What Is an S-Corporation and How Do You Become One?

OlufisayoNovember 10, 20190962 views

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Congratulations on starting your business!

There are several things to check off your to-do list. You’ve created the perfect business name. You know what your services will be. Now, it’s time to take care of the legal stuff.

If you’re starting a business and forming an S-Corp for the first time, let us help you better understand the process. Read on to see exactly what an S-corporation is and how to become one.

What Is an S-Corp?

First things first. What is an S-Corporation? An S-Corp is an ordinary corporation that doesn’t pay any income taxes. It protects the personal assets of its shareholders, offers investment opportunities, and offers the protection of limited liability.

Now that we’ve discussed what an S-Corporation is, let’s look at how you can become one.

Are You Currently a C-Corporation?

Before you can become an S-Corporation, you must first be either C-Corporation or an LLC (limited liability company). Initially, all businesses that file for corporation status become a C-Corp first. Once this is completed, a business can then file for an S-Corp status.

Know the Requirements to Become Eligible

There are certain requirements that you must meet in order to be eligible to become an S-Corp. Some of the requirements of an S-Corporation include, but are not limited to:

can not have more than 100 shareholders
can not be a bank, insurance company or domestic international sales company
all shareholders within the company must unanimously agree to S-Corp status

In order to become eligible for S-Corp status, you must agree to work within the specific limitations.

File Form 2553

The next step is to file form 2553 with the IRS. This form, otherwise known as Election by a Small Business Corporation, is a 4-page tax form that must be signed by all shareholders within the company. This form must be filed in order to be exempt from paying income taxes.

How to File an S-Corp

Now that you know the steps to take, you can get ready to file an S-Corp. If this is the best business structure for you, then you’ll be happy to know that setting up an s corp can be simple. Partnering up with an experienced team can set you up for success and let you focus on what you do best: business.

Are You Ready to Start Forming an S-Corp?

Forming an S-Corp isn’t as difficult as you may think. Once you’re aware of all the requirements and know the steps to take, you can get your business up and running in no time. Once you know the legal steps to take, you can spend more of your precious time doing what you enjoy.

Did you find this information helpful? Be sure to check back regularly for more business tips and advice.

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