S Corporation Formation Service

What is an S corporation?

An S corporation is a corporation that has elected a special tax status with the Internal Revenue Service (IRS). The formation requirements for an S corporation are the same as those for a C corporation. Incorporation documents, typically called the Articles of Incorporation or Certificate of Incorporation, must be filed with the appropriate state agency and the necessary state filing fees paid. After the incorporation with the state is complete, the corporation applies for S corporation status by filing Form 2553 with the IRS.

What paperwork is required to incorporate?

Articles of Incorporation or a Certificate of Incorporation must be prepared and filed with the proper state authorities. You must also pay filing fees and any applicable initial franchise taxes or other fees. The type and amount of information required in the incorporation documents varies by state. If you incorporate through BizFilings, simply complete our online order form or place an order by phone, and we prepare and file your Articles of Incorporation.

Who can form an S corporation?

There are no restrictions as to who can form a corporation. There is no age, residency or other legal requirement. Some states do require that the directors of a corporation be a certain age however, typically 18 or older. View our state guides for the requirements of your particular state.

However, when Form 2553 is filed with the Internal Revenue Service (IRS) to obtain S corporation status, there are restrictions imposed on the ownership.

• S corporations can have no more than 100 shareholders, and all shareholders must all consent in writing to the S corporation election.
• Shareholders cannot be non-resident aliens.
• S corporations can have only one class of stock (disregarding voting rights).
• S corporations cannot have C corporations, other S corporations, LLCs, partnerships or many trusts as shareholders.

Do I need an attorney to incorporate?

No. You can prepare and file the Articles of Incorporation yourself, but you should understand the requirements of your intended state of incorporation.

You can use BizFilings' service to incorporate your business and save money on attorney fees. If you are unsure if incorporation will benefit your business, or what business type you should form, you should consult an attorney or accountant.

What should I name my corporation?

Choose the name of your corporation carefully. It is very important that you project the image you want for your new business. Legally, the name you select must not be “deceptively similar” to any existing name in that state and must be “distinguishable on the record” of your state. It is possible that the name you select will not be available—that’s why BizFilings asks for a second choice on our incorporation order form. Also, the name you choose must show your business is incorporated. Most states require that the name be followed by an ending such as "Corporation," "Incorporated," or an abbreviation such as "Inc." or "Corp." For details on state requirements, view our state guides.

What is pass-through taxation?

With pass-through taxation, no tax is paid at the business level on the corporation’s income. The corporation files an informational tax return with the IRS (Form 1120S), but no tax is paid. Corporate profit or loss is reported on the owners’ personal tax returns, and any tax due is paid at the individual level. Because S corporations have pass-through taxation, the possibility of double taxation that occurs with C corporations is eliminated.

What are authorized shares of stock?

S corporations must indicate the number of shares of stock they want to authorize (and a par value associated with each share) in the Articles of Incorporation. The number of authorized shares is the total number of shares available for an S corporation to issue to shareholders; however the S corporation does not need to issue the total number of authorized shares. Some opt to hold unissued shares in order to add additional owners at a later date or increase the ownership percentage for a current shareholder. An issued share of stock shows ownership in the S corporation and each shareholder obtains a certificate representing the ownership value of the S corporation. Companies can alter the number of authorized shares or the par value of shares at anytime by filing a share amendment with the state.

What is a share’s par value?

The par value of a share of stock is its minimum stated value. Par value typically does not correlate to the actual value of a share. Common par values are $0.01, $1.00 or no par. The actual value of a share is its fair market value, or what someone is willing to pay for a share of stock. For public companies, actual value is determined by the price investors are willing to pay for each share on the national exchange. For private companies, it is typically determined by the overall value of the corporation or the book value.

What is the organizational structure of an S corporation?

The organizational structure of an S corporation includes three groups: shareholders, directors and officers. An S corporation is owned by shareholders; however, they do not typically directly manage the company. Instead, they influence corporate decisions through electing and removing directors, approving or disapproving amendments to the Articles of Incorporation and voting on major corporate issues.

The directors, who comprise the “board of directors,” are responsible for managing the affairs of the S corporation. They usually make only major business decisions, and appoint and supervise officers, who make the day-to-day business decisions.

Officers are responsible for the everyday company management.

