Florida 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 Florida 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 an S-Corp in Florida. 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 Florida 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 Florida.
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 Florida 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 Florida 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 Florida 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 Florida Secretary of State corporation forms.
- Possess a physical street address located in Florida (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 Florida 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 Colorado’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 Florida 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 Florida 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 Florida, 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 Florida. 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 Florida 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 Florida.
Submit Your Articles of Incorporation
To create an S-Corp in Florida, 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 Florida.
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 Florida. Even so, there is no obligation to file your bylaws with the Florida Secretary of State. 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 Florida 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
Florida 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.
Florida requirements state that there should be as many officers 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. Florida 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 an LLC or S-Corp typically “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 S-Corp’s income. The S-Corp itself does not pay federal income taxes, but some states do charge the S-Corp other various taxes. Good news for prospective S-Corp owners in Florida: there is no state income tax.
If your S-Corp will have employees, employers have to pay a payroll tax on employees wages. Plus, there is a sales and use tax in Florida with a rate of 6% that can go up to 8.5% with local taxes. You can find more information about Florida state taxes on the Florida 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 Florida business licenses for skilled trades can be found on the Florida Department of State website. Find out the S-Corp Florida requirements regarding insurances, permits, or licenses you might need to obtain before you begin operating your business. 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 request more information.
Familiarize Yourself with the State’s Taxes and Licenses
Income from pass-through entities, such as a Florida Limited Liability Company and Florida S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
ile an Annual Report
Like most states, the State of Florida requires all corporation owners to file an Annual Report. It is due on or before May 1 of each year, along with a fee of $150. The FL filing fee must be paid when you file. All reports must be filed online with the State of Florida Division of Corporations. If you don’t file or pay the FL Div of Corp on time, there is a $400 late fee. Filing an Annual Report is necessary for maintaining an active status after starting a business in Florida. Not filing an Annual Report or paying the fee will result in the State of Florida assuming you have an inactive corporation in Florida. This means that you will be presented a Florida S-Corp filing 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 Florida S-Corporation 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.
ile an Annual Report
Like most states, the State of Florida requires all corporation owners to file an Annual Report. It is due on or before May 1 of each year, along with a fee of $150.
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 Florida 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 Florida 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 Florida 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 Florida, 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 Corporations, Limited Liability Companies, Limited Partnerships, and Trademarks database.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Florida has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Florida business is not a Florida 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 Florida, 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 FL corp might need—and you’re good to go! Begin operating your Florida 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 Florida, 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.
Delaware 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 Delaware corporation benefits, particularly a C-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 a Delaware corporation formation. When you register a Delaware C-Corp, you are offered:
- 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 Delaware 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 Delaware.
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 Delaware LLC formation process, an S-Corp will also need to figure out who the Registered Agent for the corporation should be. The State of Delaware 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 Delaware Department 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 Delaware 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 Delaware Department of State corporation forms.
- Possess a physical street address located in Delaware (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 Delaware 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 Delaware’s Department 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 Delaware Registered Agent Service. While there are a variety of commercial Delaware Registered Agent Services, for your convenience, 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 Delaware LLC formation process, an S-Corp will also need to figure out who the Registered Agent for the corporation should be. The State of Delaware requires every corporation in the state to have one.
Obtain an Employer
Identification Number
Part of the Delaware corporation formation process is filing 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 incorporated in Delaware 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
Part of the Delaware corporation formation process is filing 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 incorporated in Delaware require an EIN, even if you don’t have any employees.
Submit Your
Articles of Incorporation
When incorporating a business in Delaware, you will also need to register your business by filling out and submitting the Certificate of Incorporation. In most states, this would be called the Delaware corporation Articles of Incorporation. In Delaware, it is called the Certificate of Incorporation. This form should be filed (and maintained) with the state of Delaware. 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 Certificate 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 Delaware Certificate 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 Delaware.
Submit Your Certificate of Incorporation
When incorporating a business in Delaware, you will also need to register your business by filling out and submitting the Certificate of Incorporation. In most states, this would be called the Delaware corporation Articles of Incorporation.
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 DE 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 Delaware. 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 Delaware 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
Delaware law requires one or more director(s). Directors don’t need to be residents of Delaware. 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 Certificate 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 Certificate 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.
Delaware requirements state that there should be as many officers 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. Directors don’t need to be residents of Delaware.
