-day processing and delivery of your EIN (other Tax ID filing services charge more than $300 for same-day service!). Easily apply for your EIN/Tax ID online here. In addition, if you have any questions about obtaining an EIN, we offer 24/7 email and phone support to help you through the process. Emails are answered quickly at info@govdocfiling.com.
If you know your S-Corp will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.
Obtain an Employer Identification Number
Next, your S-Corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your S-Corporation. Basically, bylaws are rules of operation that create the company’s structure, ensuring that employees, shareholders, and executives are in the loop about how the business will be run.
Key points are covered in the corporate bylaws document, such as when annual meetings will be held, the size of your Board of Directors, and how this form will be amended if need be. In addition, member duties are explained and solutions to common disputes between parties are offered. Voting rights and salaries are discussed, and “what if” scenarios are presented. Having bylaws allows you to set up a structure that works for your business’s unique needs instead of adhering to default regulations within the state.
While bylaws are required in some states, they are not required in Missouri. Nevertheless, it is important to establish a set of bylaws that ensure your business runs smoothly. Filling out and filing this document prior to starting an S-Corporation in Missouri provides protection for your business.
You can use our corporate bylaws generator to get a sense of what goes into a typical set of bylaws. To ensure it is done correctly, you can have a lawyer look over your bylaws prior to submission to ensure all necessary rules and scenarios are covered. Get legal advice from our partner Rocket Lawyer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your S-Corporation.
Elect a Board of Directors
Missouri law requires one or more director(s). The Board of Directors, while they are not involved in the daily tasks of running a business, represent or govern the corporation. Their duties include handling finances and fulfilling legal requirements, as well as determining the mission of the company.
People who do not work for your company can be a part of your Board of Directors. In fact, many businesses turn to lawyers or other business owners to fill in a spot on their Board of Directors. That way, they receive outside expertise from them, plus they may come with their own additional business contacts.
These board members must adhere to something called “the duty of loyalty,” which means that directors and officers of an S-Corporation can only make decisions without any personal economic conflict. The duty of loyalty is breached if something like a self-interested transaction occurs or a business opportunity is stolen. Plus, there is also the “duty of care” to consider. Members of the Board of Directors must make decisions that are in the best interests of the corporation at all times. For example, making a decision that causes serious losses for the shareholders would mean they are in violation of their duty of care and they can be sued for this.
Your board members will have to hold meetings to make important decisions, such as issuing shares or amending something in the Articles of Incorporation. The Board of Directors typically receives equal voting rights (some states, like Delaware, are an exception) when making these decisions. During the first meeting of the S-Corporation's Board of Directors, directors can appoint officers, decide on bylaws, select a corporate bank, and more. All subsequent meetings must be held annually, though, of course, if more are needed, more can be held.
Minutes of the meeting, which is the recorded documentation of what was discussed or what happened during a meeting, must be recorded to exhibit transparency in business operations, but they do not need to be filed with the state. Instead, these should be kept with your other corporate records, such as Articles of Incorporation and bylaws. These documents should be saved for at least seven years in order to protect your company.
Elect a Board of Directors
First, familiarize yourself with the roles within an S-Corporation. There are three groups:
- Shareholders
- Board of Directors
- Officers
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything--if there are multiple shareholders and directors. If a corporation has only one shareholder or director, the decision-making, of course, falls on that person without the need for a group meeting. Officers, on the other hand, do not operate in groups. An officer holding the position of president, chief executive officer, or treasurer, for example, is an agent of the corporation and has the authority to act on behalf of the corporation on his or her own. Within smaller S-Corps, directors are sometimes also officers and shareholders. In that case, even though the same person is serving in multiple roles, each role has very different responsibilities and is treated as such.
Shareholders are the owners of the corporation, and they elect the Board of Directors. The directors, in unison, oversee and direct corporation affairs and make business decisions. They employ officers who carry out the Board of Directors’ decisions. Officers are responsible for the day-to-day operations of the company. An officer can be terminated by the Board of Directors at any time. Keep in mind that, in Missouri, a President and Secretary are required.
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything - if there are multiple shareholders and directors.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt. Unlike taking out a business loan, you do not pay interest that eats at your profits each month. The value of your business assets can be assessed by taking a look at what amount of your business assets are owned by shareholders vs. lenders. Corporations that have a higher proportion of the company owned by lenders makes an investment in the business appear riskier. If shareholders do invest in your business and purchase stock, keep in mind that if your business fails, you would have to pay back your loans and shareholders.
While there are many advantages to issuing stock, keep in mind that shareholders have an ownership stake in the company. This means that they have certain rights, such as the ability to participate in voting and the assurance that they will be collecting dividends. Profits will be shared and decisions will have to be made in unison. The more stock you issue to shareholders, the smaller your ownership in the business (and the less of a say you have in business major business decisions). On the plus side, when your business grows, you can buy out the other shareholders and get your ownership back.
Issuing stock is not a requirement for S-Corporations, but a privilege that you can make use of if you choose. Doing so can help you fund your business if you are growing and have large, expensive projects planned in the near future. In that case, you can decide how much capital you need and figure out how many shares you’d like to issue and at what price per share. You will already have a number for how many shares you have to offer (that was decided when you filed your Articles of Incorporation). To properly assess the accurate value of each share, determine your company’s net worth first. This will help you figure out what percentage of ownership you believe each share is worth.
Typically, appointed Board of Directors can issue stock whenever and to whomever, as long as the recipient has a brokerage account and is over 18 years old. But within an S-Corp, there are a few more limitations that a C-Corp does not have. While C-Corporations can be owned by any individual or legal entity--foreign or domestic--S-Corporations can only be owned by United States citizens or resident aliens. On top of that, an S-Corp does not allow an unlimited number of shareholders. It maxes out at 100. Also, S-Corps are not permitted to be owned by a C-Corp, another S-Corp, an LLC, a partnership, or many trusts. Lastly, unlike in a C-Corp where shareholders have the option between different stock classes (common, preferred, income, value, growth), an S-Corp only permits one stock class (common).
Another thing that can limit you here is if you’ve chosen to classify your S-Corp as a private corporation. This is typically a smaller corporation where the stock isn't offered to the public. A publiC-Corporation is authorized to sell their stock to the public, while a private company can’t trade its share on public stock exchanges. But a private corporation is not always small. Many big companies are privately held--such as Dell, Koch Industries, Deloitte, and Cargill. It can be harder for private corporations to raise funds, but it can be important in order to maintain family ownership.
Whoever your corporation may sell stock to, it’s important to have a shareholder agreement for protection. This would explain the shareholder’s rights and voting power within the S-Corporation. You will want to decide and let you shareholders know what kind of say they have in the organization or management of the company when they are issued stock. Missouri requires S-Corps to have an annual shareholder meeting.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt.
Familiarize Yourself with the
State’s Taxes and Permits
Unlike a C-Corporation, an S-Corporation does not have to pay separate federal income tax. Instead, since S-Corporations are “pass through” entities, income from an S-Corporation is passed through to the individual shareholders, and each individual shareholder pays taxes on his or her share of the corporation’s income. Missouri has a progressive income tax with rates that range from 1.5% to 5.9%.
There are also other various taxes. For example, Missouri has a sales and use tax rate of 4.225%, but this can change depending on local municipalities. The total tax rate can increase to 10.1%. The Missouri Department of Revenue has additional tax information.
In addition to taxes, there may be extra fees for certain insurances, permits, and licenses. For example, you may need worker’s compensation insurance or a building permit, depending on the state’s laws and the type of business you own. Find out the requirements for LLCs in the state you plan to run your business in. Keep in mind that different cities or counties may require certain permits and licenses that other regions do not. For example, licenses for businesses in the city of St. Louis can be found here. Contact your city or county to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.
Familiarize Yourself with the State’s Taxes and Permits
Unlike a C-Corporation, an S-Corporation does not have to pay separate federal income tax. Instead, since S-Corporations are “pass through” entities, income from an S-Corporation is passed through to the individual shareholders, and each individual shareholder pays taxes on his or her share of the corporation’s income. Missouri has a progressive income tax with rates that range from 1.5% to 5.9%.
File an Annual Registration Report
The State of Missouri requireS-Corporations to file an annual report each year. This is usually called an Annual Report, but in Missouri, it is called an Annual Registration Report. The report asks some information on your S-Corp, particularly regarding any necessary updates that were made during the past year. It is typically due within 3 months after the anniversary month every year, but in the state of Missouri, you have the privilege of being able to change the due date to the end of whichever month you prefer.
Another benefit to starting an S-Corp in Missouri is that you can convert your Annual Report to a Biennial Report and only have to worry about filing the report and paying the fee once every two years. If you register a Missouri corporation during an even-numbered year, you can file your Biennial Report on every sequential even-number year. The same goes for odd-numbered years.
A fee payable to the Secretary of State is required with the submission of your report--$25 for online filings and $45 for forms you mail in. You can file the report online on the Missouri Secretary of State website.
The report can be rather complex– sometimes requiring the deciphering of gross receipts, dividends, interest, losses, etc.–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses.
File an Annual Registration Report
The State of Missouri requireS-Corporations to file an annual report each year. This is usually called an Annual Report, but in Missouri, it is called an Annual Registration Report.
Raise Funds for Your Corporation
You can’t start a business with zero capital. There are legal fees, Missouri corp or LLC document filing fees, taxes, employees to pay, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your S-Corp are:
- Personal savings and assets
- Informal loans from family and friends
- Peer-to-peer lending sites or crowdfunding
- Conventional bank loan
- Short-term credit card loans
- Government-sponsored grants/loan programs
- Issuing stock to shareholders
Many new S-Corporation owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.
Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.
If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.
You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.
Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.
There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.
Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.
Lastly, you can invite people to your team. S-Corporations may have a single person as the company's owner, or an unlimited number of shareholders participating in the ownership of the business. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your bylaws and ensure that you are still the primary owner of the S-Corp.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. There are legal fees, Missouri corp or LLC document filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your Missouri business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.
Start S-Corp formationIf the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.
But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.
In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.
If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.
The Benefits of Having an Online Presence
If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.
While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few quick Missouri corporation name tips:
- Follow S-Corp naming guidelines. A corporation’s name usually has to include words, like Corporation, Incorporated, Company, or Limited; or abbreviations, like Corp., Inc., Co., or Ltd. It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
- Find a unique name. If you’re creating an S-Corporation in the State of Missouri, you will need an original name that is not in use by another corporation. To check if a name has already been taken, you can search the Missouri Business Name Database.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Missouri has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Missouri business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service.
Begin Operating Your Business
Once you become an official S-Corporation in the state of Missouri, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings. This is mandatory if you don’t want your new business to run into any issues. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.
Next, make sure you’ve obtained all necessary permits, licenses, and insurances that your MO corp might need—and you’re good to go! Register for an LLC in Missouri online with GovDocFiling and begin operating your business in MO with peace of mind, knowing that you are protected by an S-Corp in case anything unforeseeable affects your new business venture.
Begin Operating Your Business
Once you become an official S-Corporation in the state of Missouri, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings.
Mississippi S-Corp
Learn the Benefits of an S-Corp
When you decide to start a business, there are a number of business entities to choose from. Each has its own advantages and disadvantages, which we will introduce to you here. Prospective business owners should consult with professionals, such as a business attorney and accountants, before making the final decision. But educating yourself about the different types of corporations can help you assess what is the right business structure for you beforehand.
But first, are you ready to incorporate? It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Typically, “material size” means a business with revenue above $100,000. Once you know you’re ready, you have the option between choosing to classify your business as a C-Corporation or an S-Corporation. While S-Corps used to be the way to go for small businesses (it’s even been nicknamed the “Small BusinesS-Corporation”), thanks to the 2017 Tax Cuts and Jobs Act, C-Corps may now offer lower corporate tax rates to smaller business. Now, S-Corps are sometimes advisable for larger businesses. But keep in mind that C-Corps give you more options to expand and raise money, which can be very beneficial to a larger business. You may want to discuss the differences with a financial advisor or lawyer who can help break down all of the costs to help you assess what will work best for you.
Whether you choose to structure your business entity as a C or S-Corporation will determine how much you’ll pay in taxes, the ways you’re permitted to raise money, and the ease with which you can expand as your business grows. The standard and most common type of corporation is a C-Corporation. In fact, a C-Corp is the default type of corporation, and all S-Corps begin as a C-Corp or LLC. When you initially incorporate, your company will automatically become a standard C-Corp, and only after you file multiple forms can you transition to an S-Corp for federal tax purposes.
If there is an issue with a product, an S-Corp protects you. Compensation can only be taken from the S-Corp’s assets, not your personal assets.
Start Your S-Corp NowHow do you know which type of corporation you want to register your business as when they are both so similar? Both types of corporations offer owners protection from individual liability, so shareholders (and directors, officers, and employees) are typically not personally responsible for business debts. C-Corps and S-Corps require similar paperwork. In addition, both are owned by shareholders, have a Board of Directors with annual meetings, and are managed by executive officers. It is also a requirement that both types of corporations pay annual fees, set up bylaws, and issue stock. Basically, an S-Corporation is the legal equivalent of a regular C-Corporation. Both have the same rights. They just pays taxes differently.
