How to form an S-corporation for Distribution


An S corporation is a special type of corporation that offers certain tax advantages over regular corporations, which are discussed below.

A corporation is a business that is chartered by the state in which it operates

A corporation can be formed as a C-corporation or S-corporation, which are both taxed as separate entities. An S-corporation is taxed differently from a C-corporation because it does not pay taxes at the corporate level. Instead, income passes through to its shareholders who are then responsible for paying income taxes on their share of net profits earned by the corporation.

This means that your business can receive federal tax exemptions and still enjoy many benefits of running as an S-corporation—including being able to avoid double taxation.

First decide if you really want an S-corp or an LLC

Before you get started, you need to know the pros and cons of each option.

Advantages of an S-corporation

  • Can have up to 100 shareholders, but only 75% of them must be US citizens or residents. This is a great advantage when it comes time to sell your company. You’ll be able to find more buyers who are willing to pay top dollar because they won’t have to go through the hassle of getting approval from the IRS and state tax authorities before committing.
  • Limited liability protection for all owners (shareholders). If there are other partners with riskier assets than yours, this can be really helpful if they experience lawsuits or other problems that may impact their ability to repay their debts; it also protects you from having too much personal information about yourself revealed in court proceedings against someone else in your business entity — like an LLC does not offer this same level of privacy protection!
  • Corporate income tax rates at 15%. The lower corporate tax rate means that more profits will remain inside your company after paying taxes — which helps keep money flowing into future projects by making sure there’s always enough cash available without needing a loan first!

Select a name for your S-corporation

It’s important to choose a name that is not too similar to an existing company, because it can cause confusion. Your new S-corporation cannot use a trade name that is similar to an existing corporation, limited liability company or limited partnership. If you are unsure about this issue, talk with an attorney before choosing your name.

The name of your S-corporation should be easy to remember and easy to spell so that people can find you when they need help or products from your business. It should also be short and simple enough so that people won’t get confused by the information on their receipts.

File articles of incorporation

The first step in forming an S-Corp is filing articles of incorporation with your secretary of state’s office. This document outlines basic information about the company—its name, address, etc.—and must be signed by all incorporators before being filed with your state government organization responsible for overseeing businesses.

Create corporate bylaws, which govern how your company will conduct business on a day-to-day basis

While these documents don’t have to be filed with any state agency, they should still include provisions for electing officers and handling disputes among shareholders. Bylaws also help ensure smooth operation of an S-corp by ensuring that all decisions are made democratically and with equal weight given to each shareholder’s vote.

Hold your first meeting of the board of directors

Also, adopt a shareholder resolution about electing your S-corporation status at that meeting.

In order to form an S-corporation, you must have a board of directors. The law requires that all corporations have boards. The board is responsible for making important decisions about the corporation’s management and direction. In addition, both shareholders and non-shareholders may be elected to serve on a corporation’s board. For example, managers who are not also shareholders may be members of the board as long as they qualify under state law.

The meeting where you elect an S-corporation will typically include discussions about how much compensation should be paid to each member of the board; however, some states require that directors receive no pay for their services unless they own stock in the company or receive other benefits such as health insurance or life insurance coverage above certain amounts.

File IRS Form 2553 with the IRS to elect S-corp status

The form requires you to provide:

  • The date of incorporation
  • The names and addresses of each shareholder
  • An address for the corporation’s principal office
  • The name and address of your registered agent (the person who will receive legal documents on behalf of the corporation)

This is how to form an S-corporation

An S-corp is a pass-through entity, which means that the business’s income and expenses are passed through to its owners’ personal tax returns. This is helpful, because it means that your business will not be subject to double taxation.

  • Pass-through entities are subject to fewer legal restrictions than an LLC.
  • An S-corp has fewer legal restrictions than an LLC, making it a good choice for small businesses that want to protect themselves from lawsuits while maintaining flexibility and avoiding double taxation if they so choose.


Hopefully this article has been helpful for you as you consider forming an S-corporation. If you have any questions, or would like to talk with someone about how to form an S-corp or other type of business entity, contact us today!

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