The Steps in Starting an S Corporation

By Ari Mushell, J.D.

The Steps in Starting an S Corporation

By Ari Mushell, J.D.

When starting a business, the old adage is to start small and think big. An S corporation provides a business owner with that opportunity, allowing the business to grow by providing limited liability and favorable tax treatment while preserving ownership flexibility.

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Starting an S corporation is somewhat involved and requires following several steps.

1. Choose a business name.

To incorporate, you must choose a business name that is available in your jurisdiction of incorporation. Each jurisdiction provides a registry of incorporated businesses so you can determine whether your chosen name is already in use. Consult with an intellectual property lawyer if you have concerns that your chosen business name might be too similar to a currently registered business name.

2. Name company directors.

The Internal Revenue Service (IRS) and state law require an S corporation to have a board of directors. The directors, per the rules of maintaining an S corporation, must meet at regular intervals and keep minutes of those meetings. The new corporation should choose directors who are able and willing to meet regularly and who will provide value to the business.

3. Determine stock category.

An S corporation must issue stock in the corporation, either common stock or preferred stock. Choose whichever stock scheme is most advantageous for your business.

4. Draft articles of incorporation.

State law requires those forming as an S corporation to submit articles of incorporation to both the Secretary of State—or whichever state agency regulates business—and the IRS. Articles of incorporation consist of a document that provides the name of the corporation; names, contact information, and share allocation of those incorporating the business; amount of shares of the corporation; and names of the board of directors. Many states also require the document to include a stated business purpose.

The IRS requires the articles of incorporation to provide a timeframe for the business. It is acceptable to state that the business is “perpetual."

5. Draft corporate bylaws.

A separate document from the articles of incorporation, corporate bylaws detail the business structure and its operations. It also includes information regarding and procedures for:

  • Electing directors
  • Removing directors
  • Selling shares in the corporation
  • Holding meetings
  • Voting rights
  • Death of a director or officer

The corporate bylaws memo is perhaps the most important document for launching a business. Many states require filing this document with the Secretary of State when organizing an S corporation.

6. Procure the certificate of incorporation.

Once you've submitted all relevant documentation, you must obtain a certificate of incorporation from the Secretary of State that states that the corporation is duly organized. The process for obtaining this certificate, after submission of the required documentation, varies between three days and two weeks, depending on jurisdiction.

7. File the S corporation paperwork.

Once you've submitted all relevant documentation, you must file Election by a Small Business Corporation (Form 2553) with the IRS. This is the paperwork that officially makes your business an S corporation.

8. File with a registered agent.

Once you have a certificate of incorporation, you need to file with a registered agent. State law mandates that every incorporated business have a registered agent, who receives legal documents on the incorporated business's behalf. These legal documents include any state and federal correspondence as well as services of process such as summons and subpoenas. The registered agent must have its address in the same jurisdiction of incorporation as your S corporation.

An S corporation provides owners with limited liability, tax advantages, and ownership flexibility. Once you follow the steps required to form an S corporation, you can start enjoying its benefits.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.