How to Form an S-Corporation

S-corporations are simply C-corporations that have elected (under Subchapter S of Chapter 1 of the Internal Revenue Code) to receive a special kind of tax treatment. As such, the only difference between an S-corporation and a C-corporation is taxation.

Electing S-Corp Taxation

Electing S-corp taxation couldn’t be any easier. All you have to do is fill out a single form (Form 2553), and your corporation will continue to be taxed as an S-corp for as long as you continue to meet the various shareholder requirements for S-Corp taxation.

Also, LLCs are allowed to elect S-corp taxation by filling out a Form 2553.

Who Can Elect S-Corp Taxation?

In order for a corporation to be eligible for S-corp taxation, it must meet all of the following requirements:

1. It must be a domestic corporation (as opposed to a foreign one).
2. It must have no more than 100 shareholders.
3. The shareholders can only be individuals, estates, and tax-exempt organizations. (In other words, no corporations or partnerships as shareholders.)
4. It can have no nonresident alien shareholders.
5. It can have only one class of stock.
6. It cannot be a bank or insurance company.
7. All shareholders must consent to the election.

Simple Summary

• The only difference between an S-corp and a C-corp is the way in which they are taxed.
• To elect S-corp taxation for a corporation or an LLC, simply fill out IRS Form 2553.
• In order to be eligible for S-corp taxation, a corporation must meet several requirements.

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