How to form an S-corporation for Retail

Introduction

The S-corporation is the most common type of corporation. It’s the one used by small businesses, start-ups, and entrepreneurs who want to keep their personal assets protected from liability. While forming an S-corporation isn’t difficult, it does require some planning and effort on your part. Here are a few things you should consider before forming your own.

Decide on the type of corporation to form

There are two types of corporations you can form: an S-corporation and a C-corporation. While the process is similar for both, there are some key differences between them that you should consider before deciding which type to form.

An S-corporation is the most common type of corporation because it offers many of the same benefits as other kinds of businesses but does not have to pay taxes as a C corporation does. Because it doesn’t have to pay taxes on its profits, an S-corporation can pass those savings on to investors through dividends (which are taxed at personal income tax rates). Additionally, unlike with LLCs, in which members must meet certain requirements before becoming managers or directors, anyone can be part owner in an S-corporation without having any special qualifications—something that may make sense if your business has friends or family members who want to get involved without committing their own capital investment. However, because they’re taxed differently than other types of corporations such as LLCs, using an S corporation may not be right for everyone; if this is the case then we’d recommend looking into starting up either a C Corporation or an LLC instead.

Choose a name for the corporation

To avoid tax problems and lawsuits, it’s important to choose a name that is not too similar to other company names. It’s also a good idea to avoid using the word “limited” or “corporation” in your company name. The name should be easy to remember and spell, so avoid using numbers or symbols in it as well.

Complete and file Articles of incorporation

The first step in forming an S-corporation is to create a document called the articles of incorporation, which establishes your business. This document must be filed with your state’s business division and includes things like:

• the name, address, and purpose of the corporation
• signatures from at least one person at the time it was created

Get an Employer identification number

You’ll need to apply for an employer identification number from the Internal Revenue Service (IRS). The process of applying for an EIN is easy: just visit the IRS website and fill out a few fields about yourself and your business—you can even do this part online if you have access to a computer.

Draft and adopt bylaws

Create and adopt bylaws, which are internal company rules and regulations. Bylaws may be created to address the following issues:

• Who can be an officer or director of the corporation?
• What are the duties of officers, directors, and shareholders?
• How will shareholder meetings be conducted?
• How will votes take place?

Draft a shareholder agreement

A shareholder agreement is a contract between shareholders that outlines how decisions will be made, how profits and losses are distributed and other important issues. The shareholder agreement should include provisions for voting rights (such as unanimous consent or majority vote), dividends (for example, in percentages), buy-sell agreements (the conditions under which one shareholder can sell his or her interest in the business), and more.

In addition to outlining these provisions, your shareholder agreement should also be signed by all of your shareholders. You may want to consider having each person sign multiple copies of the document so that you have some proof that they did indeed sign it at some point in time—and not just once!

Hold an organizational meeting with shareholders

After you’ve obtained a federal tax identification number, hold an organizational meeting with shareholders, and determined how much capital is needed to begin operations, it’s time to issue shares of stock known as “capitalization.”

Issue shares of stock to raise start-up capital

You can issue shares of stock to raise money for your retail business. To get started, you need to determine the price per share and the number of shares to be sold. The IRS allows S corporations to have up to 100 shareholders before they must file as a C corporation . However, most small businesses have between one and 10 owners, so this shouldn’t be a problem for you unless you’re looking for significant funding from outside investors.

Conclusion

If you’re willing to put in the time and effort, forming an S-corporation can be a great way for your business to grow. It offers many benefits, including limited liability protection and tax advantages.