But why opt for an S-Corp? What are the benefits of setting up your state of Mississippi business as an S-Corp?
The main difference between a C and S-Corporation is that an S-Corp is not treated as a disregarded entity. It is a pass-through tax entity. While a C-Corp’s tax attributes are determined at the entity level, an S-Corp determines its own income, deductions, credits, etc. It spreads out the tax attributes among its owners (or to its sole owner) as part of shared ownership. Likewise, within an S-Corporation, the profits are passed on to the shareholders, who are then taxed based on their personal returns. Unlike a C-Corporation, an S-Corporation is required to file an annual information tax return. A few other differences are that S-Corps must have no more than 100 shareholders (all individuals, not corporations), have only one class of stock, and be owned by U.S. citizens or resident aliens.
There are advantages to establishing an S-Corp in Mississippi. Registering as an S-Corporation offers you:
- The ability to operate as a corporation even if the owner leaves the company or passes away.
- Pass-through taxation, as owners report their share of the profits and losses on their individual tax returns.
- A way out of being taxed twice, the way you would be in a C-Corporation. There is no double taxation occurring--once as income and again as dividend income. You save more money!
- The opportunity to issue shares of stock to increase the value of your business.
- A deduction of 20% of all S-Corp income on your personal tax return, which can significantly reduce your tax burden.
- The ability to write off the S-Corp’s losses on shareholders’ individual tax returns.
- Annual tax filing requirements, unlike C-Corps which must file every quarter.
- Corporate status, which means shareholders, directors, and officers are protected from sharing liability as long as there is no evidence of fraud or other misdeeds
But there are a few disadvantages to starting an S-Corp. One of those is the fact that, unlike a C-Corp, there are restrictions on ownership if you start a Mississippi S-Corp. S-Corporations can only be owned by United States citizens or resident aliens. Additionally, an S-Corp permits only 100 shareholders, while for a C-Corp, there is no limit. But overall, the benefits far outweigh the setbacks, and an S-Corporation is an excellent choice for many entrepreneurs looking to start a business in Mississippi.
Learn the Benefits of an S-Corp
Educating yourself about the different types of corporations can help you assess what is the right business structure for you. It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Decide on a Registered Agent
Next, figure out who the Registered Agent for the corporation should be. The State of Mississippi requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between the Mississippi Secretary of State and the corporation. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business.
A Registered Agent can be either an individual who is a resident of Mississippi or a business entity that is authorized to conduct business in the state (but not your own business). This can be you or someone else within your company, but keep in mind that this person will be through whom the state has contact with your business. This agent will receive legal documents (known as “Service of Process”) that pertain to your business. Your Registered Agent’s information would go on your most important Mississippi Secretary of State corporation forms.
- Possess a physical street address located in Mississippi (no P.O. Box address).
- Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.
Although the most comfortable option for a Mississippi Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on Kentucky’s Secretary of State website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a Mississippi Registered Agent Service. We also offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Registered Agent
Next, figure out who the Registered Agent for the corporation should be. The State of Mississippi requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.
Obtain an Employer
Identification Number
Next, your Mississippi S-corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Fortunately, you do not have to waste time dealing with the IRS on your own. Going through the IRS directly to get your EIN can be complicated, confusing, and frustrating. GovDocFiling alleviates the angst and aggravation of filing government documents, including apply for an EIN, or Tax ID number. Plus, GovDocFiling has one low price for same-day processing and delivery of your EIN (other Tax ID filing services charge more than $300 for same-day service!). Easily apply for your EIN/Tax ID online here. In addition, if you have any questions about obtaining an EIN, we offer 24/7 email and phone support to help you through the process. Emails are answered quickly at info@govdocfiling.com.
If you know your S-Corp will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.
Obtain an Employer Identification Number
Next, your Mississippi S-corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Submit Your
Articles of Incorporation
To create an S-Corp in Mississippi, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Mississippi. It establishes the basic elements of the corporation, such as the name and address of the corporation, the number and classes of stock, and certain indemnification provisions. Prior to filing, the Articles of Incorporation must be signed by each incorporator in order to authenticate it. The document can be repealed or amended with the approval of the Board of Directors.
If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an S-Corp during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.
Once your completed Mississippi Articles of Incorporation form is accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of Mississippi.
Submit Your Articles of Incorporation
To create an S-Corp in Mississippi, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Mississippi.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your MS S-Corp. Basically, bylaws are rules of operation that create the company’s structure, ensuring that employees, shareholders, and executives are in the loop about how the business will be run.
Key points are covered in the corporate bylaws document, such as when annual meetings will be held, the size of your Board of Directors, and how this form will be amended if need be. In addition, member duties are explained and solutions to common disputes between parties are offered. Voting rights and salaries are discussed, and “what if” scenarios are presented. Having bylaws allows you to set up a structure that works for your business’s unique needs instead of adhering to default regulations within the state.
While bylaws are not required in most states, they are required in Mississippi. It is important to establish a set of bylaws that ensure your business runs smoothly. Filling out and filing this document prior to starting an S-Corporation in Mississippi provides protection for your business.
You can use this corporate bylaws generator to get a sense of what goes into a typical set of bylaws. To ensure it is done correctly, you can have a lawyer look over your bylaws prior to submission to ensure all necessary rules and scenarios are covered. Get legal advice from our partner Rocket Lawyer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation.
Elect a Board of Directors
Mississippi law requires one or more director(s). The Board of Directors, while they are not involved in the daily tasks of running a business, represent or govern the corporation. Their duties include handling finances and fulfilling legal requirements, as well as determining the mission of the company.
People who do not work for your company can be a part of your Board of Directors. In fact, many businesses turn to lawyers or other business owners to fill in a spot on their Board of Directors. That way, they receive outside expertise from them, plus they may come with their own additional business contacts.
These board members must adhere to something called “the duty of loyalty,” which means that directors and officers of an S-Corporation can only make decisions without any personal economic conflict. The duty of loyalty is breached if something like a self-interested transaction occurs or a business opportunity is stolen. Plus, there is also the “duty of care” to consider. Members of the Board of Directors must make decisions that are in the best interests of the corporation at all times. For example, making a decision that causes serious losses for the shareholders would mean they are in violation of their duty of care and they can be sued for this.
Your board members will have to hold meetings to make important decisions, such as issuing shares or amending something in the Articles of Incorporation. The Board of Directors typically receives equal voting rights (some states, like Delaware, are an exception) when making these decisions. During the first meeting of the S-Corporation's Board of Directors, directors can appoint officers, decide on bylaws, select a corporate bank, and more. All subsequent meetings must be held annually, though, of course, if more are needed, more can be held.
Minutes of the meeting, which is the recorded documentation of what was discussed or what happened during a meeting, must be recorded to exhibit transparency in business operations, but they do not need to be filed with the state. Instead, these should be kept with your other corporate records, such as Articles of Incorporation and bylaws. These documents should be saved for at least seven years in order to protect your company.
Elect a Board of Directors
First, familiarize yourself with the roles within an S-Corporation. There are three groups:
- Shareholders
- Board of Directors
- Officers
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything--if there are multiple shareholders and directors. If a corporation has only one shareholder or director, the decision-making, of course, falls on that person without the need for a group meeting. Officers, on the other hand, do not operate in groups. An officer holding the position of president, chief executive officer, or treasurer, for example, is an agent of the corporation and has the authority to act on behalf of the corporation on his or her own. Within smaller S-Corps, directors are sometimes also officers and shareholders. In that case, even though the same person is serving in multiple roles, each role has very different responsibilities and is treated as such.
Shareholders are the owners of the corporation, and they elect the Board of Directors. The directors, in unison, oversee and direct corporation affairs and make business decisions. They employ officers who carry out the Board of Directors’ decisions. Officers are responsible for the day-to-day operations of the company. An officer can be terminated by the Board of Directors at any time.
Mississippi requirements state that there should be as many officers as stated in the bylaws, but a minimum of one. One person may hold multiple offices. If there are multiple officers, one officer is responsible for maintaining all corporate records.
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything - if there are multiple shareholders and directors.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt. Unlike taking out a business loan, you do not pay interest that eats at your profits each month. The value of your business assets can be assessed by taking a look at what amount of your business assets are owned by shareholders vs. lenders. Corporations that have a higher proportion of the company owned by lenders makes an investment in the business appear riskier. If shareholders do invest in your business and purchase stock, keep in mind that if your business fails, you would have to pay back your loans and shareholders.
While there are many advantages to issuing stock, keep in mind that shareholders have an ownership stake in the company. This means that they have certain rights, such as the ability to participate in voting and the assurance that they will be collecting dividends. Profits will be shared and decisions will have to be made in unison. The more stock you issue to shareholders, the smaller your ownership in the business (and the less of a say you have in business major business decisions). On the plus side, when your business grows, you can buy out the other shareholders and get your ownership back.
Issuing stock is not a requirement for S-Corporations, but a privilege that you can make use of if you choose. Doing so can help you fund your business if you are growing and have large, expensive projects planned in the near future. In that case, you can decide how much capital you need and figure out how many shares you’d like to issue and at what price per share. You will already have a number for how many shares you have to offer (that was decided when you filed your Articles of Incorporation). To properly assess the accurate value of each share, determine your company’s net worth first. This will help you figure out what percentage of ownership you believe each share is worth.
Typically, appointed Board of Directors can issue stock whenever and to whomever, as long as the recipient has a brokerage account and is over 18 years old. But within an S-Corp, there are a few more limitations that a C-Corp does not have. While C-Corporations can be owned by any individual or legal entity--foreign or domestic--S-Corporations can only be owned by United States citizens or resident aliens. On top of that, an S-Corp does not allow an unlimited number of shareholders. It maxes out at 100. Also, S-Corps are not permitted to be owned by a C-Corp, another S-Corp, an LLC, a partnership, or many trusts. Lastly, unlike in a C-Corp where shareholders have the option between different stock classes (common, preferred, income, value, growth), an S-Corp only permits one stock class (common).
Another thing that can limit you here is if you’ve chosen to classify your S-Corp as a private corporation. This is typically a smaller corporation where the stock isn't offered to the public. A publiC-Corporation is authorized to sell their stock to the public, while a private company can’t trade its share on public stock exchanges. But a private corporation is not always small. Many big companies are privately held--such as Dell, Koch Industries, Deloitte, and Cargill. It can be harder for private corporations to raise funds, but it can be important in order to maintain family ownership.
Whoever your corporation may sell stock to, it’s important to have a shareholder agreement for protection. This would explain the shareholder’s rights and voting power within the S-Corporation. You will want to decide and let you shareholders know what kind of say they have in the organization or management of the company when they are issued stock. Like most states, Mississippi requires an annual shareholder meeting, unless the directors are elected by written consent.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt.
Familiarize Yourself with the
State’s Taxes and Licenses
Income from pass-through entities, such as a Mississippi Limited Liability Company and Mississippi S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns. In that case, each individual S-Corp member would then have to pay taxes on his or her share of the S-Corp’s income. The State of Mississippi has a graduated tax rate of three tax brackets--3%, 4% and 5%. More information on these rates can be found here.
There are other various taxes that the business will have to pay. For example, employers owe payroll tax on employees wages. Plus, Mississippi has a sales and use tax, plus others. More information on these various taxes can be found here.
In addition, there may be extra fees for certain insurances, permits, and licenses, depending on the state’s laws and the type of business you own. For example, you may need worker’s compensation, unemployment insurance, building permits, etc. Some common licenses can be found on the Mississippi Small Business Development Center website. Most cities/counties in Mississippi require their own licences and permits. Find out what the requirements are for the location where you plan to open your business. Contact your city or county to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.
The main benefit of having an MS S-Corp instead of a Mississippi LLC is that your business saves money on self-employment taxes. The owners of an S-Corp do not pay self-employment taxes on salaries they are paid by the corporation.
Familiarize Yourself with the State’s Taxes and Licenses
Income from pass-through entities, such as a Mississippi Limited Liability Company and Mississippi S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
File an Annual Report
Like most states, the State of Mississippi requires all S-Corp owners to file a yearly report that updates all the information that the Mississippi Secretary of State (SOS) has on file. This report is called the Annual Report, and it can be filed any time on or after January 1 and is due by April 15. A fee of $23.25, payable to the MS SOS, must accompany all Annual Reports submitted for corporations. All annual reports must be filed online. Online filing is available on the Mississippi Secretary of State website, after you create an account. Filing an Annual Report is necessary for maintaining an active status after starting an S-Corp in Mississippi. Not filing the report or paying the fee will result in being presented a Mississippi S-Corp dissolution form, after which the state will dissolve your business.
The report can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, and all Mississippi S-Corp fees–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses.
File an Annual Report
Like most states, the State of Mississippi requires all S-Corp owners to file a yearly report that updates all the information that the Mississippi Secretary of State (SOS) has on file.
