First of all, let’s find out what is an S Corp and why should you need it?
Basically, an S Corp is a tax status that can be formed when creating an LLC or a Corporation.
Although, it’s not recommended to choose an S Corp if you are a Corporation since this would remove some of its benefits.
Creating an S Corp from your LLC is considered to be a good move on some occasions when you want to lower your tax burden and attract some outside investments.
How can you start an S Corp?
Forming an S Corp isn’t that hard, but it can be a bit tedious. When forming an LLC you will need to file a form 2553 that will establish your LLC status as an S Corp.
Steps on Forming an S Corp
Selecting a name for your S Corp
This one is easy. But it comes with certain rules – your S Corp name cannot be misleading, match with an already existing business and be easily distinguishable.
Also, some requirements vary based on state, so it’s always a good idea to check the rules with the state your forming your S Corp in.
Getting a Registered Agent
This step is required. In fact, all LLCs and S corps are required to have a registered agent.
You can be a registered agent yourself or you can hire some professional companies that specialize in LLC, S Corp creations, and provision of Reg. Agent services.
Filing Your S Corp’s Articles of Organization
This step and document are absolutely required when forming an S Corp. It will contain all the vital and necessary information regarding your company. Some of those include:
- Ownership Percentage
- Effective Date
- Duration of Your LLC
- Name and Address of Your Registered Agent
- Manager-managed or Member-managed
- Organizer
- Principal Office
Get an EIN for your S Corp
This one stands for Employer Identification Number. It will be required when opening bank business bank accounts, hiring employees and so on.
You can get it by calling, faxing, or mailing it to the IRS. Or alternatively, you can once again use professional S corp creation services that can do the work for you.
Write an Operating Agreement
It’s a fact that not all states require to have an Operating Agreement. But it’s always a good idea to have one.
This is a legal document that details the structure of your business along with the rights and responsibilities of its members
Choose to taxed as an S Corp (when filing for EIN)
This is, of course, the most important step. Because it will ultimately make your LLC appear as an S Corp legally.
In order to do so you will have to file a form 2553 when applying for an EIN.
This one is a bit more tricky to fill in since it contains 4 separate parts. Although, not impossible. But in case you choose to use a professional S corp/LLC formation services like Zenbusiness, Incfile or etc. – you won’t have to worry about it, because each and every legal form will be filled for you.
Conclusion
Creating an S Corp isn’t very hard and definitely has its tax and other benefits. We advise to counsel with your CPA or attorney if it’s the right thing to do for your business.