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 Certificate 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. Shares owned by people outside of Delaware aren’t subject to Delaware taxes.
Like most states, Delaware requires an annual shareholder meeting--unless directors have been elected by written consent. Shareholders don’t need to be residents of Delaware.
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 Delaware Limited Liability Company and Delaware 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 Delaware collects income taxes with rates ranging from 0% to 6.6%. Certain cities have their own rates.
There are other various taxes an S-Corp must pay. For example, if you have employees, you will have to pay a withholding tax. Fortunately, Delaware does not have a state or local sales tax. Instead, the state has a gross receipts tax on any seller of goods or services within Delaware. More information on the gross receipts tax can be found on the Official Delaware Division 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. More information on Delaware licenses 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.
One of the main Delaware S-Corporation benefits--instead of a Delaware 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 Delaware Limited Liability Company and Delaware 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
Anyone starting a Delaware corporation has an annual obligation to report to the Department of State--there is no Delaware Secretary of State, or DE SOS for a corp. Like most states, the State of Delaware requires all S-Corp owners to file a report that updates all the information that the Delaware Department of State has on file. This is called the Annual Report and it is submitted every year. Each Annual Report is due by March 1st, along with a $50 for annual report plus franchise tax fees.
Delaware corporation filing--Annual Reports included--is available online on the Delaware Division of Corporations website. Filing an Annual Report is necessary for maintaining an active status after starting an S-Corp in Delaware. Not filing the report or paying the fee will result in being presented a Delaware 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 Delaware corporation 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
Anyone starting a Delaware corporation has an annual obligation to report to the Department of State--there is no Delaware Secretary of State, or DE SOS for a corp.
Raise Funds for Your Corporation
You can’t start a business with zero capital. Part of the Delaware corporation registration is paying legal fees, Delaware corp 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 Delaware S-Corporation.
Good news for prospective Delaware corporation owners: Venture capitalist investors and investment banks typically prefer Delaware corporations above all other states and business structures.
Raise Funds for Your S-Corp
You can’t start a business with zero capital. Part of the Delaware corporation registration is paying legal fees, Delaware corp filing fees, taxes, employees to pay, as well as the costs of operating a business.
Create a Business Website
Creating a website for your Delaware 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 Delaware 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 Delaware 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 Delaware has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Delaware business is not a Delaware 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 finish setting up a Delaware corporation, make sure to 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 Delaware corporate filings. 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 DE corp might need—and you’re good to go! Begin operating your Delaware 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 finish setting up a Delaware corporation, make sure to 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.
Washington, D.C. 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 Washington, D.C. 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 the District of Columbia. 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 District of Columbia 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 Washington D.C.
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. Washington D.C. requires every S-Corp to have one. This enables the delivery of legal mail and ensures that court documents can be tracked appropriately. The Registered Agent will also act as the contact point between the District of Columbia Office of the Secretary (typically, this would be called the Secretary of State, but in DC, it is called the Office of the Secretary) and the DC-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 the District of Columbia or a business entity that is authorized to conduct business (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 Office of the Secretary 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 DC Office of the Secretary corporation forms.
- Possess a physical street address located in Washington, D.C. (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 Washington, DC 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 Office of the Secretary’s 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 District of Columbia 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. Washington D.C. requires every S-Corp to have one. This enables the delivery of legal mail and ensures that court documents can be tracked appropriately.
Obtain an Employer
Identification Number
Next, your District of Columbia 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 District of Columbia 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 Washington, D.C., 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 District of Columbia. 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 DC 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 Washington D.C.
Submit Your Articles of Incorporation
To create an S-Corp in Washington, D.C., 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 District of Columbia.
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 CO 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 District of Columbia.
While bylaws are not required in most states, they are required in Washington, D.C. 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 DC 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
DC 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 Office of the Secretary. 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.
The District of Columbia 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. Washington DC 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
DC’s Taxes and Licenses
Income from pass-through entities, such as a Washington, DC Limited Liability Company and District of Columbia 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 a Washington DC S-Corp has to pay the franchise tax, which is calculated at a flat rate of 8.25%. (Rates can vary per year so double check). The tax is based on the business’s net income, with a minimum tax of $250 if gross receipts are $1 million or less or $1000 if more than $1 million. More information can be found on the DC Office of Tax and Revenue website.
