How to form an S-corporation for Textiles

Introduction

S-corporations are a popular choice among many businesses, especially small businesses. This type of corporation is the most common type of corporation in the U.S., with about 2 million active S-corps in existence at any given time. In this guide, we’ll cover what an S-corporation is and how to form one. We’ll discuss some of the benefits and downsides of forming an S-corp versus another type of business entity like an LLC or partnership; provide general information about how to form one; give you a sample template for articles of incorporation; and explain what steps to take once you’ve formed your new business entity—from raising capital through issuing shares, hiring employees, etc.

Choose the right name for your S-corporation

The name you choose for your corporation will be its legal identity for tax purposes. It should be a word or words that describe your business, followed by “S corporation” and then ending with “Inc.,” “Ltd.,” or some other equivalent form of incorporation. This is often referred to as the trade name.

There are two important rules when choosing a trade name: first, it must not be the same as another corporation in the state; second, it cannot appear on any list of company names maintained by any state agency or agency of local government in which you plan to do business.

Prepare the S-corp’s articles of incorporation

Articles of incorporation are the corporation’s birth certificate. They are filed at your state’s secretary of state office and serve as the legal document that establishes your business as an S-corporation. There’s a lot more to them than simply stating that you’re incorporating, though; articles of incorporation also include your name for the corporation (you can’t change it later), which must be unique among all other existing corporations in your state, plus information about owners and officers, which we’ll get into later.

Prepare the S-corp’s bylaws

• A bylaw is a rule or regulation that governs the internal operations of the corporation.
• The bylaws are important because they set forth the rules and procedures under which directors, officers and shareholders can operate.
• The purpose of the bylaws is to ensure that there is an orderly way of conducting business within a corporation. They also help provide an efficient method for resolving disputes between shareholders and directors, as well as between shareholders themselves.

Hold an initial meeting of directors and shareholders

The initial meeting of directors and shareholders is the first step in forming an S-corporation. It’s also one of the most important parts of the process because it sets up the rules for how you will operate your business as an S-corp. At this meeting, you’ll decide on:

• The number and type of officers who will run your corporation (usually just one). These can be either individuals or other corporations.
• The number and types of shares issued by your corporation (these determine voting rights).

You can hold an initial meeting even if no shares are issued yet, but only after you’ve filed articles of incorporation with the state secretary’s office.

Authorize and issue shares

Your corporation’s board of directors can authorize and issue shares. The board of directors may authorize the issuance of new shares without shareholder approval, but a majority vote is still required to approve all other matters that require shareholder approval.

You should document how many shares your company will issue and specify who can be shareholders. For example, you might decide that only family members or friends can own S-corporation stock. In addition to specifying who can be shareholders, the corporation must state how many shares it has authorized in its articles of incorporation. Most states allow corporations to have an unlimited number of authorized shares (although some states impose a limit), but others require a minimum number—for example, 100 or 500—and this minimum may not be changed unless there are more than 500 issued and outstanding at one time; even then there are limits on changing the number down from 500 to fewer than 100 or up from fewer than 100 up past 500 again without amending the articles of incorporation first.

Fully understanding the implications of each step in forming your s-corporation is critical to its success

The S corporation is a type of corporation that is taxed differently than C corporations. As an S corporation, you will pay taxes on your business in the same way as other pass-through businesses, such as sole proprietorships, LLCs and partnerships.

Unlike most other types of corporations, with an S corporation (as opposed to a C corporation), shareholders are not responsible for paying any federal income tax on their share of the company’s profits. Instead, they pay taxes only on money they receive from their company through dividends—and even then at lower rates than if they had earned the money directly through wages or salary.

Conclusion

The benefits of forming an S-corporation are significant and not to be taken lightly. For textile companies with multiple locations or even just one location that needs extra protection, forming an s-corp can be a great idea. Whether you’re looking at creating your own s-corp or just want more information on how it works, contact us today! We’ll help answer any questions you might have about this process so that you know exactly what steps need completing before moving forward with your business plan.”