How to Incorporate an S-Corp in Delaware

By Mike Keenan

Incorporating your business offers the benefit of limiting your personal liability, but the drawback of being subject to two levels of income tax. However, if your business qualifies, you can incorporate and elect S-corp tax status so that the income or loss avoids the corporate tax and passes through directly to your personal return. Only after incorporating at the state level can you elect S-corp federal tax status.

Registration Forms

Delaware has different incorporation forms depending on whether your company will issue stock or not. Both forms require your corporation's name and address, the incorporator's name and address, and the corporation's purpose. For stock corporations, the form requires the number of shares the corporation can issue. For non-stock corporations, you must include the conditions for membership. If you wish, you can add additional terms to your certificate of incorporation on additional pages, such as shareholder agreements that prevent the transfer of shares to people or entities that would make the S-corp election invalid.

Filing Memo

In addition to the form, include a filing memo that states your name, address and telephone or fax number, so that the Division of Corporations can contact you, as well as the business information. In addition, you have the option to request expedited filing for an additional fee. When complete, fax or mail your completed memo and certificate of incorporation to the Division of Corporations: (302)-739-3812, or Division of Corporations, John G. Townsend Building, 401 Federal Street, Suite 4, Dover, DE 19901.

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S-Corp Eligibility

Not every corporation is eligible to elect S-corp tax status. To qualify, the company must have fewer than 100 shareholders and each of the shareholders must be a U.S. citizen or resident; or a qualifying estate, trust, or nonprofit organization. If even one shareholder doesn't meet the requirements, the company can't elect S-corp status. However, if you're a U.S. citizen or resident and the only owner, you'll qualify without a problem.

Making the S-Corp Election

Once you have registered with the Delaware Department of State, you have to file Form 2553 with the IRS to make the S-corp election. On the form, you have to specify the name of the corporation as well as the tax year the corporation will use. In addition, you have to include the name, Social Security number, ownership percentage and signature of each owner of the S-corp because the decision to be taxed as an S-corp must be unanimous.

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S Corp Vs. Corp

Incorporating a business creates a separate legal entity and protects shareholders with limited liability. However, a corporation can be either a C corporation or an S corporation. An S-corp is a C-corp that has made a special election. The differences relate to who can be a shareholder and how the company and shareholders pay taxes on the business's profits and losses.

How to Get an S-Corporation Enterprise

An S corporation is a corporation that has been approved by the IRS to be taxed under Subchapter S of the Internal Revenue Code. An S corporation is typically not taxed as an entity. Instead, the IRS and many state governments tax shareholders of an S corp on their proportionate shares of the corporation's taxable income. This results in a net tax savings in many cases. To form an S corporation, you must form a corporation that complies with Subchapter S restrictions, and then elect S corporation taxation with the IRS.

How to Form a Mutual Benefit Corporation in California

California law provides for several types of nonprofit corporations, one of which is called a mutual benefit corporation. The primary aspect of a mutual benefit corporation is that it is formed and operated solely for the benefit of its members, rather than making a profit. A mutual benefit corporation can be formed for any nonprofit purpose except a charity. To form a mutual benefit corporation in California, you file articles of incorporation with the Secretary of State’s office. You can download a sample form of articles from the secretary's website.

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