How to form an S-corporation for Building Materials
Building material suppliers who want to operate as an S-corporation must decide whether it is the right organizational structure for them. There are several advantages of operating as an S-corporation, including being able to take a capital loss on your business income. However, you will also have to pay more taxes than a regular corporation or sole proprietorship would pay—so it’s important to understand the pros and cons of this type of entity before making the decision.
S-corporation tax basics
An S-corporation is a type of business entity that is taxed at the corporate level, but owners pay taxes on their share of profits. The federal government limits S-corporations to no more than 100 shareholders. If you want to form an S-corporation for building materials, here’s what you need to know:
- You can only have 100 shareholders in an S-corporation. If your company has more than 100 shareholders, then it will have to reincorporate as a C corporation or LLC.
- When forming an S-Corp., one thing to keep in mind is that there are certain restrictions on who can be considered a shareholder or owner.
Advantages of S-corporations
An S corporation is a special kind of corporation that has been given this designation by the IRS. Unlike a regular C corporation, an S corporation does not pay federal income tax itself; rather, the business income and losses are passed through to its shareholders and included on their personal tax returns.
S corporations also have other advantages over traditional C corporations:
- There are no limits on how many shareholders you can have in your S corporation. However, there may be restrictions imposed by state law or local ordinances if you incorporate in one of those places rather than at the federal level.
- You can choose between having directors/managers run things or having investors hold shares directly themselves without needing oversight from outside parties like boards of directors who would normally oversee management decisions made by executives working under them within larger companies.
Disadvantages of S-corporations
- You have to pay self-employment tax. Because S-corporations are pass-through entities, there’s no such thing as “double taxation.”
- You’ll have to file more paperwork. S-corporation shareholders must report all of their income and losses on their personal tax returns and then file those returns with the IRS. This can be a big hassle, especially if you have several shareholders who don’t live in the same state.
- You might end up paying more taxes—and for professional services too! Self-employment taxes may increase significantly under certain circumstances.
How to form an S-corporation
To form an S-corporation, you’ll need to follow these steps:
Step 1. Choose a name for your business
The first step in forming an S-corporation is to choose a name for your business. Although you can use any name you want, there are certain requirements that must be met:
- The name must be unique—no one else can have this exact same name in the state where you’re incorporating. If another company has already registered their corporation under this exact same name, they will retain priority over yours and you’ll need to come up with something else! Keep in mind that other businesses may also have trademarks on similar names or symbols.
- It should be easy to remember and pronounce.
- Ensure that the domain is available before proceeding further – otherwise purchasing domains later on could cost more than expected due to higher demand from others looking at buying them already owned by someone else who wants theirs back too!
Step 2. Decide on your organizational structure
Now that you’ve decided to form an S-corporation, you should make a decision about which organizational structure will work best for your business. There are several options available:
- An S-corporation: This is a corporation that files its taxes as a “pass through” entity, meaning it’s taxed at the individual level instead of the corporate level.
- A C-corporation: This is the traditional choice for most businesses, as it allows for tax deductions and helps protect personal assets from liability if the business gets sued. It also allows shareholders to receive dividends from profits earned by the company.
- An LLC : These types of organizations have limited liability protection similar to corporations but have fewer restrictions on who can own them and how they’re operated than would be found in regular businesses; they’re also not subject to double taxation like corporations are.
- Sole proprietorship: If you’re working alone without any partners or employees, then this may be your best option because it doesn’t require much paperwork or fees when compared with other organizational structures—but keep in mind that if people do work for you under these circumstances they’ll still need health insurance coverage!
Step 3. File the articles of incorporation with your state
You’ll also have to get approval from the IRS before you can do this.
The process for filing varies from one state to another, but as a general rule, you’ll need:
- A copy of your articles of incorporation that includes all the information required by your state (including corporate name, address, director information and so on)
- The correct filing fee
Step 4. Write your bylaws
Bylaws exist to establish the rules and procedures for running your company, including how meetings are held, what goes on at those meetings and how often they happen. The bylaws can also outline other policies like whether voting rights depend on stock ownership percentage or voting power.
Step 5. Apply for federal and state tax identification numbers from the IRS and your state revenue department
You can apply online at either the IRS website or with your state revenue department’s website, depending on what’s available in your area.
There are several other miscellaneous things you’ll need to do when you form an S-corporation, such as keeping minutes of meetings and electing officers—but these steps aren’t too complicated once you’ve learned about them!
Step 6. Hold a meeting of the board of directors to approve the bylaws, select officers and adopt a stock option plan
You can do this yourself, or you can have a lawyer do it. You also have other options:
- Get a corporate service provider to do it. This is like having an accountant or bookkeeper for your business; they take care of all the paperwork and filings for you so that all you have to do is pay them monthly fees based on their services. If this interests you, read on!
Create corporate records
Corporate records are the minutes of meetings and resolutions approved by the shareholders and directors. These records should be kept in a minute book with other important papers such as licenses, deeds, contracts, etc. You will want to keep all corporate records indefinitely.
Would you like more information about forming an S-corporation for your building materials business? If so, we can help! Give us a call at 555-555-5555 and we’ll be happy to answer any questions you may have. We’re available Monday through Friday from 9 am – 5 pm EST.