There are other various taxes that your DC business will have to pay. For example, if you have employees, you will have to pay an employer tax, and if your business sells goods or services, you will have to pay a sales and use tax of 6%. Info on the sales and use tax, as well as other taxes, can be found here.
In addition, there may be extra fees for certain insurances, permits, and licenses, depending on the region’s laws and the type of business you own. For example, you may need worker’s compensation, unemployment insurance, building permits, etc. You can find more information about licenses on the D.C. Department of Consumer and Regulatory Affairs website. Find out the requirements for S-Corps in the location you plan to run your business in. Contact the District of Columbia to see if there are any insurances, permits, or licenses you might need to obtain before you begin operating your business.
Familiarize Yourself with DC’s Taxes and Licenses
Income from pass-through entities, such as a Washington, DC Limited Liability Company and District of Columbia S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
File a Biennial Report
Washington, DC requires all S-Corp owners to file a report that updates all the information that the Washington, DC Office of the Secretary has on file. This is usually called an Annual Report and is submitted every year. But in DC, only a Biennial Report is required to be submitted once every two years. The first report is due on April 1 in the calendar year after registration, after which all subsequent Biennial Reports are due biennially by April 1. A fee of $300 is also required, payable to the District of Columbia Government Corporations Division.
You can file the report online on the D.C. Corporations Division website. Filing A Biennial Report is necessary for maintaining an active status after starting an S-Corp in the Washington, DC. Not filing the report or paying the fee will result in being presented a DC S-Corp dissolution form, after which your business will be dissolved.
Biennial Reports can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, and all Washington DC-Corporation 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 Report
Washington, DC requires all S-Corp owners to file a report that updates all the information that the Washington, DC Office of the Secretary has on file. This is usually called an Annual Report and is submitted every 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 District of Columbia 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 DC 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 DC-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 Washington D.C., 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 DC Department of Consumer and Regulatory Affairs website, after creating an account.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Washington, D.C. has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your DC 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 Washington D.C. 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 DC-Corp might need—and you’re good to go! Begin operating your Washington D.C. 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 Washington D.C. 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.
Connecticut 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 Connecticut 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 Connecticut. 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 Connecticut 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 Connecticut.
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 Connecticut 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 Connecticut 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 Connecticut 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 Connecticut Secretary of State corporation forms.
- Possess a physical street address located in Connecticut (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 Connecticut 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 Connecticut’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 Connecticut 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 Connecticut 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
Just like the Connecticut LLC filing process, your CT 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
Just like the Connecticut LLC filing process, your CT 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 Connecticut, 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 Connecticut. 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 completedConnecticut 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 Connecticut.
Submit Your Articles of Incorporation
To create an S-Corp in Connecticut, 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 Connecticut.
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 CT 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 Connecticut. 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 Connecticut 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
Connecticut 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.
Connecticut requirements state that there should be as many officers 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. Like most states, Connecticut 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 Connecticut Limited Liability Company and Connecticut S-Corp, “passes through” the business to the owners. Each owner is then required to report this information on his or her personal Connecticut S-Corp tax return. 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.
There are also other various taxes that the business will have to pay. For example, employers owe payroll tax on employees wages. Additionally, Connecticut has a sales and use tax. More information can be found on the Connecticut Department of Revenue Services website. Plus, Connecticut has a biennial Business Entity Tax (BET) of $250 that is due on April 15 every odd-numbered year, payable to the Department of Revenue Services. A document that contains all of the details on the BET 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 Connecticut licenses and permits can be found on the Business Registration and Licensing page on the Connecticut Government 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.
The main benefit of having a CT S-Corp instead of a Connecticut 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 Connecticut Limited Liability Company and Connecticut S-Corp, “passes through” the business to the owners.
File an Annual Report
Like most states, the State of Connecticut requires all corporation owners to file a report that updates all the information that the Connecticut Secretary of State has on file. This is called the Annual Report and it is submitted every year. Each Annual Report is due annually by the registration anniversary along with a fee of $150 payable to the Connecticut Secretary of State.
Connecticut Annual Report filing is available online on the Connecticut Secretary of State website. Filing an Annual Report is necessary for maintaining an active status after starting an S-Corp in CT. Not filing the report or paying the fee will result in being presented a Connecticut 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 Connecticut 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 Connecticut requires all corporation owners to file a report that updates all the information that the Connecticut Secretary of State 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 Connecticut 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 Connecticut 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 Connecticut 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 Connecticut 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 Connecticut has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Connecticut business is not a Connecticut 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 Connecticut 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 CT corp might need—and you’re good to go! Begin operating your Connecticut 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 Connecticut 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.
