How to form an S-corporation for Handtools


Unlike C-corporations or LLCs, an S-corporation is taxed at the individual income level rather than at the corporate level. That means that profits are subject to double taxation: once when they’re earned by your company and again when you take them home as compensation for your efforts. In other words, you can save money on taxes by forming an S-corporation instead of another type of corporation—but only if you meet certain requirements on both sides of things.

Gather the proper documents for registration

The first step is contacting your state’s corporation division and asking for a copy of their relevant laws. Get copies of these documents so you can use them as reference later on in this process.

Next, take a look at the documents from your state government; these will tell you what requirements must be met in order to form an S-corporation there. These rules are often different from one state to another, but they generally require:

  • A legal name for your corporation (with “and Company” added at the end). This name must be unique within your state’s database and cannot include words like “Limited,” “Incorporated,” or “Corporation.” You’ll also have to choose which type of business structure is right for yours—if it’s an LLC. 

Fill out and file your application, paying the fee

You’ll need to supply information about the company, including its name and address, along with the names of your officers (if any), directors, or members. You’ll also need to pay the fee for establishing your corporation.

Formalize a stock structure that you believe to be fair, and write it in your corporate bylaws and operating agreement

Think of a corporation as a virtual company. It’s not real, but it has the ability to make contracts and engage in business on its own behalf, acting as an individual person. The members of this “company” are called shareholders and can own shares in the company.

While there are many benefits to forming an S-corporation over other types of corporations (such as C-Corps), one major benefit is that there will be no double taxation when you transfer your assets back into your name after selling them off your investment portfolio (e.g., if you sell 50% interest in your S-Corp).

Choose officers for your organization

Officers are people who run a corporation and can include an individual or group of individuals. Usually, corporations (like most businesses) are run by boards of directors. The board appoints officers to oversee different aspects of the company’s operation, such as overseeing finances or sales and marketing efforts.

  • Chief executive officer (CEO)
  • Chief financial officer (CFO)
  • Chief operating officer (COO)

Think about who to hire as directors

You should consider hiring directors to help you manage the day-to-day business of your corporation. Directors are elected by shareholders, and they are not employees of the corporation. Directors make decisions on behalf of the corporation, such as approving certain contracts or electing officers. You may also choose to have several directors—for example, if you want to ensure that at least one person is available all year round in case something comes up.

Choose a team of shareholders

You will need to collect and formulate a team of shareholders for your S-corporation. Shareholders are the owners of the corporation who have a say in how it is run, but not in how it is formed. Shareholders can be individuals or other corporations.

Shareholders can be added or removed at any time and their investment amount changes as well.

Come up with a good name for your corporation

The first step in forming an S corporation is to come up with a good name for your corporation. This is important because it will be the only name that you use when operating your business, so it needs to be short, easy to remember and unique. It also needs to avoid any potentially offensive or confusing names.

Get an employer identification number

The quickest way to apply for an EIN is to use the IRS website, where you can apply online. You will need your Social Security number and date of birth, which are used by the IRS to verify your identity.

S-corporations are one of the most popular business structures in the U.S., but they’re not right for everyone

  • Complexity: S-corporations are more complex than sole proprietorships or partnerships because they require additional paperwork and filing requirements.
  • Taxes: While you’ll pay less income tax if your company is organized as an S corporation, you’ll still pay self-employment taxes for yourself as an employee (unless your corporation hires you).


If you’re looking to start a new business, and you want to do so in the safest way possible, an S-corporation is one of the best ways to go. You can form one quickly and easily by following these steps.

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