At Silverman Law Office, PLLC, our experienced team understands that formulating a business is both exciting and stressful. The decisions you make now as you are starting out will lay the foundation for your business success into the future. It is imperative that business owners choose the most suitable corporate entity. For some, an S corporation may be the best choice. If you have questions about this, don’t hesitate to contact our Montana S corp formation lawyer for assistance. We are privy to all things business related, and can guide you along the way and address any concerns you may have. We hope to help you build your business today!
How An S Corp Is Different
An S corporation is a corporation that is taxed alike to partnership. What this means is that the corp itself does not pay income taxes, but instead the losses and profits are passed to shareholders who report them on their individual tax returns. Furthermore, S corporations can only have 100 shareholders, and all of them have to be individuals or certain types of estates or trusts. There are many benefits to having an S corporation. The biggest advantage is that shareholders are not responsible personally for the corporation obligations or debts. This offers protection from personal assets being at risk. S corporations also provide some tax savings for shareholders since they can prevent double taxation on profits.
Dissolution Of S Corporations
Our knowledgeable S corp formation attorney can assist you with the dissolution of your S corporation if needed. Sometimes a business owner will choose to close their S corporation, but there are specific procedures that must be done in order to legally dissolve the entity in a proper way. Our team can guide you through the process and ensure that you have fulfilled all the legal requirements, so that you are not suddenly met with tax or legal consequences. If you would like help with an S corp related matter, reach out to our team at your next convenience.
Silverman Law Office, PLLC
Deciding that you want to establish a business can be a thrilling idea, as you figure out what you need to do to begin. It’s important to lay down a strong foundation so that you reduce the chances of something going awry along the way. At Silverman Law Office, PLLC, we know that your business success is the priority. Let us assist you by contacting our MT S corp formation attorney today. We want you to have a pleasant experience from the start of your business creation and onward. Or, if you need to dissolve your S corp formation, we can help with that as well. Keep in mind, the steps you take to dissolve your S corp are vital so that you are not at risk of tax or legal repercussions. If you want to discuss this in more detail, our team is ready to hear from you!
Common Mistakes To Avoid When Forming An S Corp
Forming an S corporation (S corp) can provide significant benefits for many businesses, including pass-through taxation and limited liability protection. As a Montana S corp formation lawyer can confirm, the process of establishing an S corp is complex and fraught with potential pitfalls. Avoiding common mistakes can save you time, money, and legal complications down the road. Here are some of the most frequent errors business owners make when forming an S corp and how to avoid them.
1. Failing To Meet Eligibility Requirements
One of the most fundamental mistakes is not ensuring that your business meets the eligibility requirements for S corp status. To qualify, your corporation must:
- Be a domestic corporation.
- Have only allowable shareholders, including individuals, certain trusts, and estates.
- Have no more than 100 shareholders.
- Have only one class of stock.
- Not be an ineligible corporation (certain financial institutions, insurance companies, and domestic international sales corporations).
Failing to meet these criteria can result in the denial of your S corp election. It’s crucial to verify your eligibility before proceeding with the formation process.
2. Missing The Filing Deadline
To elect S corp status, you must file Form 2553 with the IRS. This form must be submitted no later than two months and 15 days after the beginning of the tax year in which you want the election to take effect. Missing this deadline can delay your S corp status, potentially leading to unexpected tax implications. Ensure you adhere to this timeline and consider consulting with a lawyer to keep track of important deadlines.
3. Improperly Issuing Stock
An S corp can only have one class of stock. Issuing multiple classes of stock can inadvertently terminate your S corp status. It’s vital to ensure that your corporation’s stock issuance complies with this requirement. Additionally, all stockholders must consent to the S corp election. Missteps in stock issuance and shareholder agreements can lead to significant legal and financial issues.
4. Overlooking State Requirements
While the IRS governs the federal tax aspects of S corp status, each state has its own set of rules and requirements for corporations. Failing to comply with state-specific regulations can result in penalties and complications. For instance, some states do not recognize S corp status and will tax the corporation as a regular C corporation. It’s essential to understand and comply with your state’s requirements, which a knowledgeable lawyer can help you navigate.
5. Neglecting Corporate Formalities
Maintaining your S corp status requires adherence to corporate formalities, such as holding regular shareholder and director meetings, keeping detailed minutes of these meetings, and ensuring proper documentation of corporate resolutions. Neglecting these formalities can lead to the loss of limited liability protection and S corp status. Establishing a routine for maintaining these records and following formalities is crucial for compliance.
Conclusion
Forming an S corp offers many benefits, but it requires careful planning and attention to detail. By avoiding these common mistakes—ensuring eligibility, meeting deadlines, properly issuing stock, complying with state requirements, maintaining corporate formalities, managing payroll and distributions, and seeking professional advice from a Montana S corp formation lawyer from Silverman Law Office, PLLC—you can set your business up for success and take full advantage of the benefits an S corp provides.