Colorado 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 Colorado 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 Colorado. 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 Colorado 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 Colorado.
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 Colorado 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 Colorado 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 Colorado 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 Colorado Secretary of State corporation forms.
- Possess a physical street address located in Colorado (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 Colorado 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 Colorado’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 Colorado 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 Colorado 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 Colorado, 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 Colorado. 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 Colorado 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 Colorado.
Submit Your Articles of Incorporation
To create an S-Corp in Colorado, 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 Colorado.
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 CO 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 Colorado. 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 Colorado 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
Colorado 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.
Colorado requirements state that all officers must be eighteen years of age or older. There should be as many officers as stated in the bylaws and 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. Colorado 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 Colorado Limited Liability Company and Colorado 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 will then have to pay taxes on his or her share of the C-Corp’s income. The S-Corp itself does not pay federal income taxes, but some states do charge other various taxes. For example, the State of Colorado has a sales and use tax that anyone with a business that sells products or services must pay, an excise and fuel tax, as well as other taxes. You can view a list of business-related taxes on the Colorado Department of Revenue: Tax Division 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 Colorado 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. For example, if you plan to start a Denver S-Corp, the city of Denver has its own requirements which you can see on the Denver Government website. 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 Colorado Limited Liability Company and Colorado S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
File a Periodic Report
Like most states, the State of Colorado requires all S-Corp owners to file a report that updates all the information that the Colorado Secretary of State has on file. This is usually called an Annual Report in other states, but in Colorado, it is called a Periodic Report. Like an Annual Report, the Periodic Report is submitted every year. Periodic Reports are due by the end of the month of initial registration.
Good news for prospective S-Corp owners in Colorado: while some states charge over $500 as a required fee that all S-Corp owners must pay when submitting their Reports, Colorado requires a fee of only $10 that owners need to pay when submitting their Periodic Reports.
Colorado S-Corp filing is available online on the Colorado Secretary of State website. Filing a Periodic Report is necessary for maintaining an active status after starting an S-Corp in Colorado. Not filing the report or paying the fee will result in being presented a Colorado S-Corp dissolution form, after which the state will dissolve your business.
Periodic Reports can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, and all Colorado 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 Periodic Report
Like most states, the State of Colorado requires all S-Corp owners to file a report that updates all the information that the Colorado Secretary of State 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 Colorado 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 Colorado 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 Colorado 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 Colorado, 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 Database.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Colorado has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Colorado business is not a Colorado 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 Colorado, 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 CO corp might need—and you’re good to go! Begin operating your Colorado 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 Colorado, 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.
California 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 California 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 California 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 California 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 California.
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 California 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 California 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 California (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 California 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 California 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 California, you will also need to register your business by filling out and submitting the Articles of Incorporation. You may hear this called Certificate of Incorporation instead. While other states have one preferred name for the form, in California, it is interchangeable--meaning either phrase is used.
The Articles of Incorporation is a form that should be filed (and maintained) with the state of California. It contains information such as such as the name and address of the corporation and the registered agent. 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. You can read the corporate filing tips on the California Secretary of State’s website to ensure that you won’t be delayed by any errors or omissions after submitting your Articles of Incorporation.
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.
Submit Your Articles of Incorporation
To create an S-Corp in California, you will also need to register your business by filling out and submitting the Certificate of Formation--usually called the Articles of Incorporation in other states. The Certificate of Formation is a form that should be filed (and maintained) with the state of California.
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. 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 California. 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 California 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. 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
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.
California requires as many directors as set forth in the bylaws. Only one is required if there is one shareholder, two are required if there are two shareholders, but a minimum of three are required once shares are issued.
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.
California law states that any corporation should have at least three directors, unless there are fewer than three shareholders--which would mean that the amount of directors may be equal to or greater than the number of shareholders. On the other hand, a corporation can have any number of officers. 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. California requires a President, Secretary, and Chief Financial Officer, but all three roles can 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. An annual shareholder meeting is required in California.
