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Quick Facts — S Corp Lawyers

What is an S Corp?

An S Corporation or S Subchapter is a type of legal entity formed to operate a business. S Corps are similar to both LLCs and C Corps , but what sets them apart from these other entities are specific characteristics required by the IRS to be considered an S Corp.

For a business qualify to be established as an S Corp, it must meet the following requirements dictated by the IRS:

  • S Corps cannot have more than 100 shareholders or owners
  • All owners must be US citizens or permanent residents
  • Other corporate entities cannot own S Corps
  • All S Corps must have a board of directors
  • There are required annual shareholder meetings
  • Must adhere to strict regulations on bylaws
  • Must adhere to strict regulations on issuing stock shares

If a company meets these standards and adheres to the IRS guidelines, an owner can establish their business as an S Corp.

For more information on the characteristics that shape an S Corp, click here.

Benefits of Filing as an S Corps

Like an LLC, S Corps protect business owners and shareholders from liability because they are considered a separate legal entity. Like a C Corp, an S Corp is an incorporated business. These similarities allow S Corps to benefit from advantages offered to both LLCs and Corporations.

S Corps can elect to be taxed as a pass-through entity . This means that business income and losses pass through the corporation and directly to shareholders. With pass-through taxation, S Corps avoid the double tax that C Corps must pay because they are not paying federal taxes at the corporate level.

Other notable benefits of an S Corp Include:

  1. Funding from investors: Like a C Corp, S Corps have the opportunity to secure funding from investors
  2. Shareholders as employees: Shareholders of an S Corp can legally be employees of the company and draw an employee salary in addition to receiving dividends and other tax-free distributions.
  3. Transferring interests without tax consequences: Unlike C Corps, owners can transfer interests or adjust property basis without tax consequences or complicated accounting rules under an S Corp.
  4. Credibility: Establishing an S Corp rather than an LLC, partnership, or sole proprietorship , carries more credibility. Incorporating a company shows commitment to shareholders, encouraging investors, suppliers, and customers to work with the business.

Read this article for more information about the advantages and disadvantages of filing as an S Corp.

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How to File an S Corp

Forming an S Corporation can be complicated, and each state will have different processes and regulations. It is encouraged to seek the assistance of a corporate lawyer to file for an S Corporation.

If your company meets the requirements to incorporate as an S Corp, you can follow these steps to establish your company:

Step 1: Choose a name for your business: Every S Corp needs a unique name. Before filing your S Corp, run a search of corporations in your state to ensure that your business name isn't infringing on a name already in use.

Step 2: Elect a board of directors: The IRS mandates that S Corps have a board of directors. This is the governing body of the company and represents the shareholders. The IRS also requires that the board have regularly scheduled board meetings, and meeting minutes must be recorded.

Step 3: File your Articles of Incorporation: To establish an S Corp legally, the owner must file articles of incorporation with the IRS and the Secretary of State. Each state will have different business laws governing what needs to be included in articles of organization. You can consult with an experienced corporate lawyer to find out more about your state's regulations.

Step 4: Establish and file corporate bylaws: S Corp bylaws are strictly regulated by the IRS. The purpose of corporate bylaws is to establish how a company will be governed. They will include things like:

  • The process for electing or removing directors
  • How shares are sold
  • Frequency of board meetings
  • How shareholders will vote
  • Handling the death of a director

Step 5: Filing Form 2553 with the IRS: IRS Form 2553 is an election by a small business corporation. This allows your company to be taxed as an S Corp. If this form is not filed, your corporation will be taxed like a C Corp and will have to pay federal taxes at the corporate level.

Step 6: Appoint and file a registered agent: Some states require that S Corps appoint a registered agent for the company. The registered agent is responsible for accepting legal documents on behalf of the corporation. Some business owners hire registered agents from a private company to fill this role.

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Should You File as an S Corp?

When choosing the type of business entity to establish your company, it is important to weigh the pros and cons to decide which entity is best for your business goals.

Here are some questions to consider when choosing an S Corp:

  1. How many owners or shareholders do you plan to have?
  2. Will you be seeking outside investor financing?
  3. Do you want to maintain maximum control over your company?
  4. Do you expect your company to grow over time?

Discuss these questions with an experienced business attorney to help determine if you should file as an S Corp.

Although there are many advantages to establishing an S Corp like pass-through taxation, there are also disadvantages that should be considered before filing as an S Corp.

  • Certain states will not allow S Corporation income to be taxed on the owner's tax returns
  • S Corps have more expensive fees and maintenance costs than an LLC or sole proprietorship.
  • The IRS heavily regulates S Corps
  • The owner of the S Corp has less control than an owner of an LLC or sole proprietorship

S Corp vs. LLC

There are many similarities between S Corps and LLCs. Each of these business entities has advantages and disadvantages for owners. Choosing the right entity comes down to your business goals and determining what business structure will best fit your company's needs.

Liability Protection: Both S Corps and LLCs provide liability protection to the owners and shareholders. S Corps and LLCs are legally separate from the owners, so if a lawsuit is filed against the company, the owner's personal assets are protected.

Pass-Through Taxation: S Corps and LLCs are both taxed as pass-through entities. Neither of these business structures is required to pay corporate taxes. Instead, the owner reports earnings and losses on their personal tax return.

Requirements: LLCs are more simple and less expensive to file and establish than an S Corp. LLCs are not required to have an operating agreement , bylaws, board of directors, and many other aspects required for S Corps.

Outside Financing: When looking to secure investors for outside financing, S Corps have an advantage over LLCs. S Corps can offer investors stock in the company.

Flexibility: Because there are fewer regulations from the IRS, LLCs are the more flexible business option. An LLC allows an owner to maintain the most control over the company.

Get Help Creating an S Corp

Do you have questions about how to file an S Corp and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from experienced corporate lawyers specializing in filing S Corporations.


ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


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