Raise Funds for Your Corporation
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your S-Corp are:
- Personal savings and assets
- Informal loans from family and friends
- Peer-to-peer lending sites or crowdfunding
- Conventional bank loan
- Short-term credit card loans
- Government-sponsored grants/loan programs
- Issuing stock to shareholders
Many new S-Corporation owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.
Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.
If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.
You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.
Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.
There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.
Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.
Lastly, you can invite people to your team. S-Corporations may have a single person as the company's owner, or an unlimited number of shareholders participating in the ownership of the business. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your bylaws and ensure that you are still the primary owner of your Mississippi S-Corporation.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your Mississippi business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.
Start S-Corp formationIf the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.
But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.
In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.
If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.
The Benefits of Having an Online Presence
If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.
While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few Mississippi corp name tips:
- Follow S-Corp naming guidelines. A corporation’s name usually has to include words, like Corporation, Incorporated, Company, or Limited; or abbreviations, like Corp., Inc., Co., or Ltd. It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
- Find a unique name. If you’re getting an S-Corp in Mississippi you will need an original name that is not in use by another corporation. To check if a name has already been taken, you can search the Business Name Search Database.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Mississippi has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Mississippi business is not a Mississippi S-Corp requirement, but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service.
Begin Operating Your Business
Once you become an official Mississippi corporation, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings. This is mandatory if you don’t want your new business to run into any issues. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.
Next, make sure you’ve obtained all necessary permits, licenses, and insurances that your MS-Corp might need—and you’re good to go! Begin operating your Mississippi business with peace of mind, knowing that you are protected by an S-Corp in case anything unforeseeable affects your new business venture.
Begin Operating Your Business
Once you become an official Mississippi corporation, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings.
Minnesota S-Corp
Learn the Benefits of an S-Corp
When you decide to start a business, there are a number of business entities to choose from. Each has its own advantages and disadvantages, which we will introduce to you here. Prospective business owners should consult with professionals, such as a business attorney and accountants, before making the final decision. But educating yourself about the different types of corporations can help you assess what is the right business structure for you beforehand.
But first, are you ready to incorporate? It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Typically, “material size” means a business with revenue above $100,000. Once you know you’re ready, you have the option between choosing to classify your business as a C-Corporation or an S-Corporation. While S-Corps used to be the way to go for small businesses (it’s even been nicknamed the “Small BusinesS-Corporation”), thanks to the 2017 Tax Cuts and Jobs Act, C-Corps may now offer lower corporate tax rates to smaller business. Now, S-Corps are sometimes advisable for larger businesses. But keep in mind that C-Corps give you more options to expand and raise money, which can be very beneficial to a larger business. You may want to discuss the differences with a financial advisor or lawyer who can help break down all of the costs to help you assess what will work best for you.
Whether you choose to structure your business entity as a C or S-Corporation will determine how much you’ll pay in taxes, the ways you’re permitted to raise money, and the ease with which you can expand as your business grows. The standard and most common type of corporation is a C-Corporation. In fact, a C-Corp is the default type of corporation, and all S-Corps begin as a C-Corp or LLC. When you initially incorporate, your company will automatically become a standard C-Corp, and only after you file multiple forms can you transition to an S-Corp for federal tax purposes.
If there is an issue with a product, an S-Corp protects you. Compensation can only be taken from the S-Corp’s assets, not your personal assets.
Start Your S-Corp NowHow do you know which type of corporation you want to register your business as when they are both so similar? Both types of corporations offer owners protection from individual liability, so shareholders (and directors, officers, and employees) are typically not personally responsible for business debts. C-Corps and S-Corps require similar paperwork. In addition, both are owned by shareholders, have a Board of Directors with annual meetings, and are managed by executive officers. It is also a requirement that both types of corporations pay annual fees, set up bylaws, and issue stock. Basically, an S-Corporation is the legal equivalent of a regular C-Corporation. Both have the same rights. They just pays taxes differently.
But why opt for an S-Corp? What are the benefits of setting up your state of Minnesota business as an S-Corp?
The main difference between a C and S-Corporation is that an S-Corp is not treated as a disregarded entity. It is a pass-through tax entity. While a C-Corp’s tax attributes are determined at the entity level, an S-Corp determines its own income, deductions, credits, etc. It spreads out the tax attributes among its owners (or to its sole owner) as part of shared ownership. Likewise, within an S-Corporation, the profits are passed on to the shareholders, who are then taxed based on their personal returns. Unlike a C-Corporation, an S-Corporation is required to file an annual information tax return. A few other differences are that S-Corps must have no more than 100 shareholders (all individuals, not corporations), have only one class of stock, and be owned by U.S. citizens or resident aliens.
There are advantages to establishing an S-Corp in Minnesota. Registering as an S-Corporation offers you:
- The ability to operate as a corporation even if the owner leaves the company or passes away.
- Pass-through taxation, as owners report their share of the profits and losses on their individual tax returns.
- A way out of being taxed twice, the way you would be in a C-Corporation. There is no double taxation occurring--once as income and again as dividend income. You save more money!
- The opportunity to issue shares of stock to increase the value of your business.
- A deduction of 20% of all S-Corp income on your personal tax return, which can significantly reduce your tax burden.
- The ability to write off the S-Corp’s losses on shareholders’ individual tax returns.
- Annual tax filing requirements, unlike C-Corps which must file every quarter.
- Corporate status, which means shareholders, directors, and officers are protected from sharing liability as long as there is no evidence of fraud or other misdeeds
But there are a few disadvantages to starting an S-Corp. One of those is the fact that, unlike a C-Corp, there are restrictions on ownership if you start a Minnesota S-Corp. S-Corporations can only be owned by United States citizens or resident aliens. Additionally, an S-Corp permits only 100 shareholders, while for a C-Corp, there is no limit. But overall, the benefits far outweigh the setbacks, and an S-Corporation is an excellent choice for many entrepreneurs looking to start a business in Minnesota.
Learn the Benefits of an S-Corp
Educating yourself about the different types of corporations can help you assess what is the right business structure for you. It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Decide on a Registered Agent
Just like the Minnesota LLC formation process, an S-Corp will also need to figure out who the Registered Agent for the corporation should be. The State of Minnesota requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between the Minnesota Secretary of State and the corporation. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business.
A Registered Agent can be either an individual who is a resident of Minnesota or a business entity that is authorized to conduct business in the state (but not your own business). This can be you or someone else within your company, but keep in mind that this person will be through whom the state has contact with your business. This agent will receive legal documents (known as “Service of Process”) that pertain to your business. Your Registered Agent’s information would go on your most important Minnesota Secretary of State corporation forms.
- Possess a physical street address located in Minnesota (no P.O. Box address).
- Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.
Although the most comfortable option for a Minnesota Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on Kentucky’s Secretary of State website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a Minnesota Registered Agent Service. We also offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Registered Agent
Just like the Minnesota LLC formation process, an S-Corp will also need to figure out who the Registered Agent for the corporation should be. The State of Minnesota requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.
Obtain an Employer
Identification Number
Next, your Minnesota S-corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Fortunately, you do not have to waste time dealing with the IRS on your own. Going through the IRS directly to get your EIN can be complicated, confusing, and frustrating. GovDocFiling alleviates the angst and aggravation of filing government documents, including apply for an EIN, or Tax ID number. Plus, GovDocFiling has one low price for same-day processing and delivery of your EIN (other Tax ID filing services charge more than $300 for same-day service!). Easily apply for your EIN/Tax ID online here. In addition, if you have any questions about obtaining an EIN, we offer 24/7 email and phone support to help you through the process. Emails are answered quickly at info@govdocfiling.com.
If you know your S-Corp will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.
Obtain an Employer Identification Number
Next, your Minnesota S-corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Submit Your
Articles of Incorporation
To create an S-Corp in Minnesota, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Minnesota. It establishes the basic elements of the corporation, such as the name and address of the corporation, the number and classes of stock, and certain indemnification provisions. Prior to filing, the Articles of Incorporation must be signed by each incorporator in order to authenticate it. The document can be repealed or amended with the approval of the Board of Directors.
If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an S-Corp during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.
Once your completed Minnesota Articles of Incorporation form is accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of Minnesota.
Submit Your Articles of Incorporation
To create an S-Corp in Minnesota, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Minnesota.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your MN S-Corp. Basically, bylaws are rules of operation that create the company’s structure, ensuring that employees, shareholders, and executives are in the loop about how the business will be run.
Key points are covered in the corporate bylaws document, such as when annual meetings will be held, the size of your Board of Directors, and how this form will be amended if need be. In addition, member duties are explained and solutions to common disputes between parties are offered. Voting rights and salaries are discussed, and “what if” scenarios are presented. Having bylaws allows you to set up a structure that works for your business’s unique needs instead of adhering to default regulations within the state.
While bylaws are required in most states, they are not required in Minnesota. It is important to establish a set of bylaws that ensure your business runs smoothly. Filling out and filing this document prior to starting an S-Corporation in Minnesota provides protection for your business.
You can use this corporate bylaws generator to get a sense of what goes into a typical set of bylaws. To ensure it is done correctly, you can have a lawyer look over your bylaws prior to submission to ensure all necessary rules and scenarios are covered. Get legal advice from our partner Rocket Lawyer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation.
Elect a Board of Directors
Minnesota law requires one or more director(s). The Board of Directors, while they are not involved in the daily tasks of running a business, represent or govern the corporation. Their duties include handling finances and fulfilling legal requirements, as well as determining the mission of the company.
People who do not work for your company can be a part of your Board of Directors. In fact, many businesses turn to lawyers or other business owners to fill in a spot on their Board of Directors. That way, they receive outside expertise from them, plus they may come with their own additional business contacts.
These board members must adhere to something called “the duty of loyalty,” which means that directors and officers of an S-Corporation can only make decisions without any personal economic conflict. The duty of loyalty is breached if something like a self-interested transaction occurs or a business opportunity is stolen. Plus, there is also the “duty of care” to consider. Members of the Board of Directors must make decisions that are in the best interests of the corporation at all times. For example, making a decision that causes serious losses for the shareholders would mean they are in violation of their duty of care and they can be sued for this.
Your board members will have to hold meetings to make important decisions, such as issuing shares or amending something in the Articles of Incorporation. The Board of Directors typically receives equal voting rights (some states, like Delaware, are an exception) when making these decisions. During the first meeting of the S-Corporation's Board of Directors, directors can appoint officers, decide on bylaws, select a corporate bank, and more. All subsequent meetings must be held annually, though, of course, if more are needed, more can be held.
Minutes of the meeting, which is the recorded documentation of what was discussed or what happened during a meeting, must be recorded to exhibit transparency in business operations, but they do not need to be filed with the state. Instead, these should be kept with your other corporate records, such as Articles of Incorporation and bylaws. These documents should be saved for at least seven years in order to protect your company.
Elect a Board of Directors
First, familiarize yourself with the roles within an S-Corporation. There are three groups:
- Shareholders
- Board of Directors
- Officers
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything--if there are multiple shareholders and directors. If a corporation has only one shareholder or director, the decision-making, of course, falls on that person without the need for a group meeting. Officers, on the other hand, do not operate in groups. An officer holding the position of president, chief executive officer, or treasurer, for example, is an agent of the corporation and has the authority to act on behalf of the corporation on his or her own. Within smaller S-Corps, directors are sometimes also officers and shareholders. In that case, even though the same person is serving in multiple roles, each role has very different responsibilities and is treated as such.
Shareholders are the owners of the corporation, and they elect the Board of Directors. The directors, in unison, oversee and direct corporation affairs and make business decisions. They employ officers who carry out the Board of Directors’ decisions. Officers are responsible for the day-to-day operations of the company. An officer can be terminated by the Board of Directors at any time.
Minnesota requirements state that there should be a Chief Executive and Chief Financial Officer on the Board of Directors. The three positions may be held by the same person.
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything - if there are multiple shareholders and directors.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt. Unlike taking out a business loan, you do not pay interest that eats at your profits each month. The value of your business assets can be assessed by taking a look at what amount of your business assets are owned by shareholders vs. lenders. Corporations that have a higher proportion of the company owned by lenders makes an investment in the business appear riskier. If shareholders do invest in your business and purchase stock, keep in mind that if your business fails, you would have to pay back your loans and shareholders.
While there are many advantages to issuing stock, keep in mind that shareholders have an ownership stake in the company. This means that they have certain rights, such as the ability to participate in voting and the assurance that they will be collecting dividends. Profits will be shared and decisions will have to be made in unison. The more stock you issue to shareholders, the smaller your ownership in the business (and the less of a say you have in business major business decisions). On the plus side, when your business grows, you can buy out the other shareholders and get your ownership back.
Issuing stock is not a requirement for S-Corporations, but a privilege that you can make use of if you choose. Doing so can help you fund your business if you are growing and have large, expensive projects planned in the near future. In that case, you can decide how much capital you need and figure out how many shares you’d like to issue and at what price per share. You will already have a number for how many shares you have to offer (that was decided when you filed your Articles of Incorporation). To properly assess the accurate value of each share, determine your company’s net worth first. This will help you figure out what percentage of ownership you believe each share is worth.
