Are you starting a new business or converting your existing business entity into a S-Corp?
This S-Corp checklist will walk you through the step-by-step process of forming your S-Corporation.
It’s crucial to stay updated with the latest requirements and regulations that govern the formation of an S-Corp. We also understand that business formation can be overwhelming, especially if you are unfamiliar with the legal and administrative aspects.
That’s why we have compiled this S-Corp checklist to simplify the journey for you. You can simply complete each task and check things off your checklist.
So, let’s get started.
S-Corp Checklist to Form an S-Corp in 2024
Forming an S-Corporation can provide significant tax benefits and legal protections for small businesses. However, the process requires careful planning to ensure you fulfill the necessary requirements.
This S-Corporation checklist will guide you through the essential steps of forming an S-Corp by meeting all legal and regulatory obligations.
1. Choose a State of Incorporation
When forming an S-Corp, the first task on your S-Corp checklist is to choose the state where you want to establish your business.
Most people choose to incorporate in the state where they conduct their primary business operations, but that is not a strict requirement.
Each state has its own set of laws and regulations governing corporations, including S-Corporations. Therefore, it’s important to research and understand the specific legal requirements of the state you’re considering.
You may go through the information on the website of the Secretary of State for more information.
Image via US Department of State
2. Select a Corporate Name
The next thing on our S-Corp checklist is choosing an appropriate business name.
When selecting a business name, there are a few things to consider.
First, ensure that the name you choose complies with your state’s corporate naming rules. These rules typically require the name to be unique and distinguishable from other registered businesses in the state.
You can usually check the availability of your chosen name through the Secretary of State’s website.
You may also use online databases, such as the United States Patent and Trademark Office, ICANN Domain Name Registration Data Lookup, Trademark Electronic Search System, and so on.
These databases will help you figure out if any other entity is already using the corporate name you’ve chosen.
Image via USPTO
3. Prepare and File Articles of Incorporation
Now that you have chosen a name for your small business Corporation, it’s time to move on to the next important step on this S-Corp checklist.
You must prepare and file the Articles of Incorporation, also known as the Certificate of Incorporation or Corporate Charter. This document is crucial as it establishes your S-Corporation and legally registers your business.
Go through your state’s filing office or the Secretary of State’s website to obtain the appropriate form for filing the Certificate of Incorporation.
Here is a sample from the State of Washington.
Image via Investopedia
Pay the required filing fee and submit the completed form to the appropriate state department. The filing fee varies from state to state.
4. Obtain an Employer Identification Number (EIN)
Getting an EIN or Tax ID is an important step in your S-Corp checklist. An EIN is a unique nine-digit number assigned by the IRS to identify your S-Corporation for tax purposes.
You can apply for an EIN online on the IRS website or by mail using Form SS-4.
Image via IRS
The EIN is generally issued immediately upon successful completion of the online application. It will be used for various tax-related purposes, including filing tax returns and opening a business bank account.
5. Draft Corporate Bylaws
The next step in your S-Corp checklist is to draft corporate bylaws, which lays down the internal rules and regulations that govern your S-Corporation’s operations and management.
Here is a sample.
Image via CFI
Your bylaws should include the rights and responsibilities of shareholders, directors, and officers. You should also include procedures for meetings, voting, and corporate decision-making.
The bylaws are typically adopted by the initial board of directors and should be kept with the corporate records.
6. File Form 2553 for S-Corporation Election
Form 2553 is used to elect the S-Corporation status for a qualifying Corporation.
Filing this form is an essential step in your S-Corp checklist because it notifies the IRS that your business intends to be treated as an S-Corporation for tax purposes.
Here’s what the form looks like.
Image via IRS
Form 2553 requires the signatures of all shareholders. Make sure that each shareholder signs and dates the form accordingly. Some exceptions apply for certain eligible trusts and estates.
Once you have completed the form, submit it to the Internal Revenue Service. Don’t forget to retain a copy for yourself.
7. Comply with Ongoing Requirements
Make sure your S-Corp complies with ongoing requirements to maintain its special tax status. This includes holding regular shareholder and director meetings, maintaining proper corporate records, and filing annual reports with the state.
It’s essential to consult with a qualified attorney or tax advisor to understand and fulfill all ongoing compliance obligations.
FAQs
Q1. What are the requirements of an S-Corp?
A. The requirements of an S-Corp are as follows:
- Only certain business entities can elect the S-Corp status, such as domestic corporations, LLCs, and entities under qualified subchapter S subsidiaries.
- S-Corps can have no more than 100 shareholders.
- An S-Corp can have only one class of stock.
- Each shareholder of an S-Corp must be a US resident or citizen.
- S-Corps generally operate on a calendar year basis but they can adopt a fiscal tax year after obtaining IRS approval.
Q2. What is the difference between a C-Corp and a S-Corp?
A. A Corporation generally is considered a separate entity, distinct from its owners or shareholders. This includes both C-Corps and S-Corps.
However, a C-Corporation files its own tax returns and pays taxes on its profits at the corporate level. If the C-Corp issues dividends to its shareholders, those dividends are also taxable income for the shareholders. So, C-Corps go through double taxation.
An S-Corp, on the other hand, is a pass-through entity for tax purposes. It does not pay federal income tax at the corporate level. Instead, the income, deductions, and credits of the S-Corp “pass through” to the shareholders, who report them on their personal income tax returns.
Q3. What is the 2-year rule for S-Corp?
A. The 2-year rule for S-Corps refers to the time requirement that shareholders must adhere to before certain tax benefits can be realized.
Q4. What is the 80 rule for S-Corps?
The 80 rule says that an S-Corp cannot own more than 80% of the stock of another Corporation. This rule prevents S-Corps from becoming too large and complex.
Q5. What requirements does an S-Corp need to meet yearly?
A. Here are the yearly requirements of an S-Corp:
- File Form 1120-S with the IRS
- Issue Schedule K-1s to shareholders
- Pay estimated taxes on behalf of shareholders
- Maintain accurate records
- File state tax returns
Follow the S-Corp Checklist to Ensure Success
Forming an S-Corporation in 2024 requires careful attention to various requirements and considerations.
By following a comprehensive S-Corp checklist, you can navigate the process efficiently and ensure compliance with legal and tax obligations.
If you need help forming an S-Corp, GovDocFiling makes the business formation process easy.
Form your S-Corp today with GovDocFiling.