When you form a business, if you’d prefer that its shareholders pay taxes on its income at their personal tax rates, you can elect to create an S corporation. An S corp also allows your shareholders to benefit tax-wise from the company’s losses. Losses and income “pass through” to your shareholders, essentially absolving the corporation itself from taxation. Forming an S corporation can be a lengthy and complicated process, and errors during formation may negatively impact your business in the future. An attorney or online legal service can help you with the entire process and make sure it is done correctly.
Determine if your company is eligible for an S corp election. Under IRS rules, you cannot have more than 100 shareholders, and you’re limited to issuing only one kind of stock. Some insurance companies and financial institutions are not eligible at all, so make sure your business plan meshes with S corp limitations.
Decide on a business name and make sure it’s available in Colorado. Certain guidelines apply, which can be found in Section 7-90-601(3) of the Colorado Corporate Code. For example, your name must include some indication of its corporate status, such as the word “Inc.” Section 7-90601(2) prohibits you from using a name that’s too similar to another corporation’s name. For example, you generally can’t use “Smith Beverage Distribution, Inc.” if “Smith Beverage Distributors, Inc.” is already in use in Colorado.
Go online to the Colorado Secretary of State’s website. Type “records search” into the search box at the top of the homepage. Follow the link that will pop up to the records search page and type in your proposed business name at the bottom, in the box marked “name availability.” This will tell you if the name you’ve selected is available. If it’s not, you’ll have to tweak it until you find one that clears the search.
Access the Colorado Secretary of State's website’s document filing system. Type “file a document” into the search box at the top of the homepage and this will guide you to the appropriate page. Click on “Form a New Profit Corporation” to the left side of the page.
Complete your company’s articles of incorporation. The website will guide you through the steps necessary to fill in and file your articles. For example, it will ask you to search your chosen name again, this time to make sure it’s not too similar to any others. Your first check was simply to find out if the name was available. The website will also ask you to confirm the number of shares you intend to issue, the identities of your incorporator or incorporators, and contact information for your registered agent. Your registered agent must reside in Colorado. When you complete your articles of incorporation, you can submit them electronically through the website.
Go online to the IRS website and print out Form 2553, “Election by a Small Business Corporation.” Fill out the form, arrange for all your shareholders to sign it, and submit it to the IRS. You’ll also have to tell the IRS in which tax year you would like this taxation method to become effective. This small detail differentiates your S corp from other business entities.
Access Form SS-4 while you’re on the IRS website. This is your application for a federal tax identification number, which effectively identifies your corporation to the IRS, just as your Social Security number identifies you personally. You can complete this form and submit it online.
Tips & Warnings
- Hire an attorney or use an online legal document preparation service if you need assistance or if you are not confident that you will be able to correctly complete the process yourself.
- If you need a little time to organize before you submit your articles of incorporation, but you want to make sure no one else gets your selected business name, the Colorado Secretary of State allows you to reserve the name for four months. If you’re still not ready to proceed at that time, you can hold the name for an additional time by filing a “Statement of Renewal of Reservation of Name.”
References & Resources
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