Typically, appointed Board of Directors can issue stock whenever and to whomever, as long as the recipient has a brokerage account and is over 18 years old. But within an S-Corp, there are a few more limitations that a C-Corp does not have. While C-Corporations can be owned by any individual or legal entity--foreign or domestic--S-Corporations can only be owned by United States citizens or resident aliens. On top of that, an S-Corp does not allow an unlimited number of shareholders. It maxes out at 100. Also, S-Corps are not permitted to be owned by a C-Corp, another S-Corp, an LLC, a partnership, or many trusts. Lastly, unlike in a C-Corp where shareholders have the option between different stock classes (common, preferred, income, value, growth), an S-Corp only permits one stock class (common).
Another thing that can limit you here is if you’ve chosen to classify your S-Corp as a private corporation. This is typically a smaller corporation where the stock isn't offered to the public. A publiC-Corporation is authorized to sell their stock to the public, while a private company can’t trade its share on public stock exchanges. But a private corporation is not always small. Many big companies are privately held--such as Dell, Koch Industries, Deloitte, and Cargill. It can be harder for private corporations to raise funds, but it can be important in order to maintain family ownership.
Whoever your corporation may sell stock to, it’s important to have a shareholder agreement for protection. This would explain the shareholder’s rights and voting power within the S-Corporation. You will want to decide and let you shareholders know what kind of say they have in the organization or management of the company when they are issued stock. Unlike most states, Minnesota does not require an annual shareholder meeting.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt.
Familiarize Yourself with the
State’s Taxes and Licenses
Income from pass-through entities, such as a Minnesota Limited Liability Company and Minnesota S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns. In that case, each individual S-Corp member would then have to pay taxes on his or her share of the S-Corp’s income. Minnesota has an income tax with four different rates. Details can be found here.
Plus, some states charge the S-Corp other various taxes. For example, employers owe payroll tax on employees wages. Additionally, Minnesota has a sales and use tax, as well as other taxes. More information can be found on the Minnesota Department of Revenue website.
In addition, there may be extra fees for certain insurances, permits, and licenses, depending on the state’s laws and the type of business you own. For example, you may need worker’s compensation, unemployment insurance, building permits, etc. Most cities/counties in Minnesota require their own licences and permits. A detailed breakdown of certain specific local licenses and permits can be found on the Minnesota Employment and Economic Development website. Find out what the requirements are for the location where you plan to open your business. Contact your city or county to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.
The main benefit of having an MN S-Corp instead of a Minnesota LLC is that your business saves money on self-employment taxes. The owners of an S-Corp do not pay self employment taxes on salaries they are paid by the corporation.
Familiarize Yourself with the State’s Taxes and Licenses
Income from pass-through entities, such as a Minnesota Limited Liability Company and Minnesota S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
File an Annual Report
Like most states, the State of Minnesota requires all S-Corp owners to file a yearly report that updates all the information that the Minnesota Secretary of State has on file. This report is typically called the Annual Report, but in Minnesota, it is referred to as an Annual Renewal Report. It is filed once every year, starting the year following your original filing with the MN Secretary of State, S-Corp submissions needed by the end of the year (December 31). You can either mail the form or file online. Instructions on how to file the Annual Renewal form can be found here. Filing an Annual Renewal Report is necessary for maintaining an active status after starting an S-Corp in MN. Not filing the report or paying the fee will result in being presented a Minnesota S-Corp dissolution form, after which the state will dissolve your business.
Good news for prospective S-Corp owners in Minnesota: while some states charge over $500 as a required fee that all corporations must pay when submitting their Annual Renewal Reports, Minnesota does not have a required fee.
The report can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, and all Minnesota S-Corp fees–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses.
File an Annual Report
Like most states, the State of Minnesota requires all S-Corp owners to file a yearly report that updates all the information that the Minnesota Secretary of State has on file. This report is typically called the Annual Report, but in Minnesota, it is referred to as an Annual Renewal Report.
Raise Funds for Your Corporation
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your S-Corp are:
- Personal savings and assets
- Informal loans from family and friends
- Peer-to-peer lending sites or crowdfunding
- Conventional bank loan
- Short-term credit card loans
- Government-sponsored grants/loan programs
- Issuing stock to shareholders
Many new S-Corporation owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.
Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.
If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.
You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.
Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.
There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.
Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.
Lastly, you can invite people to your team. S-Corporations may have a single person as the company's owner, or an unlimited number of shareholders participating in the ownership of the business. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your bylaws and ensure that you are still the primary owner of your Minnesota S-Corporation.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your Minnesota business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.
Start S-Corp formationIf the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.
But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.
In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.
If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.
The Benefits of Having an Online Presence
If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.
While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few Minnesota corp name tips:
- Follow S-Corp naming guidelines. A corporation’s name usually has to include words, like Corporation, Incorporated, Company, or Limited; or abbreviations, like Corp., Inc., Co., or Ltd. It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
- Find a unique name. If you’re getting an S-Corp in Minnesota you will need an original name that is not in use by another corporation. To check if a name has already been taken, you can search the Minnesota Business Name Availability page.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Minnesota has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Minnesota business is not a Minnesota S-Corp requirement, but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service.
Begin Operating Your Business
Once you become an official Minnesota corporation, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings. This is mandatory if you don’t want your new business to run into any issues. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.
Next, make sure you’ve obtained all necessary permits, licenses, and insurances that your MN corp might need—and you’re good to go! Begin operating your Minnesota business with peace of mind, knowing that you are protected by an S-Corp in case anything unforeseeable affects your new business venture.
Begin Operating Your Business
Once you become an official Minnesota corporation, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings.
Michigan S-Corp
Learn the Benefits of an S-Corp
When you decide to start a business, there are a number of business entities to choose from. Each has its own advantages and disadvantages, which we will introduce to you here. Prospective business owners should consult with professionals, such as a business attorney and accountants, before making the final decision. But educating yourself about the different types of corporations can help you assess what is the right business structure for you beforehand.
But first, are you ready to incorporate? It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Typically, “material size” means a business with revenue above $100,000. Once you know you’re ready, you have the option between choosing to classify your business as a C-Corporation or an S-Corporation. While S-Corps used to be the way to go for small businesses (it’s even been nicknamed the “Small BusinesS-Corporation”), thanks to the 2017 Tax Cuts and Jobs Act, C-Corps may now offer lower corporate tax rates to smaller business. Now, S-Corps are sometimes advisable for larger businesses. But keep in mind that C-Corps give you more options to expand and raise money, which can be very beneficial to a larger business. You may want to discuss the differences with a financial advisor or lawyer who can help break down all of the costs to help you assess what will work best for you.
Whether you choose to structure your business entity as a C or S-Corporation will determine how much you’ll pay in taxes, the ways you’re permitted to raise money, and the ease with which you can expand as your business grows. The standard and most common type of corporation is a C-Corporation. In fact, a C-Corp is the default type of corporation, and all S-Corps begin as a C-Corp or LLC. When you initially incorporate, your company will automatically become a standard C-Corp, and only after you file multiple forms can you transition to an S-Corp for federal tax purposes.
If there is an issue with a product, an S-Corp protects you. Compensation can only be taken from the S-Corp’s assets, not your personal assets.
Start Your S-Corp NowHow do you know which type of corporation you want to register your business as when they are both so similar? Both types of corporations offer owners protection from individual liability, so shareholders (and directors, officers, and employees) are typically not personally responsible for business debts. C-Corps and S-Corps require similar paperwork. In addition, both are owned by shareholders, have a Board of Directors with annual meetings, and are managed by executive officers. It is also a requirement that both types of corporations pay annual fees, set up bylaws, and issue stock. Basically, an S-Corporation is the legal equivalent of a regular C-Corporation. Both have the same rights. They just pays taxes differently.
But why opt for an S-Corp? What are the benefits of setting up your Michigan business as an S-Corp?
The main difference between a C and S-Corporation is that an S-Corp is not treated as a disregarded entity. It is a pass-through tax entity. While a C-Corp’s tax attributes are determined at the entity level, an S-Corp determines its own income, deductions, credits, etc. It spreads out the tax attributes among its owners (or to its sole owner) as part of shared ownership. Likewise, within an S-Corporation, the profits are passed on to the shareholders, who are then taxed based on their personal returns. Unlike a C-Corporation, an S-Corporation is required to file an annual information tax return. A few other differences are that S-Corps must have no more than 100 shareholders (all individuals, not corporations), have only one class of stock, and be owned by U.S. citizens or resident aliens.
There are advantages to establishing an S-Corp in Michigan. Registering as an S-Corporation offers you:
- The ability to operate as a corporation even if the owner leaves the company or passes away.
- Pass-through taxation, as owners report their share of the profits and losses on their individual tax returns.
- A way out of being taxed twice, the way you would be in a C-Corporation. There is no double taxation occurring--once as income and again as dividend income. You save more money!
- The opportunity to issue shares of stock to increase the value of your business.
- A deduction of 20% of all S-Corp income on your personal tax return, which can significantly reduce your tax burden.
- The ability to write off the S-Corp’s losses on shareholders’ individual tax returns.
- Annual tax filing requirements, unlike C-Corps which must file every quarter.
- Corporate status, which means shareholders, directors, and officers are protected from sharing liability as long as there is no evidence of fraud or other misdeeds
But there are a few disadvantages to starting an S-Corp. One of those is the fact that, unlike a C-Corp, there are restrictions on ownership if you start a Michigan S-Corp. S-Corporations can only be owned by United States citizens or resident aliens. Additionally, an S-Corp permits only 100 shareholders, while for a C-Corp, there is no limit. But overall, the benefits far outweigh the setbacks, and an S-Corporation is an excellent choice for many entrepreneurs looking to start a business in Michigan.
Learn the Benefits of an S-Corp
Educating yourself about the different types of corporations can help you assess what is the right business structure for you. It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Decide on a Registered Agent
ext, figure out who the Registered Agent for the corporation should be. The State of Michigan requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between the Michigan Secretary of State and the corporation. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business.
A Registered Agent can be either an individual who is a resident of Michigan or a business entity that is authorized to conduct business in the state (but not your own business). This can be you or someone else within your company, but keep in mind that this person will be through whom the state has contact with your business. This agent will receive legal documents (known as “Service of Process”) that pertain to your business. Your Registered Agent’s information would go on your most important Michigan Secretary of State corporation forms.
- Possess a physical street address located in Michigan (no P.O. Box address).
- Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.
Although the most comfortable option for a Michigan Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on Michigan’S-Corporation website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a Michigan Registered Agent Service. We also offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Registered Agent
ext, figure out who the Registered Agent for the corporation should be. The State of Michigan requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.
Obtain an Employer
Identification Number
Next, your S-Corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Fortunately, you do not have to waste time dealing with the IRS on your own. Going through the IRS directly to get your EIN can be complicated, confusing, and frustrating. GovDocFiling alleviates the angst and aggravation of filing government documents, including apply for an EIN, or Tax ID number. Plus, GovDocFiling has one low price for same-day processing and delivery of your EIN (other Tax ID filing services charge more than $300 for same-day service!). Easily apply for your EIN/Tax ID online here. In addition, if you have any questions about obtaining an EIN, we offer 24/7 email and phone support to help you through the process. Emails are answered quickly at info@govdocfiling.com.
If you know your S-Corp will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.
Obtain an Employer Identification Number
Next, your S-Corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Submit Your
Articles of Incorporation
To create an S-Corp in Michigan, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Michigan. It establishes the basic elements of the corporation, such as the name and address of the corporation, the number and classes of stock, and certain indemnification provisions. Prior to filing, the Articles of Incorporation must be signed by each incorporator in order to authenticate it. The document can be repealed or amended with the approval of the Board of Directors.
If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an S-Corp during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.
Once your completed Michigan Articles of Incorporation form is accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of Michigan.
Submit Your Articles of Incorporation
To create an S-Corp in Michigan, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Michigan.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your MI S-Corp. Basically, bylaws are rules of operation that create the company’s structure, ensuring that employees, shareholders, and executives are in the loop about how the business will be run.
Key points are covered in the corporate bylaws document, such as when annual meetings will be held, the size of your Board of Directors, and how this form will be amended if need be. In addition, member duties are explained and solutions to common disputes between parties are offered. Voting rights and salaries are discussed, and “what if” scenarios are presented. Having bylaws allows you to set up a structure that works for your business’s unique needs instead of adhering to default regulations within the state.
While bylaws are required in some states, they are not required in Michigan. Nevertheless, it is important to establish a set of bylaws that ensure your business runs smoothly. Filling out and filing this document prior to starting an S-Corporation in Michigan provides protection for your business.
You can use this corporate bylaws generator to get a sense of what goes into a typical set of bylaws. To ensure it is done correctly, you can have a lawyer look over your bylaws prior to submission to ensure all necessary rules and scenarios are covered. Get legal advice from our partner Rocket Lawyer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation.
