How to form an S-corporation for Engineering

Introduction

Forming an S-corporation for engineering is not a quick and easy process. It takes time, effort, and patience to get the paperwork filed properly and to adhere to the rules that govern small businesses. However, if you are committed to doing things right from the start, then forming an S-corp can be a useful way of protecting yourself as an engineer while giving yourself some tax advantages along the way. So before you embark on this adventure, make sure you understand what it means to form an S-corp.

Select a business name

The first step should be selecting a name that is not too similar to other businesses, as this may lead to confusion among potential clients. If your given business name is similar to another business’s in your industry, you can use the “doing business as” (d/b/a) format instead.

The name of your company should be easy to pronounce and spell so that people will remember it, as well as available for use by another business if possible.

File your Articles of Incorporation

Your state may have different requirements for filing articles than other states do; check with your Secretary of State’s office for details on how to proceed. When filing, make sure to include:

• The name of the company and its purpose (e.g., “The ABC Engineering Corporation”)
• The names and addresses of all shareholders/owners who are putting money into starting up this entity (if there is more than one owner)
• Any special powers granted to officers or directors that aren’t mentioned in state law (e.g., allowing an officer or director veto power over major decisions)

Request an Employer Identification Number (EIN)

The EIN is not the same as your social security number and should not be used interchangeably with it. It also should not be confused with an Employer Tax Identification Number (ETIN), which is used for unemployment tax purposes and can only be obtained from state agencies that collect unemployment tax for you. In addition, if you plan on incorporating in an S corporation, your business will need an EIN before you file Form 2553: Election by a Small Business Corporation (SBC).

Prepare company bylaws

A corporation’s bylaws are very similar to the constitution of a country. They describe how the corporation will be run, and they help protect individual shareholders from losing their money if something goes wrong.

Before you can sell shares in your company, you must create bylaws that specify:

• Who can own stock in your company?
• How much stock each person may purchase or how many shares must be purchased at once.
• What rights each shareholder has (such as voting rights).

Issue shares

Under current tax law, it doesn’t matter if all the shareholders are individuals, other corporations or partnerships. However, once you have issued more than 100 shares of stock in your corporation, you must register the S-corporation with the state where you live. The details of this process vary by state; consult an attorney for guidance.

Create corporate meeting minutes and records

• Minutes are considered one of the most important corporate records because they provide a written record of what was discussed and decided at a meeting. They must be kept as part of your organization’s overall records, and every shareholder needs to receive a copy.
• Keep a copy of minutes for each shareholder. In addition to keeping minutes and maintaining other corporate records, you’ll need to keep copies for yourself and your fellow shareholders (if there are any).

Adhere to tax and employee classification rules

In order to form an S-corp, you must be able to follow the tax and employee classification rules. If you can’t, you’ll have to form a C corporation or another type of business entity that does not require the same level of compliance with those rules.

Here are some things to consider:

• The IRS treats S-corps as if they were pass-through entities for tax purposes; this means that most of the company’s profits are passed through directly to shareholders without being taxed at the corporate level.

Forming an S-corp for engineering won’t be easy, but it is possible if you put the effort into it

An S corporation is one of the many business structures available to small businesses and startups. By choosing this option, you may be able to take advantage of certain tax benefits over other types of companies.

If your thoughts are turning toward pursuing an S corporation, keep in mind that the process is more involved than forming other types of entities like LLCs or sole proprietorships.

Conclusion

If you’re a solo entrepreneur, forming an S-corporation is a great way to protect yourself from liability. It also allows you to save on taxes and keep your finances separate from personal assets. If you plan on hiring employees in the future, then this business structure will help keep your personal assets safe as well as those of your employees.