Choosing a business structure is one of the most important decisions you make when you start a business because different structures provide different tax benefits and protection from personal liability. Corporations can elect to be considered S corporations, providing the liability protection and other benefits of a corporate structure with taxation like a partnership. To form an S corporation, you must first form a standard corporation, called a C corporation, then make a tax election to become an S corp.
S Corp Requirements
S corporations are taxed once at the shareholder level on each shareholder’s personal tax return instead of being taxed both at the corporate level and also at the shareholder’s personal level. However, not all corporations qualify to become S corporations. For example, your corporation cannot have more than 100 shareholders. Your corporation’s shareholders must be individuals, estates or certain other eligible entities, but they cannot be other corporations. Your corporation must issue only one class of stock, and cannot be a bank, insurance company or other ineligible type of business.
Forming a C Corp
Before you can elect S corp status, you must form a standard C corp. First, you must pick a name for your corporation that includes an indication of your business’ corporate status such as the word “incorporated” or the abbreviation “inc.” Next, you must file articles of incorporation with the Indiana Secretary of State, including the name of the corporation, the name and address of your business’ registered agent, the number of shares of stock your corporation is authorized to issue, the name and address of the incorporators, the signature of each incorporator and a filing fee. You can file these articles online or by mail. As this formation document is important to establish the nature of your business, the aid of an attorney or online legal document preparation service is helpful.
Operating Your Corporation
Indiana requires your corporation to have at least one director to operate the corporation, but you do not have to name the director in your articles of incorporation. Information about directors, including their quantity and individual obligations, is usually contained within the corporate bylaws. Bylaws are the operating instructions for your business, typically addressing items such as how your corporation elects new directors, when the corporation has shareholder meetings and how stocks are transferred. Though Indiana law does not require you to file your bylaws with the state, corporations keep a copy at their principal place of business.
If your corporation qualifies to become an S corp, you can elect S corp status by filing Form 2553 with the IRS. You must file this form within 75 days after you file your articles of incorporation with the Indiana Secretary of State, or within 75 days of a new tax year. Under most circumstances, you must also register your corporation with the Indiana Department of Revenue by filing a business tax application. For example, if your corporation has employees, you must pay Indiana withholding tax. If your corporation sells items, you must collect Indiana sales tax.