Elect a Board of Directors
Michigan law requires one or more director(s). The Board of Directors, while they are not involved in the daily tasks of running a business, represent or govern the corporation. Their duties include handling finances and fulfilling legal requirements, as well as determining the mission of the company.
People who do not work for your company can be a part of your Board of Directors. In fact, many businesses turn to lawyers or other business owners to fill in a spot on their Board of Directors. That way, they receive outside expertise from them, plus they may come with their own additional business contacts.
These board members must adhere to something called “the duty of loyalty,” which means that directors and officers of an S-Corporation can only make decisions without any personal economic conflict. The duty of loyalty is breached if something like a self-interested transaction occurs or a business opportunity is stolen. Plus, there is also the “duty of care” to consider. Members of the Board of Directors must make decisions that are in the best interests of the corporation at all times. For example, making a decision that causes serious losses for the shareholders would mean they are in violation of their duty of care and they can be sued for this.
Your board members will have to hold meetings to make important decisions, such as issuing shares or amending something in the Articles of Incorporation. The Board of Directors typically receives equal voting rights (some states, like Delaware, are an exception) when making these decisions. During the first meeting of the S-Corporation's Board of Directors, directors can appoint officers, decide on bylaws, select a corporate bank, and more. All subsequent meetings must be held annually, though, of course, if more are needed, more can be held.
Minutes of the meeting, which is the recorded documentation of what was discussed or what happened during a meeting, must be recorded to exhibit transparency in business operations, but they do not need to be filed with the state. Instead, these should be kept with your other corporate records, such as Articles of Incorporation and bylaws. These documents should be saved for at least seven years in order to protect your company.
Elect a Board of Directors
First, familiarize yourself with the roles within an S-Corporation. There are three groups:
- Shareholders
- Board of Directors
- Officers
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything--if there are multiple shareholders and directors. If a corporation has only one shareholder or director, the decision-making, of course, falls on that person without the need for a group meeting. Officers, on the other hand, do not operate in groups. An officer holding the position of president, chief executive officer, or treasurer, for example, is an agent of the corporation and has the authority to act on behalf of the corporation on his or her own. Within smaller S-Corps, directors are sometimes also officers and shareholders. In that case, even though the same person is serving in multiple roles, each role has very different responsibilities and is treated as such.
Shareholders are the owners of the corporation, and they elect the Board of Directors. The directors, in unison, oversee and direct corporation affairs and make business decisions. They employ officers who carry out the Board of Directors’ decisions. Officers are responsible for the day-to-day operations of the company. An officer can be terminated by the Board of Directors at any time.
Michigan requirements state that there should be a President, Secretary, and Treasurer--but the same person can be two of these.
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything - if there are multiple shareholders and directors.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt. Unlike taking out a business loan, you do not pay interest that eats at your profits each month. The value of your business assets can be assessed by taking a look at what amount of your business assets are owned by shareholders vs. lenders. Corporations that have a higher proportion of the company owned by lenders makes an investment in the business appear riskier. If shareholders do invest in your business and purchase stock, keep in mind that if your business fails, you would have to pay back your loans and shareholders.
While there are many advantages to issuing stock, keep in mind that shareholders have an ownership stake in the company. This means that they have certain rights, such as the ability to participate in voting and the assurance that they will be collecting dividends. Profits will be shared and decisions will have to be made in unison. The more stock you issue to shareholders, the smaller your ownership in the business (and the less of a say you have in business major business decisions). On the plus side, when your business grows, you can buy out the other shareholders and get your ownership back.
Issuing stock is not a requirement for S-Corporations, but a privilege that you can make use of if you choose. Doing so can help you fund your business if you are growing and have large, expensive projects planned in the near future. In that case, you can decide how much capital you need and figure out how many shares you’d like to issue and at what price per share. You will already have a number for how many shares you have to offer (that was decided when you filed your Articles of Incorporation). To properly assess the accurate value of each share, determine your company’s net worth first. This will help you figure out what percentage of ownership you believe each share is worth.
Typically, appointed Board of Directors can issue stock whenever and to whomever, as long as the recipient has a brokerage account and is over 18 years old. But within an S-Corp, there are a few more limitations that a C-Corp does not have. While C-Corporations can be owned by any individual or legal entity--foreign or domestic--S-Corporations can only be owned by United States citizens or resident aliens. On top of that, an S-Corp does not allow an unlimited number of shareholders. It maxes out at 100. Also, S-Corps are not permitted to be owned by a C-Corp, another S-Corp, an LLC, a partnership, or many trusts. Lastly, unlike in a C-Corp where shareholders have the option between different stock classes (common, preferred, income, value, growth), an S-Corp only permits one stock class (common).
Another thing that can limit you here is if you’ve chosen to classify your S-Corp as a private corporation. This is typically a smaller corporation where the stock isn't offered to the public. A publiC-Corporation is authorized to sell their stock to the public, while a private company can’t trade its share on public stock exchanges. But a private corporation is not always small. Many big companies are privately held--such as Dell, Koch Industries, Deloitte, and Cargill. It can be harder for private corporations to raise funds, but it can be important in order to maintain family ownership.
Whoever your corporation may sell stock to, it’s important to have a shareholder agreement for protection. This would explain the shareholder’s rights and voting power within the S-Corporation. You will want to decide and let you shareholders know what kind of say they have in the organization or management of the company when they are issued stock. Michigan requires an annual shareholder meeting.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt.
Familiarize Yourself with the
State’s Taxes and Licenses
Income from pass-through entities such as Michigan Limited Liability Companies and Michigan S-Corps “passes through” the business to the owners, who are required to report this information on their personal tax returns. Each individual S-Corp member will then have to pay taxes on his or her share of the company’s income. The S-Corp itself does not pay federal income taxes, but some states do charge the S-Corp other various taxes. For example, employers owe payroll tax on employees wages. Plus, there are state taxes and city taxes--and this can vary by city. If you plan to incorporate in Detroit, Michigan, you can learn more on the Michigan Department of Treasury website.
In addition, there may be extra fees for certain insurances, permits, and licenses, depending on the state’s laws and the type of business you own. For example, you may need worker’s compensation, unemployment insurance, building permits, etc. Most Michigan permits and licenses can be found on the State License Search. Find out the requirements for S-Corps in the state you plan to run your business in. Keep in mind that different cities or counties may require certain permits and licenses that other regions do not. Contact your city or county to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.
Familiarize Yourself with the State’s Taxes and Licenses
Income from pass-through entities such as Michigan Limited Liability Companies and Michigan S-Corps “passes through” the business to the owners, who are required to report this information on their personal tax returns. Each individual S-Corp member will then have to pay taxes on his or her share of the company’s income.
File an Annual Statement
Like most states, the State of Michigan requires all S-Corp owners to file an Annual Statement. It is due on or before May 15th of each year, along with a fee of $25 payable to the State of Michigan. The MI filing fee can be paid by credit card, check, or money order, depending on whether the statement is filed online or via mail. Online filing is available here. Mailed applications are sent to the Michigan Corporations Division.
Filing an Annual Statement is necessary for maintaining an active status after starting a business in Michigan. The bureau sends an Annual Statement template to the Registered Agent on file 90 days before the due date, but all business owners should keep track of such important dates on their own or with the help of a service. Not filing an Annual Statement or paying the fee will result in being presented a Michigan corporation dissolution form, after which the state will dissolve your business.
The statement can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, and all Michigan S-Corp fees–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses.
File an Annual Statement
Like most states, the State of Michigan requires all S-Corp owners to file an Annual Statement. It is due on or before May 15th of each year, along with a fee of $25 payable to the State of Michigan.
Raise Funds for Your Corporation
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your S-Corp are:
- Personal savings and assets
- Informal loans from family and friends
- Peer-to-peer lending sites or crowdfunding
- Conventional bank loan
- Short-term credit card loans
- Government-sponsored grants/loan programs
- Issuing stock to shareholders
Many new S-Corporation owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.
Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.
If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.
You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.
Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.
There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.
Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.
Lastly, you can invite people to your team. S-Corporations may have a single person as the company's owner, or an unlimited number of shareholders participating in the ownership of the business. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your bylaws and ensure that you are still the primary owner of your Michigan S-Corporation.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your Michigan business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.
Start S-Corp formationIf the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.
But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.
In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.
If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.
The Benefits of Having an Online Presence
If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.
While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few Michigan corporation name tips:
- Follow S-Corp naming guidelines. A corporation’s name usually has to include words, like Corporation, Incorporated, Company, or Limited; or abbreviations, like Corp., Inc., Co., or Ltd. It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
- Find a unique name. If you’re creating an S-Corporation in the State of Michigan, you will need an original name that is not in use by another corporation. To check if a name has already been taken, you can search the Business Entity Name Database.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Michigan has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Michigan business is not a Michigan S-Corp requirement, but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service.
Begin Operating Your Business
Once you become an official S-Corporation in the state of Michigan, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings. This is mandatory if you don’t want your new business to run into any issues. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.
Next, make sure you’ve obtained all necessary permits, licenses, and insurances that your MI corp might need—and you’re good to go! Begin operating your Michigan business with peace of mind, knowing that you are protected by an S-Corp in case anything unforeseeable affects your new business venture.
Begin Operating Your Business
Once you become an official S-Corporation in the state of Michigan, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings.
Massachusetts S-Corp
Learn the Benefits of an S-Corp
When you decide to start a business, there are a number of business entities to choose from. Each has its own advantages and disadvantages, which we will introduce to you here. Prospective business owners should consult with professionals, such as a business attorney and accountants, before making the final decision. But educating yourself about the different types of corporations can help you assess what is the right business structure for you beforehand.
But first, are you ready to incorporate? It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Typically, “material size” means a business with revenue above $100,000. Once you know you’re ready, you have the option between choosing to classify your business as a C-Corporation or an S-Corporation. While S-Corps used to be the way to go for small businesses (it’s even been nicknamed the “Small BusinesS-Corporation”), thanks to the 2017 Tax Cuts and Jobs Act, C-Corps may now offer lower corporate tax rates to smaller business. Now, S-Corps are sometimes advisable for larger businesses. But keep in mind that C-Corps give you more options to expand and raise money, which can be very beneficial to a larger business. You may want to discuss the differences with a financial advisor or lawyer who can help break down all of the costs to help you assess what will work best for you.
Whether you choose to structure your business entity as a C or S-Corporation will determine how much you’ll pay in taxes, the ways you’re permitted to raise money, and the ease with which you can expand as your business grows. The standard and most common type of corporation is a C-Corporation. In fact, a C-Corp is the default type of corporation, and all S-Corps begin as a C-Corp or LLC. When you initially incorporate, your company will automatically become a standard C-Corp, and only after you file multiple forms can you transition to an S-Corp for federal tax purposes.
If there is an issue with a product, an S-Corp protects you. Compensation can only be taken from the S-Corp’s assets, not your personal assets.
Start Your S-Corp NowHow do you know which type of corporation you want to register your business as when they are both so similar? Both types of corporations offer owners protection from individual liability, so shareholders (and directors, officers, and employees) are typically not personally responsible for business debts. C-Corps and S-Corps require similar paperwork. In addition, both are owned by shareholders, have a Board of Directors with annual meetings, and are managed by executive officers. It is also a requirement that both types of corporations pay annual fees, set up bylaws, and issue stock. Basically, an S-Corporation is the legal equivalent of a regular C-Corporation. Both have the same rights. They just pays taxes differently.
But why opt for an S-Corp? What are the benefits of setting up your Massachusetts business as an S-Corp?
The main difference between a C and S-Corporation is that an S-Corp is not treated as a disregarded entity. It is a pass-through tax entity. While a C-Corp’s tax attributes are determined at the entity level, an S-Corp determines its own income, deductions, credits, etc. It spreads out the tax attributes among its owners (or to its sole owner) as part of shared ownership. Likewise, within an S-Corporation, the profits are passed on to the shareholders, who are then taxed based on their personal returns. Unlike a C-Corporation, an S-Corporation is required to file an annual information tax return. A few other differences are that S-Corps must have no more than 100 shareholders (all individuals, not corporations), have only one class of stock, and be owned by U.S. citizens or resident aliens.
There are advantages to establishing an S-Corp in Massachusetts. Registering as an S-Corporation offers you:
- The ability to operate as a corporation even if the owner leaves the company or passes away.
- Pass-through taxation, as owners report their share of the profits and losses on their individual tax returns.
- A way out of being taxed twice, the way you would be in a C-Corporation. There is no double taxation occurring--once as income and again as dividend income. You save more money!
- The opportunity to issue shares of stock to increase the value of your business.
- A deduction of 20% of all S-Corp income on your personal tax return, which can significantly reduce your tax burden.
- The ability to write off the S-Corp’s losses on shareholders’ individual tax returns.
- Annual tax filing requirements, unlike C-Corps which must file every quarter.
