For many companies with shareholders, profits and losses play a major factor, if not the most important, in determining how the company is run. As such, many companies choose to form an S corporation (S corp) due to the tax benefits that this type of company enjoys. However, ensuring that your company remains eligible to be considered an S corp and understanding the many nuances that come with forming such a business can be difficult.
With the legal support of an experienced and skilled Texas S corp attorney at Cagle Carpenter Hazlewood, you can evaluate the many legal and professional demands required of S corps in order to make the business formation decision that best suits your company. Call us to discuss forming an S corp and learn about how we work individually with each client to make sure their unique business needs are met.
What is an S-corporation?
Essentially, corporations fall under two types as recognized by the IRS: C-corporation and S-corporations. An S-corporation is designed so that the business can avoid double taxation, as it is under federal tax law rather than the state corporate law. This is an ideal business structure for a for-profit corporation.
There are a few stipulations for businesses that want to file as an S-corporation: they may not have more than 100 shareholders, and all shareholders must be U.S. citizens or have resident immigration status.
Eligibility For S Corp Formation
Because of the tax benefits that shareholders within S corporations enjoy, not all companies are eligible to form such a business. Federal mandates require an S corp to meet the following requirements:
- Must be a limited liability company or a domestic corporation
- May not have more than 100 shareholders (Families and spouses generally count as one shareholder)
- May only have one stock class
- Only valid U.S. citizens and residents who are natural people (not corporations or partnerships, with certain exceptions) can be shareholders
- All losses and income must be shared appropriately according to ownership/share in the company
How to Register an S-Corporation in Austin, Texas
When starting a business, it’s important to select the right kind of structure that will support the goals and long-term vision you have for your business. From a sole proprietorship to a general partnership or LLC, each business structure has its advantages and disadvantages that you’ll want to research before diving in.
If you determine that a corporation is the ideal business structure for you, you’ll want to decide whether forming an S-corporation is the right route for your business.
How to set up an S-corporation in Austin?
If Austin is the city in which you’ve decided to set up an S-corporation, there are some specific steps to follow.
First, you will need to make sure that the name you want for your business is available. Call up the Texas Secretary of State to run a name check and make sure that your desired name is not already taken, as duplicate business names are not allowed.
The next stage is filing the paperwork needed to register your S-corporation in Austin. You will need the Form 201, which is available on the Texas Secretary of State website (which you can print directly from the site, or call to have sent to you by mail). This form is also known as the Certificate of Formation.
You’ll want to complete the form with all of your business’ information and the information about the person who will receive all legal documents for the S-corporation, as well as signatures from each company organizer. There will also be a space to indicate the initial amount of shares the company can give out, and their minimum price, along with the purpose of the business.
Submitting this form can be done online or by mail, and will cost $300. While waiting for the form to process, you’ll need to create a set of bylaws for your new S-corporation. Because Texas doesn’t have any specific guidelines for these bylaws, you will need to write your own – including things such as the criteria for selecting directors, dates and locations of company meetings, compensations for company officers, and so forth.
With bylaws written and Form 201 submitted, you’re ready to get an employer identification number from the IRS. Simply go online to the IRS website to apply for an EIN, providing all of the requested business information.
Finally, the last step is to file Form 2553 with the IRS, filling in the required business information and mailing or faxing the form out to the Department of the Treasury, IRS.
With all of these steps complete, your new S-corporation is ready to go into business in Austin, Texas.
Whether you have questions regarding your eligibility, how to successfully form such a company, or what the benefits of an S corp are exactly, our team at Cagle Carpenter Hazlewood, can provide you with answers and advice specifically tailored to your unique business situation.
At Cagle Carpenter Hazlewood, we provide a hands-on, personalized approach for each and every one of our clients and will work hard to help you make the decisions that are best for your company. Call us at (512) 472-2431 to discuss S corps in greater depth and to address your business goals and aspirations more closely with our team of Austin S corp attorneys.