How to Become an S Corporation in Louisiana

by Terry Masters

Business owners who want to start a corporation in Louisiana must comply with the state's corporation statute and file organizing articles with the Secretary of State. Once the corporation is properly formed under state law, the shareholders can make an Internal Revenue Service election to be taxed as a small corporation under Subchapter S of the Internal Revenue Code. Most states recognize the IRS election, provided the corporation files a state election form and attaches proof of its federal S corporation status; however, Louisiana does not allow S corporations to make an equivalent state election. Instead, it requires these businesses to prepare and file annual state taxes in the same way as C corporations, and then shareholders can make a series of annual flow-through tax elections that provide most of the same tax benefits granted by other states that do recognize the federal S corporation election.

Step 1

File articles of incorporation with the Louisiana Secretary of State. Go to the “Corporations” section of the state website and click the "File Online" link. Click "Original Filings" and select the option for "Domestic Business Reg. Articles of Incorporation." The system will walk you through a fill-in-the-blanks form that collects the basic information needed to legally establish a corporation, including the name of the corporation, the name and address of at least one incorporator, the number of initial shares to be issued and an electronic signature. The filing fee is $60 as of 2012 and must be paid electronically. Alternatively, you can file articles of incorporation by mail by downloading a template from the Corporation Forms section of the state website and filling it out. The template requires the same information as the online system.

Step 2

Obtain an Employer Identification Number (EIN) from the IRS. Go to the IRS website and access the electronic EIN application (see link in Resources). The application requires basic information about your corporation, including the state where it was incorporated and the date of incorporation. The electronic system will assign you a number immediately after you submit the application. Alternatively, you can download IRS Form SS-4 from the IRS website and submit it by fax, telephone or by mail. If you submit the application by mail, it can take up to six weeks to receive your employer identification number.

Step 3

Call a shareholders' meeting and vote to make an S corporation election. The IRS requires all shareholders to consent in writing to a Subchapter S election. If even one shareholder objects, the corporation cannot qualify as an S corporation. Record the vote in the meeting minutes and archive the minutes in the corporate records.

Step 4

Prepare IRS Form 2553 (Election by a Small Business Corporation) while all shareholders are present to sign the form. The form requires the names, addresses, Social Security numbers and signatures of each shareholder consenting to the election and affirming that the corporation qualifies for the S corporation election. Mail the completed form to the IRS. If the IRS accepts the election, it will mail the corporation a confirmation letter indicating the effective date of the election. This date will depend upon when during the year the corporation mails in the election. As of the effective date, the corporation is an S corporation for federal tax purposes.

Step 5

File a Louisiana state corporate income tax return annually, following the same procedure as a C corporation and using Form CIFT-620. Indicate on Line 1B that the corporation will be taking the S Corporation Exclusion. Louisiana law allows federal S corporations to exclude part of their net income from state taxation and to pass that excluded amount on to shareholders to be taxed on their individual returns. The exclusion is determined by multiplying Louisiana net income by a ratio calculated by dividing the number of issued and outstanding shares of the S corporation’s capital stock owned by Louisiana residents on the last day of the S corporation’s taxable year by the total number of issued and outstanding shares of capital stock on the last day of the S corporation’s taxable year.

Step 6

Make the annual Louisiana flow-through election for any state business tax assessment credit. No special form is required to make this election. The election is made when the S corporation does not claim the credit on the CIFT-620 form and allows each shareholder to claim his portion of the credit on his own income tax return. The S corporation that elects to flow through any credits must prepare and distribute to each shareholder a schedule detailing the shareholder's allocation of each credit for which the election is made. Shareholders claiming the credit should attach a copy of this schedule to the income tax return on which the credit is claimed.