How Much Does an S Corp Cost?
The average cost (i.e., legal fees) for a lawyer to form an S Corp for a client is $640.00 on a flat fee basis according to recent S Corp formation projects on the ContractsCounsel platform across all US states.
See S-Corp Formation Pricing by State
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- District of Columbia
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
Other fees you should know about for budgeting:
- State filing fees. Government filing fees to form an S Corp vary by state. For example, California’s fee is $100 to file and Texas’ fee is around $300 to file.
- Annual/Biennial report fees. Some states require S Corps to file annual or biennial reports.
- Registered agent fees. S Corps are required to have a registered agent. Registered agent fees typically range from $100 to $300 per year.
- Tax related fees. S Corps have specific tax filing requirements (i.e., Form 1120S). Preparing these forms and filing taxes will have a fee, which can range from $500 to $2,000, depending on how complex the taxes are.
- Payroll setup. S Corps are required to pay reasonable compensation to their owners, so payroll must be set up which can range from $30 to $0 per month.
What is an S Corp?
An S Corporation or S Subchapter is a legal entity formed to operate a business. To become an S Corp, the company must have specific characteristics required by the IRS. These requirements include:
- No more than 100 shareholders or owners
- All owners must be US citizens or permanent residents
- Other corporate entities cannot own s Corps
- Must not be certain kinds of ineligible corporations
- Must only issue one class of stock
Suppose a company meets these standards and adheres to the IRS guidelines. In that case, an owner can establish their business as an S Corp.
Many new business owners choose to hire an S Corp lawyer to help incorporate the business. This process includes drafting essential documents and filing these documents with the IRS.
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How to Start an S Corp
Forming an S Corporation is fairly easy but 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.
- Step 1: Choose a name for your business. Every S Corp needs a unique business name. You can run a search of corporations in your state to check that your name is original.
- Step 2: Elect a board of directors. The IRS requires that S Corps have a board of directors. The board of directors serves as the governing body of the company and represents the shareholder’s interests. The board have regularly scheduled board meetings.
- Step 3: File your Articles of Organization. Articles of organization must be filed 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. Consult with a corporate lawyer to find out what your state requires.
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Step 4: Establish and file corporate
bylaws.
S Corp
bylaws
are strictly regulated by the IRS, and they establish how a company will be governed.
Corporate bylaws
will include provisions 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: File 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 as 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.
Benefits of an S Corp
S Corps are a popular choice of business entity because they offer owners and shareholders many advantages. An S Corp offers owners and shareholders liability protection like an LLC because the corporation is considered a separate legal entity from the owners.
S Corps can elect to be taxed as a pass-through entity. This means that business income and losses pass directly through the corporation 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 benefits of an S Corps Include:
- Funding from investors. S Corps can secure funding from investors.
- 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.
- Transferring interests without tax consequences. Owners of an S Corp can transfer interests or adjust property basis without tax consequences.
- Credibility. Establishing an S Corp for your company provides credibility. Incorporating a company shows commitment to shareholders, encouraging investors, suppliers, and customers to work with the business.
S Corp Projects
S Corp Formation
To form an S Corp, business owners must draft and file several vital documents with the secretary of state like articles of incorporation and corporate bylaws. Companies often hire a corporate attorney to ensure the documents are drafted and filed correctly to avoid mistakes and delays.
An experienced S Corp attorney can assist you in drafting your founding documents and making sure these documents are filed with the correct state office.
Converting an LLC to an S Corp
Many small businesses first establish themselves as an LLC. Still, the owners may want to convert the LLC to an S Corp for more growth opportunities as they grow. Converting an LLC to an S Corp is an easy process and requires filing Form 2553 with the IRS. To become an S Corp, the LLC must meet the strict requirements set by the IRS for businesses. This includes being a US company, having fewer than 100 shareholders, and having only one class of stock.
S Corp Formation Cost
S Corp formation costs include filing fees, legal fees if you hire an attorney for document drafting and review, and, occasionally, license fees. These fees will vary based on the state.
ContractsCounsel’s marketplace data shows the average S Corp formation costs to be $640.00 across all states and industries.
LLC to S Corp Conversion Cost
If your company meets all the requirements, you can file Form 2553 to convert an LLC to an S Corp. However, you will have to pay the filing fee for Form 2553, and if your hire an attorney, you will incur legal fees as well.
ContractsCounsel’s marketplace data shows the average LLC to S Corp conversion cost to be $640.00 across all states and industries.
How Do Lawyers Charge for an S Corp?
The two common fee structures that corporate lawyers use are hourly and flat.
Hourly Rates for an S Corp
When an attorney uses an hourly rate fee structure, they charge a client by the hour for working on a project or case. Lawyers can charge for actual time on the project, consultations, and communications. Often, something as simple as an email response will incur a fee. Hourly rates ensure lawyers are compensated for all time spent working on a particular task.
ContractsCounsel’s marketplace data shows the average hourly rate for a corporate lawyer range from $250 - $400 per hour.
Flat Fee Rates for an S Corp
If a lawyer is hired for a specific project like converting an LLC to an S Corp, they may bill their client at a flat fee rate. The lawyer will estimate the amount of time spent on the task and quote the client a flat rate. This fee is typically paid upfront before the lawyer begins work.
ContractsCounsel’s marketplace data shows an S Corp project’s average flat fee rate to be $640.00.
Filing Fees for an S Corp
Filing fees for an S Corp will vary based on your state. These fees will be in addition to any legal costs you incur for your lawyer’s legal services.
Get Help with an S Corp
Do you need help with an S Corp project? If so, post a project in ContractsCounsel’s marketplace to receive flat fee bids from contract lawyers to handle your project. All lawyers on the ContractsCounsel’s platform are vetted by our team to make sure you are provided with top tier service.