- Corporate status, which means shareholders, directors, and officers are protected from sharing liability as long as there is no evidence of fraud or other misdeeds
But there are a few disadvantages to starting an S-Corp. One of those is the fact that, unlike a C-Corp, there are restrictions on ownership if you start a Massachusetts S-Corp. S-Corporations can only be owned by United States citizens or resident aliens. Additionally, an S-Corp permits only 100 shareholders, while for a C-Corp, there is no limit. But overall, the benefits far outweigh the setbacks, and an S-Corporation is an excellent choice for many entrepreneurs looking to start a business in Massachusetts.
Learn the Benefits of an S-Corp
Educating yourself about the different types of corporations can help you assess what is the right business structure for you. It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Decide on a Registered Agent
Next, figure out who the Registered Agent for the corporation should be. The State of Massachusetts requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. Typically, the Registered Agent will also act as the contact point between the Mass Secretary of State and the Corp. In Massachusetts, instead of a Secretary of State, there is a Secretary of the Commonwealth. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business from the Secretary of the Commonwealth.
A Registered Agent can be either an individual who is a resident of Massachusetts or a business entity that is authorized to conduct business in the state (but not your own business). This can be you or someone else within your company, but keep in mind that this person will be through whom the state has contact with your business. This agent will receive legal documents (known as “Service of Process”) that pertain to your business. Your Registered Agent’s information would go on your most important Massachusetts Secretary of the Commonwealth corporation forms.
- Possess a physical street address located in Massachusetts (no P.O. Box address).
- Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.
Although the most comfortable option for a Massachusetts Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on Massachusetts’S-Corporation website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a Massachusetts Registered Agent Service. We also offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Registered Agent
Next, figure out who the Registered Agent for the corporation should be. The State of Massachusetts requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.
Obtain an Employer
Identification Number
Next, your Mass S-Corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Fortunately, you do not have to waste time dealing with the IRS on your own. Going through the IRS directly to get your EIN can be complicated, confusing, and frustrating. GovDocFiling alleviates the angst and aggravation of filing government documents, including apply for an EIN, or Tax ID number. Plus, GovDocFiling has one low price for same-day processing and delivery of your EIN (other Tax ID filing services charge more than $300 for same-day service!). Easily apply for your EIN/Tax ID online here. In addition, if you have any questions about obtaining an EIN, we offer 24/7 email and phone support to help you through the process. Emails are answered quickly at info@govdocfiling.com.
If you know your S-Corp will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.
Obtain an Employer Identification Number
Next, your Mass S-Corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Submit Your
Articles of Incorporation
To create an S-Corp in Massachusetts, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Massachusetts. It establishes the basic elements of the corporation, such as the name and address of the corporation, the number and classes of stock, and certain indemnification provisions. Prior to filing, the Articles of Incorporation must be signed by each incorporator in order to authenticate it. The document can be repealed or amended with the approval of the Board of Directors.
If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an S-Corp during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.
Once your completed Massachusetts Articles of Incorporation form is accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of Massachusetts.
Submit Your Articles of Incorporation
To create an S-Corp in Massachusetts, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Massachusetts.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your MA S-Corp. Basically, bylaws are rules of operation that create the company’s structure, ensuring that employees, shareholders, and executives are in the loop about how the business will be run.
Key points are covered in the corporate bylaws document, such as when annual meetings will be held, the size of your Board of Directors, and how this form will be amended if need be. In addition, member duties are explained and solutions to common disputes between parties are offered. Voting rights and salaries are discussed, and “what if” scenarios are presented. Having bylaws allows you to set up a structure that works for your business’s unique needs instead of adhering to default regulations within the state.
While bylaws are not required in some states, they are required in Massachusetts. It is important to establish a set of bylaws that ensure your business runs smoothly. Filling out and filing this document prior to starting an S-Corporation in Massachusetts provides protection for your business.
You can use this corporate bylaws generator to get a sense of what goes into a typical set of bylaws. To ensure it is done correctly, you can have a lawyer look over your bylaws prior to submission to ensure all necessary rules and scenarios are covered. Get legal advice from our partner Rocket Lawyer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation.
Elect a Board of Directors
Massachusetts law requires at least three director(s). The Board of Directors, while they are not involved in the daily tasks of running a business, represent or govern the corporation. Their duties include handling finances and fulfilling legal requirements, as well as determining the mission of the company.
People who do not work for your company can be a part of your Board of Directors. In fact, many businesses turn to lawyers or other business owners to fill in a spot on their Board of Directors. That way, they receive outside expertise from them, plus they may come with their own additional business contacts.
These board members must adhere to something called “the duty of loyalty,” which means that directors and officers of an S-Corporation can only make decisions without any personal economic conflict. The duty of loyalty is breached if something like a self-interested transaction occurs or a business opportunity is stolen. Plus, there is also the “duty of care” to consider. Members of the Board of Directors must make decisions that are in the best interests of the corporation at all times. For example, making a decision that causes serious losses for the shareholders would mean they are in violation of their duty of care and they can be sued for this.
Your board members will have to hold meetings to make important decisions, such as issuing shares or amending something in the Articles of Incorporation. The Board of Directors typically receives equal voting rights (some states, like Delaware, are an exception) when making these decisions. During the first meeting of the S-Corporation's Board of Directors, directors can appoint officers, decide on bylaws, select a corporate bank, and more. All subsequent meetings must be held annually, though, of course, if more are needed, more can be held.
Minutes of the meeting, which is the recorded documentation of what was discussed or what happened during a meeting, must be recorded to exhibit transparency in business operations, but they do not need to be filed with the state. Instead, these should be kept with your other corporate records, such as Articles of Incorporation and bylaws. These documents should be saved for at least seven years in order to protect your company.
Elect a Board of Directors
First, familiarize yourself with the roles within an S-Corporation. There are three groups:
- Shareholders
- Board of Directors
- Officers
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything--if there are multiple shareholders and directors. If a corporation has only one shareholder or director, the decision-making, of course, falls on that person without the need for a group meeting. Officers, on the other hand, do not operate in groups. An officer holding the position of president, chief executive officer, or treasurer, for example, is an agent of the corporation and has the authority to act on behalf of the corporation on his or her own. Within smaller S-Corps, directors are sometimes also officers and shareholders. In that case, even though the same person is serving in multiple roles, each role has very different responsibilities and is treated as such.
Shareholders are the owners of the corporation, and they elect the Board of Directors. The directors, in unison, oversee and direct corporation affairs and make business decisions. They employ officers who carry out the Board of Directors’ decisions. Officers are responsible for the day-to-day operations of the company. An officer can be terminated by the Board of Directors at any time. Massachusetts requirements state that all S-Corps must have a Clerk, Treasurer, and President on the Board of Directors.
Massachusetts requirements state that there should be as many officers as stated in the bylaws, but a minimum of one. One person may hold multiple offices. If there are multiple officers, one officer is responsible for maintaining all corporate records.
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything - if there are multiple shareholders and directors.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt. Unlike taking out a business loan, you do not pay interest that eats at your profits each month. The value of your business assets can be assessed by taking a look at what amount of your business assets are owned by shareholders vs. lenders. Corporations that have a higher proportion of the company owned by lenders makes an investment in the business appear riskier. If shareholders do invest in your business and purchase stock, keep in mind that if your business fails, you would have to pay back your loans and shareholders.
While there are many advantages to issuing stock, keep in mind that shareholders have an ownership stake in the company. This means that they have certain rights, such as the ability to participate in voting and the assurance that they will be collecting dividends. Profits will be shared and decisions will have to be made in unison. The more stock you issue to shareholders, the smaller your ownership in the business (and the less of a say you have in business major business decisions). On the plus side, when your business grows, you can buy out the other shareholders and get your ownership back.
Issuing stock is not a requirement for S-Corporations, but a privilege that you can make use of if you choose. Doing so can help you fund your business if you are growing and have large, expensive projects planned in the near future. In that case, you can decide how much capital you need and figure out how many shares you’d like to issue and at what price per share. You will already have a number for how many shares you have to offer (that was decided when you filed your Articles of Incorporation). To properly assess the accurate value of each share, determine your company’s net worth first. This will help you figure out what percentage of ownership you believe each share is worth.
Typically, appointed Board of Directors can issue stock whenever and to whomever, as long as the recipient has a brokerage account and is over 18 years old. But within an S-Corp, there are a few more limitations that a C-Corp does not have. While C-Corporations can be owned by any individual or legal entity--foreign or domestic--S-Corporations can only be owned by United States citizens or resident aliens. On top of that, an S-Corp does not allow an unlimited number of shareholders. It maxes out at 100. Also, S-Corps are not permitted to be owned by a C-Corp, another S-Corp, an LLC, a partnership, or many trusts. Lastly, unlike in a C-Corp where shareholders have the option between different stock classes (common, preferred, income, value, growth), an S-Corp only permits one stock class (common).
Another thing that can limit you here is if you’ve chosen to classify your S-Corp as a private corporation. This is typically a smaller corporation where the stock isn't offered to the public. A publiC-Corporation is authorized to sell their stock to the public, while a private company can’t trade its share on public stock exchanges. But a private corporation is not always small. Many big companies are privately held--such as Dell, Koch Industries, Deloitte, and Cargill. It can be harder for private corporations to raise funds, but it can be important in order to maintain family ownership.
Whoever your corporation may sell stock to, it’s important to have a shareholder agreement for protection. This would explain the shareholder’s rights and voting power within the S-Corporation. You will want to decide and let you shareholders know what kind of say they have in the organization or management of the company when they are issued stock. Massachusetts requires an annual shareholder meeting.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt.
Familiarize Yourself with the
State’s Taxes and Licenses
Income from pass-through entities, such as a Massachusetts Limited Liability Company and Massachusetts S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns. Each individual S-Corp member would then have to pay taxes on his or her share of the S-Corp’s income. But MA S-Corp taxes can get complicated. Read a breakdown of all S-Corp taxes on the Massachusetts Government website.
Plus, some states charge the corporation other various taxes. For example, employers owe payroll tax on their employees’ wages. Also, the State of Massachusetts has a sales and use tax of 6.25% that anyone with a business that sells products or services must pay. You can find more information on both of these taxes on the MassTax Connect Department of Revenue website.
In addition, there may be extra fees for certain insurances, permits, and licenses, depending on the state’s laws and the type of business you own. For example, you may need worker’s compensation, unemployment insurance, building permits, etc. Unemployment insurance information is here. Most Massachusetts permits and licenses can be found on the Commonwealth of Massachusetts website. Find out the requirements for S-Corps in the state you plan to run your business in. Keep in mind that different cities or counties may require certain permits and licenses that other regions do not. Contact your city or county to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.
Familiarize Yourself with the State’s Taxes and Licenses
Income from pass-through entities, such as a Massachusetts Limited Liability Company and Massachusetts S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
File an Annual Report
Like most states, the State of Massachusetts requires all MasS-Corp owners to file an Annual Report that updates all the information that the State of Massachusetts has on file. The report is due annually within two and a half months after the close of the fiscal year. An S-Corp filing fee is due along with the report, $109 for online and fax submissions and $125 for reports submitted by mail. Instructions for online, faxed, and mailed submissions can be found on the Massachusetts Secretary of the Commonwealth’s website.
Filing an Annual Report is necessary for maintaining an active status after starting an S-Corp in MA. Not filing the report or paying the fee will result in being presented a MassachusettS-Corporation dissolution form, after which the state will dissolve your business.
Annual Reports can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, and all Massachusetts S-Corp fees–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses.
File an Annual Report
Like most states, the State of Massachusetts requires all MasS-Corp owners to file an Annual Report that updates all the information that the State of Massachusetts has on file.
Raise Funds for Your Corporation
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your S-Corp are:
- Personal savings and assets
- Informal loans from family and friends
- Peer-to-peer lending sites or crowdfunding
- Conventional bank loan
- Short-term credit card loans
- Government-sponsored grants/loan programs
- Issuing stock to shareholders
Many new S-Corporation owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.
Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.
If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.
You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.
Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.
There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.
Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.
Lastly, you can invite people to your team. S-Corporations may have a single person as the company's owner, or an unlimited number of shareholders participating in the ownership of the business. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your bylaws and ensure that you are still the primary owner of your Massachusetts S-Corporation.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your Massachusetts business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.
Start S-Corp formationIf the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.
But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.
In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.
If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.
The Benefits of Having an Online Presence
If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.
While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few MassachusettS-Corporation name tips:
- Follow S-Corp naming guidelines. A corporation’s name usually has to include words, like Corporation, Incorporated, Company, or Limited; or abbreviations, like Corp., Inc., Co., or Ltd. It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
- Find a unique name. If you’re creating an S-Corporation in the State of Massachusetts, you will need an original name that is not in use by another corporation. To check if a name has already been taken, you can search the Business Entity Name Database. If you are not ready to start your S-Corp just yet but want to reserve a name, you can do for $30 by filling out the Application for Reservation of Name. This will put a hold on your business name for 60 days. If necessary, you can extend the name reservation for another 60 days for an additional $30 fee before the original reservation expires.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Massachusetts has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Massachusetts business is not a Massachusetts S-Corp requirement, but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service.