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 S-Corporations and C-Corporations established in California need to pay the following taxes:
- IRS Payroll Tax (tax on salaries paid to employees)
- California State Income Tax (there are deductions, credits, and income exclusions worth looking into)
- Sales and Use Tax Payable to the State of California (if selling products or services)
- Franchise Tax in California (payable on corporation business earnings: minimum of $800, could be higher depending on profits)
- Other Taxes in California (more info on the California Tax Service Center website)
In addition, if you have employees, you will need to have worker’s compensation insurance, which you can learn more about from the Division of Workers' Compensation. Plus, different cities or counties may require certain permits and licenses. A list of some California business permits and licenses are on the California Department of Tax and Fee Administration 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 licenses, permits, and insurances you might need to obtain before you begin operating your business.
Familiarize Yourself with the State’s Taxes and Licenses
Both S-Corporations and C-Corporations established in California need to pay the following taxes:
- IRS Payroll Tax (tax on salaries paid to employees)
- California State Income Tax (there are deductions, credits, and income exclusions worth looking into)
- Sales and Use Tax Payable to the State of California (if selling products or services)
- Franchise Tax in California (payable on corporation business earnings: minimum of $800, could be higher depending on profits)
- Other Taxes in California (more info on the California Tax Service Center website)
File a Statement of Information
The State of California requireS-Corporations to file an annual report, which is called a Statement of Information in the state. You have an option between filing the annual report online at the Secretary of State website or by printing out the form and mailing it. The report contains some basic information on your business, similar to the Articles of Organization form.
California law requires all corporations to update the records of the California Secretary of State either every year or every two years based on year of registration. Forms should be submitted by the last day of the anniversary month of incorporation (you can begin filing 5 months prior to this date). The filing fee is $25. A new Statement of Information should be filled in each time. 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.
File a Statement of Information
The State of California requireS-Corporations to file an annual report, which is called a Statement of Information in the state. You have an option between filing the annual report online at the Secretary of State website or by printing out the form and mailing it.
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 California 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 California, you will need an original name that is not in use by another corporation. Fortunately, the state has made this part of the process easier; you can search California’s online database of LLC names to see if your preferred company name has already been taken. Or you can request a name’s availability by mailing a completed Name Availability Inquiry Letter to the California Secretary of State’s office. Additionally, you can reserve a name for up to 60 days for $10. This would require filling out a Name Reservation Request form and sending it by mail or dropping it off in person.
- Make sure it is available as a web domain. This way, you can find out if another company outside of California has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your California business is not a California 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 California, 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 CA corp might need—and you’re good to go! Begin operating your California 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 California, 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.
Arkansas 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 Arkansas 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 Arkansas. 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 an Arkansas 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 Arkansas.
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 Arkansas LLC formation process, an S-Corp will also need to figure out who the Registered Agent for the corporation should be. The State of Arkansas 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 Arkansas 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 Arkansas 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 Arkansas Secretary of State corporation forms.
- Possess a physical street address located in Arkansas (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 an Arkansas 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 Arkansas’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 an Arkansas 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 Arkansas LLC formation process, an S-Corp will also need to figure out who the Registered Agent for the corporation should be. The State of Arkansas requires every corporation in the state to have one.
Obtain an Employer
Identification Number
Next, your Arkansas 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 Arkansas 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 Arkansas, 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 Arkansas. 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 Arkansas 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 Arkansas.
Submit Your Articles of Incorporation
To create an S-Corp in Arkansas, 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 Arkansas.
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 AR 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 Arkansas. 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 Arkansas 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
Arkansas law states that one or more director(s) is required if there are more than 50 shareholders in the S-Corp. If there are 50 or fewer shareholders, then no Board of Directors is required. 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. Arkansas requirements state that there should be as many officers as written in the bylaws or Articles of Incorporation.
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, Arkansas requires an annual shareholder meeting. In fact, it can be court-ordered if not held.
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 an Arkansas Limited Liability Company and Arkansas 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.
This booklet explains Arkansas S-Corporation taxes.
There are other various taxes an S-Corp must also pay. For example, if you have employees, you will have to pay a withholding tax. Plus, if your business sells goods or services, you will have to pay a sales and use tax of 6.5%. Arkansas cities/municipalities can collect taxes at their own rates that can get up to 3.5%. The Arkansas Department of Finance and Administration website has more information on Arkansas taxes.
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. Find out the requirements for S-Corps in the state you plan to run your business in. This pamphlet created by the Arkansas Small Business and Technology Development Center explains all permits, licenses, and local zoning regulations in Arkansas. 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.
