How to form an S-corporation for Science and Technology

Introduction

The S corporation is a business entity created by the IRS in order to allow small businesses to benefit from the tax advantages of incorporation without having to follow all of the rules and regulations that come with being a regular corporation. The benefits of it can include pass-through taxation, limited liability protection, lower self-employment taxes, flexibility in choosing your shareholders/owners and directors, and fewer administrative requirements than regular corporations. However, forming it is not as straightforward as it might seem at first glance. You need to make sure that you’re eligible for this type of entity before going through with forming one! Below are some general tips on how to form an S corporation for science and technology.

A. Determine if you’re a good candidate for an S corporation

An S corporation is a type of corporation that has chosen to be taxed as a pass-through entity. Unlike C corporations, which are subject to double taxation (corporate tax and individual tax) when they bring in profits, an S corporation pays taxes only at the corporate level. Shareholders pay personal income tax on their share of the company’s net income and don’t pay any federal corporate taxes on that money.

If you want to form an S-corporation, keep these things in mind:

• It’s much easier for small businesses than large ones – large companies have more complicated legal requirements and paperwork involved with forming them.
• You’ll need a small number of shareholders – at least one person needs to own stock in your company (though they can be yourself), but no more than 100 shareholders can share ownership of the business, or else, it will lose its S status and become taxed like a C corporation instead.

B. Complete the Articles of Incorporation and submit it to your state’s Secretary

To form an S corporation, you must meet three requirements:

• You must be a U.S. citizen or resident alien and your business cannot be primarily engaged in any activity that is prohibited by federal law;
• Your company cannot have more than 100 shareholders; and
• At least 75% of all shareholders must vote in favor of forming an S corporation. If this sounds hefty, consider that there are ways around some of these restrictions—for example, if you’re only going to operate within the state where you live (so long as it doesn’t exceed $5 million in gross receipts), then some states allow for fewer shareholder restrictions or don’t require them at all!

C. Make sure to request an EIN from the IRS

An EIN can take up to five days to process once you submit your Articles of Incorporation via mail or fax. If you’re in a rush, it might be faster for you to apply online using the Electronic Filing System (EFS). If your state requires that you obtain an income tax ID number before applying for an EIN, consider filing Form SS-4 instead of requesting one at this time—it won’t affect how quickly they review your application!

D. Complete the IRS form 2553

It asks for your name and address, whether your corporation is a C or S, and whether it’s a domestic or foreign corporation. You will also need to include the names, addresses, and SSNs of all shareholders so that they can be taxed as employees. Finally, after you’ve filed this form with the IRS and received confirmation from them that your S-corporation is official, you have to give copies of it to anyone who pays you an income from your business.

E. Hold a meeting with directors and shareholders

You will also want to hold a meeting with directors and shareholders to approve S corporation status, appoint officers, adopt bylaws and take care of other initial legal actions. The roles of the directors and shareholders are the same as in a C corporation: Directors are responsible for setting policy and overseeing management, while shareholders own the business. Officers include the president, vice president, secretary, and treasurer; they’re responsible for executing corporate actions on behalf of the board of directors.

F. File necessary annual reports and make corporation tax payments

The S-corporation is a type of business entity that allows you to have the benefits of being an independent contractor, but with some additional protections. If you don’t pay your taxes on time and file your annual report, your business may be in danger of being shut down by the state. Make sure you understand what is required for maintaining good standing with your state and filing annual reports so that you can avoid unnecessary penalties or fines.

Forming an S Corp is a complicated process but worth it for the tax benefits

• An S Corp status is a good option for businesses that are small, closely held, and have few shareholders.
• An S Corp status isn’t ideal for businesses with more than 100 shareholders because of decreased flexibility in electing different tax treatments and increased administrative costs.

Conclusion

The S Corp is a great option if you’re looking to form a business but don’t want the headaches of running it as a limited liability company LLC. The tax benefits of being an S Corp are also very attractive for high-income earners who are looking to reduce their tax burden.