Begin Operating Your Business
Once you become an official S-Corporation in the state of Massachusetts, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings. This is mandatory if you don’t want your new business to run into any issues. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.
Next, make sure you’ve obtained all necessary permits, licenses, and insurances that your MA corp might need—and you’re good to go! Begin operating your Massachusetts business with peace of mind, knowing that you are protected by an S-Corp in case anything unforeseeable affects your new business venture.
Begin Operating Your Business
Once you become an official S-Corporation in the state of Massachusetts, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings.
Maryland S-Corp
Learn the Benefits of an S-Corp
When you decide to start a business, there are a number of business entities to choose from. Each has its own advantages and disadvantages, which we will introduce to you here. Prospective business owners should consult with professionals, such as a business attorney and accountants, before making the final decision. But educating yourself about the different types of corporations can help you assess what is the right business structure for you beforehand.
But first, are you ready to incorporate? It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Typically, “material size” means a business with revenue above $100,000. Once you know you’re ready, you have the option between choosing to classify your business as a C-Corporation or an S-Corporation. While S-Corps used to be the way to go for small businesses (it’s even been nicknamed the “Small BusinesS-Corporation”), thanks to the 2017 Tax Cuts and Jobs Act, C-Corps may now offer lower corporate tax rates to smaller business. Now, S-Corps are sometimes advisable for larger businesses. But keep in mind that C-Corps give you more options to expand and raise money, which can be very beneficial to a larger business. You may want to discuss the differences with a financial advisor or lawyer who can help break down all of the costs to help you assess what will work best for you.
Whether you choose to structure your business entity as a C or S-Corporation will determine how much you’ll pay in taxes, the ways you’re permitted to raise money, and the ease with which you can expand as your business grows. The standard and most common type of corporation is a C-Corporation. In fact, a C-Corp is the default type of corporation, and all S-Corps begin as a C-Corp or LLC. When you initially incorporate, your company will automatically become a standard C-Corp, and only after you file multiple forms can you transition to an S-Corp for federal tax purposes.
If there is an issue with a product, an S-Corp protects you. Compensation can only be taken from the S-Corp’s assets, not your personal assets.
Start Your S-Corp NowHow do you know which type of corporation you want to register your business as when they are both so similar? Both types of corporations offer owners protection from individual liability, so shareholders (and directors, officers, and employees) are typically not personally responsible for business debts. C-Corps and S-Corps require similar paperwork. In addition, both are owned by shareholders, have a Board of Directors with annual meetings, and are managed by executive officers. It is also a requirement that both types of corporations pay annual fees, set up bylaws, and issue stock. Basically, an S-Corporation is the legal equivalent of a regular C-Corporation. Both have the same rights. They just pays taxes differently.
But why opt for an S-Corp? What are the benefits of setting up your state of Maryland business as an S-Corp?
The main difference between a C and S-Corporation is that an S-Corp is not treated as a disregarded entity. It is a pass-through tax entity. While a C-Corp’s tax attributes are determined at the entity level, an S-Corp determines its own income, deductions, credits, etc. It spreads out the tax attributes among its owners (or to its sole owner) as part of shared ownership. Likewise, within an S-Corporation, the profits are passed on to the shareholders, who are then taxed based on their personal returns. Unlike a C-Corporation, an S-Corporation is required to file an annual information tax return. A few other differences are that S-Corps must have no more than 100 shareholders (all individuals, not corporations), have only one class of stock, and be owned by U.S. citizens or resident aliens.
There are advantages to establishing an S-Corp in Maryland. Registering as an S-Corporation offers you:
- The ability to operate as a corporation even if the owner leaves the company or passes away.
- Pass-through taxation, as owners report their share of the profits and losses on their individual tax returns.
- A way out of being taxed twice, the way you would be in a C-Corporation. There is no double taxation occurring--once as income and again as dividend income. You save more money!
- The opportunity to issue shares of stock to increase the value of your business.
- A deduction of 20% of all S-Corp income on your personal tax return, which can significantly reduce your tax burden.
- The ability to write off the S-Corp’s losses on shareholders’ individual tax returns.
- Annual tax filing requirements, unlike C-Corps which must file every quarter.
- Corporate status, which means shareholders, directors, and officers are protected from sharing liability as long as there is no evidence of fraud or other misdeeds
But there are a few disadvantages to starting an S-Corp. One of those is the fact that, unlike a C-Corp, there are restrictions on ownership if you start a Maryland S-Corp. S-Corporations can only be owned by United States citizens or resident aliens. Additionally, an S-Corp permits only 100 shareholders, while for a C-Corp, there is no limit. But overall, the benefits far outweigh the setbacks, and an S-Corporation is an excellent choice for many entrepreneurs looking to start a business in Maryland.
Learn the Benefits of an S-Corp
Educating yourself about the different types of corporations can help you assess what is the right business structure for you. It is advised that you should incorporate when you anticipate taking investments or when your business approaches material size or complexity.
Decide on a Registered Agent
Just like the Maryland LLC formation process, an S-Corp will also need to figure out who the Registered Agent for the corporation should be. The State of Maryland requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between the Maryland Secretary of State and the corporation. Once you assign someone as your Registered Agent, they can receive official correspondence and documents on behalf of your business.
A Registered Agent can be either an individual who is a resident of Maryland or a business entity that is authorized to conduct business in the state (but not your own business). This can be you or someone else within your company, but keep in mind that this person will be through whom the state has contact with your business. This agent will receive legal documents (known as “Service of Process”) that pertain to your business. Your Registered Agent’s information would go on your most important Maryland Secretary of State corporation forms.
- Possess a physical street address located in Maryland (no P.O. Box address).
- Be available during regular business hours, typically Monday through Friday, 9 am to 5 pm.
Although the most comfortable option for a Maryland Registered Agent would be to name yourself, a friend, or a family member, know that this information will be public record. Not only will the information be searchable on Kentucky’s Secretary of State website, it can also be republished on other sites as well. If you work from home and would much rather keep your home address private, this might not be the best choice. An alternative you can look into is hiring a Maryland Registered Agent Service. We also offer a Registered Agent Service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Registered Agent
Just like the Maryland LLC formation process, an S-Corp will also need to figure out who the Registered Agent for the corporation should be. The State of Maryland requires every corporation in the state to have one. This enables the state to ensure the delivery of legal mail and that court documents can be tracked appropriately.
Obtain an Employer
Identification Number
Next, your Maryland S-corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Fortunately, you do not have to waste time dealing with the IRS on your own. Going through the IRS directly to get your EIN can be complicated, confusing, and frustrating. GovDocFiling alleviates the angst and aggravation of filing government documents, including apply for an EIN, or Tax ID number. Plus, GovDocFiling has one low price for same-day processing and delivery of your EIN (other Tax ID filing services charge more than $300 for same-day service!). Easily apply for your EIN/Tax ID online here. In addition, if you have any questions about obtaining an EIN, we offer 24/7 email and phone support to help you through the process. Emails are answered quickly at info@govdocfiling.com.
If you know your S-Corp will have employees, you also know that you will have to pay them. Plus, you will need to figure out the amount you should deduct from their wages for tax purposes. Employees will need to fill out a W-4 Form, and you will need to give them pay stubs with their tax information. Before this all gets overwhelming, keep in mind that we offer Payroll, Tax and HR compliance solutions with our partner, ADP. We make it easy to pay your employees, track time, and file taxes effortlessly. Plus, you and your employees can view and update payroll information via an app--accessible anywhere, anytime, backed by 24/7 live customer service support.
Obtain an Employer Identification Number
Next, your Maryland S-corp will need to file with the IRS for an Employer Identification Number (EIN). This is a nine-digit number assigned to businesses for tax filing and reporting purposes that allows the IRS to identify the taxpayer. All corporations require an EIN, even if you don’t have any employees.
Submit Your
Articles of Incorporation
To create an S-Corp in Maryland, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Maryland. It establishes the basic elements of the corporation, such as the name and address of the corporation, the number and classes of stock, and certain indemnification provisions. Prior to filing, the Articles of Incorporation must be signed by each incorporator in order to authenticate it. The document can be repealed or amended with the approval of the Board of Directors.
If filing on your own, there are usually non-refundable fees that you have to pay with check or money order, additional fees for hand-delivery of forms, and long wait times whether in person or by mail--especially if you’re filing for an S-Corp during peak season. GovDocFiling can speed up the process for you. We offer an easy online application, expedited pricing, and a free business start-up guide and resources with all filings. You can apply here today.
Once your completed Maryland Articles of Incorporation form is accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of Maryland.
Submit Your Articles of Incorporation
To create an S-Corp in Maryland, you will also need to register your business by filling out and submitting the Articles of Incorporation. The Articles of Incorporation is a form that should be filed (and maintained) with the state of Maryland.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation. There is no set criteria for what your bylaws should look like, but typically, they should set forth internal rules and procedures for your MD S-Corp. Basically, bylaws are rules of operation that create the company’s structure, ensuring that employees, shareholders, and executives are in the loop about how the business will be run.
Key points are covered in the corporate bylaws document, such as when annual meetings will be held, the size of your Board of Directors, and how this form will be amended if need be. In addition, member duties are explained and solutions to common disputes between parties are offered. Voting rights and salaries are discussed, and “what if” scenarios are presented. Having bylaws allows you to set up a structure that works for your business’s unique needs instead of adhering to default regulations within the state.
While bylaws are not required in most states, they are required in Maryland. It is important to establish a set of bylaws that ensure your business runs smoothly. Filling out and filing this document prior to starting an S-Corporation in Maryland provides protection for your business.
You can use this corporate bylaws generator to get a sense of what goes into a typical set of bylaws. To ensure it is done correctly, you can have a lawyer look over your bylaws prior to submission to ensure all necessary rules and scenarios are covered. Get legal advice from our partner Rocket Lawyer.
Draft Your Corporate Bylaws
First, what are bylaws? If you’ve heard of an Operating Agreement, this is just like that, but “bylaws” is the term usually used when referring to a corporation.
Elect a Board of Directors
Maryland law requires one or more director(s). The Board of Directors, while they are not involved in the daily tasks of running a business, represent or govern the corporation. Their duties include handling finances and fulfilling legal requirements, as well as determining the mission of the company.
People who do not work for your company can be a part of your Board of Directors. In fact, many businesses turn to lawyers or other business owners to fill in a spot on their Board of Directors. That way, they receive outside expertise from them, plus they may come with their own additional business contacts.
These board members must adhere to something called “the duty of loyalty,” which means that directors and officers of an S-Corporation can only make decisions without any personal economic conflict. The duty of loyalty is breached if something like a self-interested transaction occurs or a business opportunity is stolen. Plus, there is also the “duty of care” to consider. Members of the Board of Directors must make decisions that are in the best interests of the corporation at all times. For example, making a decision that causes serious losses for the shareholders would mean they are in violation of their duty of care and they can be sued for this.
Your board members will have to hold meetings to make important decisions, such as issuing shares or amending something in the Articles of Incorporation. The Board of Directors typically receives equal voting rights (some states, like Delaware, are an exception) when making these decisions. During the first meeting of the S-Corporation's Board of Directors, directors can appoint officers, decide on bylaws, select a corporate bank, and more. All subsequent meetings must be held annually, though, of course, if more are needed, more can be held.
Minutes of the meeting, which is the recorded documentation of what was discussed or what happened during a meeting, must be recorded to exhibit transparency in business operations, but they do not need to be filed with the state. Instead, these should be kept with your other corporate records, such as Articles of Incorporation and bylaws. These documents should be saved for at least seven years in order to protect your company.
Elect a Board of Directors
First, familiarize yourself with the roles within an S-Corporation. There are three groups:
- Shareholders
- Board of Directors
- Officers
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything--if there are multiple shareholders and directors. If a corporation has only one shareholder or director, the decision-making, of course, falls on that person without the need for a group meeting. Officers, on the other hand, do not operate in groups. An officer holding the position of president, chief executive officer, or treasurer, for example, is an agent of the corporation and has the authority to act on behalf of the corporation on his or her own. Within smaller S-Corps, directors are sometimes also officers and shareholders. In that case, even though the same person is serving in multiple roles, each role has very different responsibilities and is treated as such.
Shareholders are the owners of the corporation, and they elect the Board of Directors. The directors, in unison, oversee and direct corporation affairs and make business decisions. They employ officers who carry out the Board of Directors’ decisions. Officers are responsible for the day-to-day operations of the company. An officer can be terminated by the Board of Directors at any time.
Maryland requirements state that there should be a President, Secretary, and Treasurer on the Board of Directors.
Appoint Corporate Officers
Shareholders and directors only have the ability to make decisions as part of a group, after holding group meetings and taking votes. An individual shareholder or director does not have the power to do anything - if there are multiple shareholders and directors.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt. Unlike taking out a business loan, you do not pay interest that eats at your profits each month. The value of your business assets can be assessed by taking a look at what amount of your business assets are owned by shareholders vs. lenders. Corporations that have a higher proportion of the company owned by lenders makes an investment in the business appear riskier. If shareholders do invest in your business and purchase stock, keep in mind that if your business fails, you would have to pay back your loans and shareholders.