The main benefit of having an AR corporation instead of an Arkansas 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 an Arkansas Limited Liability Company and Arkansas S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
File an Annual Franchise Tax Report
Most states require that all S-Corp owners file a report that updates all the information that the Arkansas Secretary of State has on file. This report is usually called an Annual Report, but in Arkansas, it is called an Annual Franchise Tax Report. All Annual Franchise Tax Reports are due each year by May 1. Fees vary and here is a detailed list of all fees per type of business.
Arkansas Annual Franchise Tax Report filing is available online or via printing and mailing the report. Instructions for both methods can be found on the Arkansas Secretary of State LLC and Corporation website. Filing an Annual Franchise Tax Report is necessary for maintaining an active status after starting an S-Corp in Arkansas. Not filing the report or paying the fee will result in being presented an ArkansaS-Corporation dissolution form, after which the state will dissolve your business.
Annual Franchise Tax Reports can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, and all ArkansaS-Corporation 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 Franchise Tax Report
Most states require that all S-Corp owners file a report that updates all the information that the Arkansas Secretary of State has on file. This report is usually called an Annual Report, but in Arkansas, it is called an Annual Franchise Tax 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 Arkansas 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 Arkansas 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 ArkansaS-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 Arkansas 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 Availability Database.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Arkansas has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Arkansas business is not a Arkansas 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 ArkansaS-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 AR corp might need—and you’re good to go! Begin operating your Arkansas 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 Arkansas S-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.
Alaska 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 Alaska 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 Alaska. 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 Alaska 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 Alaska.
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 Alaska LLC formation process, an S-Corp will also need to figure out who the Registered Agent for the corporation should be. The State of Alaska 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 Alaska Department of Commerce, Community, and Economic Development (DCCED) 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 Alaska 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 corporation forms.
- Possess a physical street address located in Alaska (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 an Alaska 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 Alaska’s Department of Commerce, Community, and Economic Development (DCCED) 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 Alaska 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 Alaska LLC formation process, an S-Corp will also need to figure out who the Registered Agent for the corporation should be. The State of Alaska requires every corporation in the state to have one.
Obtain an Employer
Identification Number
Next, your Alaska 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 Alaska 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 Alaska, 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 Alaska. 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 Alaska 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 Alaska.
Submit Your Articles of Incorporation
To create an S-Corp in Alaska, 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 Alaska.
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 AK 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 Alaska. 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 Alaska 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
Alaska 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. Alaska requirements state that there should be a President, Secretary, and Treasurer on the Board of Directors. Typically, the President and Secretary cannot be the same person, but one person may be all three if that person owns 100% of all shares.
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, Alaska requires an annual shareholder meeting. In fact, it can be court-ordered if not held.
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 Alaska Limited Liability Company and Alaska 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.
One of the Alaska S-Corporation advantages is that there is no statewide income or sales taxes. Instead, residents actually receive annual checks from the state just for living there due to the Permanent Fund Dividend. There are other taxes that are a requirement in the state of Alaska though. Employers owe payroll tax on employees wages, and employees pay federal, state and payroll tax on their earnings. Furthermore, it is usually a requirement to pay state unemployment insurance taxes to Alaska's Department of Labor (DOL). More information is on the DOL website. Additional Alaska tax info can be found here.
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. 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
Income from pass-through entities, such as a Alaska Limited Liability Company and Alaska S-Corp, “passes through” the business to the owners, who are required to report this information on their personal tax returns.
File a Biennial Report
One of the State of Alaska corporation requirements is filing a report that updates the state of structural changes and declares that your business is still in operation. In Alaska, an Initial Report is required within the first six months of creating your S-Corp. For the Initial Report, there is no fee, but afterwards, there is a $100 fee to file. Most states require an Annual Report instead, but that is not the only part of the process that is different in Alaska. The report is not filed with the Alaska Secretary of State, but instead the Department of Commerce, Community, and Economic Development (DCCED). You can file on the DCCED website. Biennial Reports are due every two years before January 2 of the filing year.
The report can be rather complex–requiring the deciphering of gross receipts, dividends, interest, losses, and all Alaska corporation 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 Report
One of the State of Alaska corporation requirements is filing a report that updates the state of structural changes and declares that your business is still in operation.
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 Alaska 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 Alaska 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 Alaska 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 Alaska 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 Alaska Name Availability Database.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Alaska has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Alaska business is not a Alaska 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 Alaska 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 AK corp might need—and you’re good to go! Begin operating your Alaska 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 Alaska 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.