Note: A shareholder may serve on the board of directors and as an officer. In fact, most states allow S corporations to have only one shareholder, who also serves as the sole director and officer. This is very common for S corporations who only have one or a few shareholders.

How many directors do I need to form an S corporation?

Only one director is required in most states, but you are allowed to have more. Some states use the number of shareholders in the S corporation to determine the minimum number of directors. For example, if the number of shareholders is three, then the S corporation must have three directors. If the company has less than three shareholders, then the number of directors may equal the number of shareholders. For details on state requirements, view our state guides.

Where should I incorporate my business?

Once you’ve decided to incorporate, the next step is to decide where to incorporate. It is not a requirement to form your company in the state where it is physically located (the home state), but there are factors to consider when evaluating which state is best. For small businesses, two factors are typically considered when deciding where to form an S corporation: the cost of forming in the home state versus the cost of forming in another state and the taxation and ongoing corporate requirements of the states under consideration.

1. Home state incorporation versus foreign qualification.

If the S corporation is a closely held corporation, meaning it has one or few shareholders, and does business primarily within a single state; incorporation within the home state is often preferable. The cost of home state incorporation will usually be less than incorporating in another state and registering to do business (foreign qualifying) your corporation in your home state.

A corporation that qualifies to do business in another state is subject to taxes and annual report fees from both the state of incorporation and the state of qualification. Another disadvantage of incorporating outside of your home state is the possibility of having to defend a lawsuit in another state.

2. Corporation requirements and taxation

When deciding where to incorporate, it’s also good to research that state’s ongoing corporate requirements (such as annual report and franchise tax requirements) as well as general state taxation requirements. View our state guides to learn more about these requirements in each state.

What is a publication requirement?

A few states require notice to be published in a newspaper that a corporation has been formed in that state. States with this requirement for S corporations include: Arizona, Georgia, Nebraska and Pennsylvania. BizFilings can help you satisfy the publication requirement in these states.

How do I get started with the incorporation process?

After choosing your business type, Articles of Incorporation must be filed with the state government and initial fees must be paid. After your Articles of Incorporation are filed, you need to file Form 2553 with the IRS to elect S corporation status for your company. With BizFilings’ Basic and Standard Incorporation Services, we will provide Form 2553 to you for you to finalize and submit to the IRS. Our Complete Incorporation Service includes an S Corporation Obtainment Service, where we interact with the IRS on your behalf to obtain S corporation status for your company.

Additionally, your S corporation must hold an organizational meeting (initial meeting of directors) where you adopt bylaws and undertake other initial corporate actions (such as appointing officers and approving a resolution to open a business bank account). You should distribute stock certificates to shareholders and record these transactions in the company’s stock transfer ledger. The actions of the organizational meeting should be documented and kept along with the Articles of Incorporation and bylaws in a corporate record book. Our Compliance Kit & Seal, which is included in our Standard and Complete Incorporation Services, has all the items necessary for holding and documenting the organizational meeting.

What is Rush Filing Service?

BizFilings' Rush Filing Service allows customers in certain states to decrease their filing timeframe to 24- to 48-hours.

Is Rush Filing available for every state?

No. BizFilings’ Rush Filing Service is available in the states listed in the chart below. The turnaround time listed adjacent to each state is the time it will take us to receive verification that your incorporation documents have been filed with the state, following the name approval or consent. The turnaround time excludes weekends and holidays.

With Rush Filing Service, how soon will I receive my documents?

The 24- or 48-hour filing time is for the approval of the incorporation only. It typically takes longer for states to produce the filed documents. Once BizFilings receives your documents from the state, we will ship them to you via FedEx Overnight delivery. This means you should have your documents in hand anywhere from just a few days to one week after filing. We will also scan and make them available in our Online Status Center for you to access before receiving the originals.

Note: Some states require your signature on the incorporation documents when someone other than BizFilings is acting as registered agent. In these cases, the filing timeframe of 24 to 48 hours begins after we have received the signed documents and received any applicable approvals or consent needed prior to sending the incorporation documents to the state.

Why should I include Rush Filing Service with my incorporation order?

Using BizFilings' Rush Filing Service secures your name and incorporation date in as little as 24 hours. This service is particularly valuable when you need proof of incorporation to secure a contract or open a bank account.