While there are many advantages to issuing stock, keep in mind that shareholders have an ownership stake in the company. This means that they have certain rights, such as the ability to participate in voting and the assurance that they will be collecting dividends. Profits will be shared and decisions will have to be made in unison. The more stock you issue to shareholders, the smaller your ownership in the business (and the less of a say you have in business major business decisions). On the plus side, when your business grows, you can buy out the other shareholders and get your ownership back.
Issuing stock is not a requirement for S-Corporations, but a privilege that you can make use of if you choose. Doing so can help you fund your business if you are growing and have large, expensive projects planned in the near future. In that case, you can decide how much capital you need and figure out how many shares you’d like to issue and at what price per share. You will already have a number for how many shares you have to offer (that was decided when you filed your Articles of Incorporation). To properly assess the accurate value of each share, determine your company’s net worth first. This will help you figure out what percentage of ownership you believe each share is worth.
Typically, appointed Board of Directors can issue stock whenever and to whomever, as long as the recipient has a brokerage account and is over 18 years old. But within an S-Corp, there are a few more limitations that a C-Corp does not have. While C-Corporations can be owned by any individual or legal entity--foreign or domestic--S-Corporations can only be owned by United States citizens or resident aliens. On top of that, an S-Corp does not allow an unlimited number of shareholders. It maxes out at 100. Also, S-Corps are not permitted to be owned by a C-Corp, another S-Corp, an LLC, a partnership, or many trusts. Lastly, unlike in a C-Corp where shareholders have the option between different stock classes (common, preferred, income, value, growth), an S-Corp only permits one stock class (common).
Another thing that can limit you here is if you’ve chosen to classify your S-Corp as a private corporation. This is typically a smaller corporation where the stock isn't offered to the public. A publiC-Corporation is authorized to sell their stock to the public, while a private company can’t trade its share on public stock exchanges. But a private corporation is not always small. Many big companies are privately held--such as Dell, Koch Industries, Deloitte, and Cargill. It can be harder for private corporations to raise funds, but it can be important in order to maintain family ownership.
Whoever your corporation may sell stock to, it’s important to have a shareholder agreement for protection. This would explain the shareholder’s rights and voting power within the S-Corporation. You will want to decide and let you shareholders know what kind of say they have in the organization or management of the company when they are issued stock. Like most states, Maryland requires an annual shareholder meeting.
Issue Stock to your Shareholders
One of the benefits of having an S-Corporation is being able to issue shares of stock to raise funds for your business. Shares represent the amount of money invested by the shareholders in the company. Issuing stock to your shareholders allows you to finance your business without relying on debt.
Familiarize Yourself with the
State’s Taxes and Licenses
Income from pass-through entities, such as a Maryland Limited Liability Company and Maryland S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns. In that case, each individual S-Corp member would then have to pay taxes on his or her share of the S-Corp’s income. Maryland’s personal income tax rates range from 1.75% to 3.2%. Additionally, Maryland has a statewide income tax with a rate that tops out at 5.75%. Maryland is one of the states in which local governments levy their own taxes on personal income. Counties in Maryland can collect income taxes with their own varying rates ranging from 1.75% to 3.2%.
A benefit of having an MD S-Corp instead of a Maryland LLC is that your business saves money on self-employment taxes. The owners of an S-Corp do not pay self-employment taxes on salaries they are paid by the corporation. Maryland’s laws for S-Corporations are different from some other states--the state requires S-Corporations to pay income tax on income allocable to nonresident shareholders. This means that income allocable to nonresident shareholders is taxed at 7.5%. Plus, income allocable to nonresident shareholders that are entities is taxed at 8.25%. On top of that, each individual shareholder has to pay state tax on his or her share of the corporation’s income. Maryland corporations pay a corporation income tax at the flat rate of 8.25% of net income.
Plus, some states charge the S-Corp other various taxes. For example, Maryland has a Property Property Tax that you file annually, which can be filed on the Maryland Business Express (MBE) website. Plus, businesses in Maryland are required to collect a 6% sales tax and a 9% alcoholic beverage tax. More business tax info can be found here.
In addition, there may be extra fees for certain insurances, permits, and licenses, depending on the state’s laws and the type of business you own. For example, you may need worker’s compensation, unemployment insurance, building permits, etc. Most Maryland permits and licenses can be found on the Maryland OneStop Portal. Find out the requirements for S-Corps in the state you plan to run your business in. Keep in mind that different cities or counties may require certain permits and licenses that other regions do not. Contact your city or county to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.
Familiarize Yourself with the State’s Taxes and Licenses
Income from pass-through entities, such as a Maryland Limited Liability Company and Maryland S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
File an Annual Report
Like most states, the State of Maryland requires all S-Corp owners to file an Annual Report. This report is due on April 15, along with a fee of $300 payable to the Maryland Department of Assessments & Taxation. You can file online on the Maryland Business Express website. You can also print and mail the form. Further instructions are here. As a courtesy, the state of Maryland also offers timely email reminders that business owners can sign up for in order to be notified when it is time to file important documents. Filing an Annual Report is necessary for maintaining an active status after starting a business in Maryland.
The report can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses etc.–and you should seek the help of an accountant to ensure that it is filled out properly. Our partner, Bench, will provide you with a team of accountants to help you with your franchise tax reports, as well as general bookkeeping services with monthly financial statements and intuitive software to monitor your business profits and expenses.
File an Annual Report
Like most states, the State of Maryland requires all S-Corp owners to file an Annual Report. This report is due on April 15, along with a fee of $300 payable to the Maryland Department of Assessments & Taxation.
Raise Funds for Your Corporation
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business. Some of the most commonly-used options for obtaining funding for your S-Corp are:
- Personal savings and assets
- Informal loans from family and friends
- Peer-to-peer lending sites or crowdfunding
- Conventional bank loan
- Short-term credit card loans
- Government-sponsored grants/loan programs
- Issuing stock to shareholders
Many new S-Corporation owners begin with their savings to fund their new business venture. If your savings are not enough, you may need to look into liquidating your personal assets or use them as collateral for loans. Can you sell your property or refinance your home? Do you have a retirement account such as a Traditional or Roth IRA? Usually, you can withdraw contributions you made to your IRA anytime, tax- and penalty-free, but that is not always the case. Find out what kind of fees your particular retirement plan will hit you with before using your IRA to fund your business.
Next, look into whether you know someone who shares your passion for your business and has the ability to contribute financially to your dream. These personal connections may want to support your startup idea. Although accepting an informal loan from a close friend or relative may feel safe, you should still protect yourself in case your relationship with the friend or family member goes sour. Have an official contract drawn up that all parties agree to. You can choose to have it notarized and have witnesses present for extra protection.
If you prefer not to borrow from friends and family, you can turn to a peer-to-peer (P2P) or social lending website. A P2P site is a place where investors seek out alternative opportunities to invest outside of stocks and bonds. You can apply for a loan and investors can decide whether or not they wish to fund your proposed business through interest-based loans. You can also look into crowdfunding, which is a way for small businesses or startups to raise money online through donations. These options typically require the ability to promote your business well, ensure complete transparency of where the funds go, and sometimes, the possibility of giving up ownership of a piece of your business. Make sure you look into all of the specifics.
You might be hoping to rely on a conventional loan from a bank, credit union or other lending institution for your main source of funds. In this case, you would need a formal business plan to present during your loan application process. If approved, you would be required to sign a legal contract, or a Promissory Note, outlining your obligations to the lender (which would primarily entail regular payments until the loan is paid off). If you are a first-time business owner, it is likely that you may be rejected initially. In that case, you can improve your application and reapply, or look into alternative sources of funding such as short-term financing via credit cards.
Using a credit card as a means of obtaining a fast and easy business loan would grant you use of immediate funds without the hassle and paperwork of loan applications or business plans. This is the best option for a brand new business, and we work with Nav to give our customers access to the credit they need. Visit our financing page and fill out the form for more information.
There are many credit cards that have low or no annual fees, low introductory interest rates, and other rewards depending on your spending. But be careful: make sure you pay back your credit card before the promotional low interest rate expires and skyrockets, or prior to having to pay large annual fees. And don’t make large purchases that can take years to pay back. For example, getting an equipment loan to purchase a piece of equipment is smarter than putting it on a credit card. Credit cards can be a good temporary solution if your business plan will allow you to pay back the debt quickly.
Another option at your disposal is a government-sponsored grant or loan program. Traditional lenders can turn to federal, state, or local governments to finance their business if such a grant or program is available. Typically, these programs consider sponsoring specific type of businesses or certain business owners, so be sure to research what government-sponsored loan your particular business or you might be eligible for.
Lastly, you can invite people to your team. S-Corporations may have a single person as the company's owner, or an unlimited number of shareholders participating in the ownership of the business. If you could see your businesses strategy succeeding with a partner or multiple partners, pool together your financial resources with another member to support your startup. An advantage to this funding option is your partner(s) may come with their own social network of business contacts and possibly even their own potential investors. To protect yourself, you can adjust your bylaws and ensure that you are still the primary owner of your Maryland S-Corporation.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. There are legal fees, document filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your Maryland business is not a requirement but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service. Having a website gives your business legitimacy; your customers will visit your website and see that you are a real company with an actual website where they can read about the company’s origin and products/services and access contact information. Being able to read up on a company on their website leads to trust between a consumer and an organization. Also, dependable customer service is often offered through a website. By offering an email address, a contact form, and/or live chat with a representative on your website, you are making it easy for a customer to get connected with someone knowledgeable about the product/service. That allows a customer to know that there is a real person who cares about their satisfaction within the company that they are doing business with.
Start S-Corp formationIf the website is outdated or there is no website, a consumer may feel that you are not a legitimate business but a scam with no licenses to back up your business’ operations. You can avoid losing customers due to not having a professional website by ensuring that you have one. We work with GoNorth Websites to provide new businesses with high quality, cost-effective websites. Find out more about our custom designed, written, and developed websites, plus optional internet marketing add-ons that help you grow your business.
But websites needs maintenance too. You can’t simply have one created and never update it throughout the years. Policies and terms change, companies grow, products/services improve, and all of that (and more) can be reflected on the website. This keeps your customers up-to-date and offers a personal touch that is valued by any consumer.
In addition, you can look into having a blog or utilizing social media as another means of keeping your customers in-the-know and offering them a way to interact with your company. An online and/or social media presence can also lead to responsive customers who can offer you feedback on how you’re doing—plus, it’ll help get your company’s name out there.
If this all sounds like more than you’d like to deal with on your own, know that you can hire someone to maintain your website and social media presence for you—just like you can hire customer representatives to handle all correspondence. You can employ a web agency to monitor your website and/or a social media marketing agency to manage your social media campaign. A social media campaign is a coordinated marketing plan that can assist you with your business goals, which translates into extra advertising for your new business. Marketing your company can help you have a more profitable business and can aid you with paying back your business loans quicker—something any business owner aims for. Regardless of industry, all businesses should consider having a website as part of the first steps of starting a business.
The Benefits of Having an Online Presence
If you’ve decided that you want to have a website for your business, keep a few things in mind. When coming up with a website name, make sure that the domain contains your business name and is easy to type and remember for future visits. If you come up with a great web domain that you’d like to use for your business but you don’t plan to create a business website today, you may want to buy the URL to prevent others from acquiring it.
While brainstorming website URLs for your website, you’re going to either realize that you already know what your business is going to be named or that you have no idea what or how to name your business. Here are a few Maryland corp name tips:
- Follow S-Corp naming guidelines. A corporation’s name usually has to include words, like Corporation, Incorporated, Company, or Limited; or abbreviations, like Corp., Inc., Co., or Ltd. It’s also important not to use any words or phrases that will make it easy for someone to mistake your company for a federal agency; think “State Department.”
- Find a unique name. If you’re getting an S-Corp in Maryland you will need an original name that is not in use by another corporation. To check if a name has already been taken, you can search the Business Entity Name Database.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Maryland has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Maryland business is not a Maryland S-Corp requirement, but it is recommended to any business owner operating in the modern world. An online presence is important to have and maintain in order to ensure that your customers trust your company and know they will receive good customer service.
Begin Operating Your Business
Once you become an official Maryland corporation, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings. This is mandatory if you don’t want your new business to run into any issues. If you’d rather not do these tasks yourself, you can sign up for a service that will automatically send you alerts ahead of crucial state and federal filing deadlines. Likewise, you can hire an accountant, a tax professional, and/or an attorney to ensure you are not making errors when keeping records, filling out paperwork, and making payments.
Next, make sure you’ve obtained all necessary permits, licenses, and insurances that your MD corp might need—and you’re good to go! Begin operating your Maryland business with peace of mind, knowing that you are protected by an S-Corp in case anything unforeseeable affects your new business venture.
Begin Operating Your Business
Once you become an official Maryland corporation, make sure you keep your S-Corp compliant. Remember all important dates and make all necessary payments on time. Know all of the laws regarding the issuing of stocks. Host all necessary annual meetings.