This is a step-by-step guide on how to form an S corporation. An S corporation offers a
unique set of benefits that some businesses find extremely advantageous. Generally, S
corporations do not pay any federal income taxes. However, the corporation's income
or losses are divided among and passed through to its shareholders and the
shareholders must report the income or losses on their own individual tax returns. This
guide is ideal for small businesses that want to learn more about S corporations and
their benefits and disadvantages.
Table Contents
How to use this Guide: ........................................................................................................ 3
Do I need a lawyer? ............................................................................................................ 3
How do I find a reputable law firm? ................................................................................... 3
Frequently Asked Questions ............................................................................................... 4
What is an S-Corporation? .............................................................................................. 4
How do I elect for S-corporation status? ........................................................................ 4
What are the requirements for an S-Corporation? .......................................................... 4
Can I create an S-corporation without an attorney or accountant? ................................. 5
Are there restrictions regarding the sale of S-corporation stock? ................................... 5
What does the “Subchapter S” mean? ............................................................................ 5
Who can be an S-election shareholder? .......................................................................... 6
How are profits distributed?............................................................................................ 6
Can a sole proprietor become an S-corporation? ............................................................ 6
Does an S-corporation provide better limited liability protection than an LLC? ........... 6
What is an S-corporation shareholders agreement? ........................................................ 7
Can I incorporate an existing business? .......................................................................... 7
Can I change an S-corporation to a C-corporation?........................................................ 7
Does incorporating create a tax shelter? ......................................................................... 7
What is a Qualified Subchapter S Subsidiary? ............................................................... 7
When should you not file for S-corporation status? ....................................................... 7
What is a better business structure, S-corporation, a C corporation or an LLC? ........... 8
Can I use an S-corporation for real estate investing? ..................................................... 8
If I am moving, in which state should I set up in new S corporation?............................ 8
Can I incorporate my business in another state? ............................................................. 9
What if I missed the S-election deadline?....................................................................... 9
With more than one business, should I have more than one S-election? ........................ 9
What tax-free benefits…. to shareholders and employees of an S-corporation? ............ 9
How do states treat S corporations? .............................................................................. 10
Is the accounting more complicated for an S-corporation? .......................................... 10
How are dividends taxed? ............................................................................................. 10
What is an S-election K-1 form? .................................................................................. 10
How low can you set salaries? ...................................................................................... 10
What happens if an S-corporation is not profitable? .................................................... 11
When does an S-corporation pay income tax? .............................................................. 11
Should an S-corporat