Alabama 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 Alabama 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 an Alabama 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 Alabama 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 Alabama.
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 Alabama 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 Alabama 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 Alabama 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 Alabama Secretary of State corporation forms.
- Possess a physical street address located in Alabama (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 an Alabama 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 Alabama’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 an Alabama 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 Alabama 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.
Submit Your
Certificate of Formation
To create an S-Corp in Alabama, you will also need to register your business by filling out and submitting the Certificate of Formation--usually called the Articles of Incorporation in other states. The Certificate of Formation is a form that should be filed (and maintained) with the state of Alabama. 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 Certificate of Formation 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 Alabama Certificate of Formation form is accepted, congratulations! Your company now exists as a recognized legal entity that is authorized to conduct business within the State of Alabama.
Your Certificate of Formation
To create an S-Corp in Alabama, you will also need to register your business by filling out and submitting the Certificate of Formation--usually called the Articles of Incorporation in other states. The Certificate of Formation is a form that should be filed (and maintained) with the state of Alabama.
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 Alabama. 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 Alabama 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. 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
Alabama 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 Certificate of Formation. 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 Certificate of Formation 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. Alabama requirements state that there should be as many officers as stated in the bylaws.
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 Certificate of Formation). 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. Alabama requires an annual shareholder meeting, but there are no consequences for not holding one.
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
Alabama corporations must pay the state’S-Corporate income tax at a flat rate of 6.5% of net income. The corporate tax is prone to change so look it up on the Department of Revenue website. If the Alabama S-Corporation status is recognized by the state for tax purposes, the shareholders of the corporation pay the tax instead of the corporation. Some states also charge other various taxes. For example, employers owe payroll tax on their employees’ wages. Some states also charge other various taxes. For example, Alabama has a sales and use tax, as well as other taxes. See more information here.
Also, every corporation, limited liability entity, and disregarded entity doing business in Alabama is required to file an Alabama Business Privilege Tax Return and Annual Report. This means that all corporations are subject to an annual Business Privilege Tax (BPT). The minimum tax is $100, paid to the Alabama Department of Revenue.
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. Find out the requirements for corporations in the state you plan to run your business in. A list of Alabama licenses can be found here. 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
Alabama corporations must pay the state’S-Corporate income tax at a flat rate of 6.5% of net income. The corporate tax is prone to change so look it up on the Department of Revenue website.
Keep Track of Your Business Financials
There is no annual report that is required on its own each year, but updated information on all entities is requested annually along with the business privilege tax return that you should submit every calendar year by April 15. This updates the Alabama Secretary of State of corporation structural changes and declares that your business is still in operation.
To prepare for tax season and decipher all gross receipts, dividends, interest, losses, and Alabama corporation fees, you should seek the help of an accountant to ensure that it is all taken care of. 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.
Keep Track of Your Business Financials
There is no annual report that is required on its own each year, but updated information on all entities is requested annually along with the business privilege tax return that you should submit every calendar year by April 15.
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 Alabama 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 Alabama 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 Alabama 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 Alabama, 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 Alabama Name Availability Database.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Alabama has a corporation with the same name. In that case, think of something more original.
Create a Business Website
Creating a website for your Alabama business is not a Alabama 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 Alabama, 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 AL corp might need—and you’re good to go! Begin operating your Alabama 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 Alabama, 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.
Arizona 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 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 Arizona 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 an Arizona 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 an Arizona 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 Arizona.
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 Statutory Agent
In most states, the “Statutory Agent” is called a “Registered Agent.” In Arizona, “Statutory Agent” is the official term that the state of uses. A statutory agent can be either an individual who is a resident of Arizona 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 Arizona (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 Statutory 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’s 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. Additionally, you or the friend/family member has to be at that address during those hours. If it doesn’t work out and you have to change your agent, you’ll have to file a new form and pay a fee. An alternative you can look into is hiring a professional agent. We offer a Registered Agent service for a small charge that you can include as an add-on to your shopping cart.
Decide on a Statutory Agent
In most states, the “Statutory Agent” is called a “Registered Agent.” In Arizona, “Statutory Agent” is the official term that the state of uses. A statutory agent can be either an individual who is a resident of Arizona or a business entity that is authorized to conduct business in the state (but not your own business).
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. 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 Arizona, 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 Arizona. 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.
