How to form an S-corporation for Ropes and Textile products

Introduction

An S-corporation is a type of corporation that has a significant benefit in the form of limited liability. The Internal Revenue Service (IRS) classifies these corporations as pass-through entities, which means that any income it earns gets passed on directly to its owners. This can be beneficial to investors who want to avoid paying taxes on earnings from a traditional corporation, but it’s not always ideal for other types of businesses.

Find the right name

First, make sure that the name isn’t too similar to another company’s—since you’re basically creating an entirely new entity, this is one of the few times when it’s OK to be creative. The key question is: can I get my chosen domain name? If so, great!

Another thing to consider when choosing your business name is whether or not it implies nonprofit status. For example: say we wanted to call our company “Fiber Artisan Guild,” because we only sell artisanal ropes and textiles (i.e., no mass production).

File your articles of incorporation

• Once you’ve chosen a state and a name, file your articles of incorporation with the secretary of state in that state.
• Include basic information in your articles of incorporation. The articles must include a statement that the corporation is an S-corporation, as well as the names, addresses and phone numbers of all owners who are signing on behalf of their respective companies. It’s also important to make sure there’s no reference to any other type of legal entity—this will ensure that you’re properly classified by the IRS as an S-corporation.
• Get them filed. You can either mail or hand deliver these documents to a local county clerk’s office.

Hold a meeting of the initial directors

To establish an S-corporation, you must hold a meeting of the initial directors. The directors are responsible for making sure the company is run properly. They are also responsible for hiring and firing employees and making sure that the company complies with all laws. Each director must be at least 18 years old, a resident of California and not an employee or relative of any other director.

Adopt bylaws

By adopting bylaws, you will have a written set of rules that govern many aspects of how the company conducts business, including:

• Who can vote on key decisions
• How meetings are conducted (how many people must be present for a quorum) and when they must be held
• The number of directors or officers and what their duties are

Issue shares

You can sell up to 1 million shares at one time, but it’s best not to issue that many at first. Instead, try issuing 100,000 shares or fewer and test the waters before expanding your share offering.

There are three types of stock that can be issued: common stock (Class A), preferred stock (Class B) and voting rights. Common stocks are used as payment for goods or services provided by the corporation; preferred stocks pay dividends in addition to receiving a share of profits; while voting rights determine how much influence each shareholder has over corporate decisions such as buying new equipment or selling off old inventory items.

Appoint officers

The officers of an S corporation are the people who run the business. They have to be at least 18 years old and US citizens or residents, but they do not have to be employees. The officers are usually also directors because only directors can sign official documents for a corporation.

Obtain an employer ID number

You will need an employer identification number (EIN) to do business, even if you are not incorporated. It’s a nine-digit number that the Internal Revenue Service issues for tax, banking and other purposes. The IRS website allows you to apply online or by phone.

File for S-corporation status with the IRS

To do this, you must provide the following documents:

• A copy of your articles of incorporation and bylaws;
• A copy of the minutes from the meeting where you adopted those bylaws; and
• A copy of the minutes from the meeting where you appointed officers.

Setting up an S-corporation is a bit more complicated than setting up other types of corporations

An S-corporation is a type of corporation that can be taxed at the corporate level, but it passes its earnings along to shareholders who pay taxes only on their individual returns. Earnings are not taxed twice, so S-corporations are more tax efficient than other types of corporations.

Conclusion

The main takeaway from this article is that setting up an S-corporation for ropes and textile products is technically more complicated than other types of corporations. That said, it can be worth it if you’re looking for tax breaks that other corporations don’t have access to.