When your Articles of Incorporation form is filled out, you must file it with the Arizona Corporation Commission (ACC), along with a cover sheet and Certificate of Disclosure. Afterwards, you would need to publish the Articles of Incorporation in a newspaper of general circulation (as many times as required of you). The cost to publish depends on the length of the Articles. Although Arizona law no longer needs to see an affidavit of publication to the ACC, it is advisable that the corporation do it anyway so it can prove that the corporation has met the publication requirement.
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.
Submit Your Articles of Incorporation
To create an S-Corp in Arizona, 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 Arizona.
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 Arizona 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 Arizona. 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 Arizona 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
Arizona 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. The amount of officers in an Arizona corporation has to be the number prescribed in the bylaws or Articles of Incorporation.
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. An annual shareholder meeting is required in Arizona.
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
S-Corporations established in Arizona, most importantly, avoid double taxation. Furthermore, the S-Corporation itself is not responsible for any income taxes. Instead, shareholders claim their share of the corporation’s profits on their personal tax returns, paying at their individual tax rate. Individual S-Corporation shareholders will owe tax on their share of the company’s income.
Good news for AZ residents wanting to start a business in their home state: unlike many states, Arizona does not have any franchise or privilege tax. Your S-Corp will not have to pay a state tax on income or net worth. Only if income from your business passes through to you personally, then you will have to claim that on your personal state tax return. In addition, S-Corporations have another tax advantage if the corporation experiences losses. Unlike C-Corps, S-Corp shareholders are allowed to offset other income by including their share of the business’s losses on their personal tax returns. For more information about taxes in AZ, visit the State of Arizona Department of Revenue’s website.
If your S-Corp will have employees, you will need to pay additional taxes, such as unemployment tax and workers’ compensation tax. Unemployment insurance tax helps unemployed individuals, and you can learn about it on the Arizona Department of Economic Security website for additional information. More information on worker’s comp is available on the Industrial Commission of Arizona’s website.
Plus, find out from your city or county if there are any permits you might need to obtain before you begin operating your business. In Arizona, most licenses and permits fall into one of the following categories:
- State and City Transaction Privilege Tax Licenses
- Regulatory or Professional and Special Licensing and Permits
- Local Business/Occupational Licenses and Permits
Visit the Arizona Commerce Authority website to view a variety of permits and licenses that you may need. To keep your business running smoothly, make sure that your company is in compliance with all the current AZ business regulations, like the Arizona new hire reporting requirements. There may be changes to what’s required, so stay up to date by checking state websites regularly.
Familiarize Yourself with the State’s Taxes and Permits
S-Corporations established in Arizona, most importantly, avoid double taxation. Furthermore, the S-Corporation itself is not responsible for any income taxes.
File an Annual Report
The State of Arizona requireS-Corporations to file an annual report. You can submit the annual report online by creating an account on the Arizona Corporation Commision (ACC) website. Your S-Corporation is responsible for submitting the annual report on or before the due date assigned to you. The due date is different for every corporation, and you can find your S-Corp’s due date by checking your entity’s record on the eCorp Search page.
In case you need an extension, you can submit a Report Extension Request along with the fee for the annual report. If you fail to pay on time, you accrue a penalty of $9.00 per month. About 90 days after the due date, the corporation will then be mailed a Notice of Pending Administration Dissolution. If no annual report has been submitted 60 days after that notice is generated, the corporation will be dissolved. Payment of the filing fee and penalties, as well as the actual annual report, can be submitted at any time before the S-Corporation is dissolved. Reinstatement is possible for the six years after the date of dissolution, for a fee of $100. If you have difficulty keeping track of dates, the state of Arizona has kindly offered to send out reminders. When you register on ACC’s website, you can select that option.
File an Annual Report
The State of Arizona requireS-Corporations to file an annual report. You can submit the annual report online by creating an account on the Arizona Corporation Commision (ACC) website.
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 Arizona 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 Arizona 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 a corporation in the State of Arizona, 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 Secretary of State’s online database. Additionally, you can reserve a name for up to 120 days for $10 (an extra $35 to expedite the request). Name reservations can be completed online, or you can submit a paper form to reserve a corporation name. Instructions for the form can be found here.
- Make sure it is available as a web domain. This way, you can find out if another company outside of Arizona 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 Arizona 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 Arizona, 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 AZ corp might need—and you’re good to go! Begin operating your Arizona 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 Arizona, 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.