Florida S Corporations
Are you thinking about starting an S-Corp in your local area? S Corporations have many benefits that allow business owners to set up a corporation status, but avoid double taxation. Due to this tax flexibility, S Corporations are quickly becoming popular options for entrepreneurs. Below you will find the steps necessary and the proper information to form an s corporation in Florida.
The Steps below can help you learn how to form a Florida S-Corp:
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2: Via your state department
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What Is an S Corporation?
An S Corporation is a type of business underneath the umbrella of a corporation that basically has decided to pass all corporate losses, credit, deductions and income through to the shareholders of its company to avoid double taxation on the income from the corporation. This makes FL Subchapter S Corporations only responsible for taxes that are on certain passive income or built-in gains. Shareholders in an S Corporation will be responsible for reporting both the income and losses from being a shareholder on their own personal tax returns.
Benefits of an S Corporation
If your company qualifies for Subchapter S in Florida Corporation status, there are certainly many benefits that you will enjoy. Below are a few of the most important and effective ones:
- Higher Level of Credibility – Many Florida Subchapter S companies experience higher earnings due to the level of credibility attached to running one. More clients will typically trust an S Corporation before an LLC, as they are more difficult to attain and require much more work to maintain.
- "Pass Through" Taxation Process – This is probably one of the most valuable benefits of operating an S Corporation. A "Pass Through" tax system allows the corporation to avoid taxes at the federal level. In fact, the FL S corp tax is passed on to the shareholders, who then report them on their own personal income tax filings. This is actually very helpful as business losses can balance other income on the tax return.
- Very Simple Transfer of Ownership – With LLCs and partnerships, if you transfer more than 50 percent of ownership to someone, then there is a chance that the business may be dissolved. When transferring ownership in an S Corporation, there are very few hoops to jump through, and virtually no tax consequences.
Disadvantages of an S Corporation
While S Corporations have many benefits, there are always a few corporation disadvantages in any type of business structure. Here are a few disadvantages to consider when thinking about opening an S-Corporation:
- Limitations on Stock Ownership – For S Corporations, only one class of stock may be made available to shareholders. In addition to this, S Corporations have a cap on how many shareholders they can have: 100.
- Issues with Tax Qualification and Upkeep – Since the taxes are passed on to the shareholders in an S Corporation, the IRS will always look more closely at companies that file a Subchapter S in Florida, so it is vital that the records kept are very thorough and completely correct. Although it does not happen very often, mistakes in tax qualifications can lead to the demise of an S Corporation, so be sure to keep meticulous records.
- The Necessity to Incorporate – When a company is started as a Florida S Corporation, it is required that the company become incorporated. This can be very tedious, as well as expensive. Some companies are not quite at the level to incorporate yet, so an S Corporation may not be the right move. An equally advantageous option would be the start an LLC, which may be a more profitable option for your business idea. Learn more about starting an LLC in our Limited Liability Company License Checklist & Forms Packet.
Qualifications Needed to Open an S Corporation
There are multiple requirements that a company must meet in order to qualify for the status of a Florida S Corporation. According to the IRS, the following must be true of your company to qualify:
- The corporation must be a domestic one.
- There can only be allowable shareholders included:
- Corporations, partnerships and non-resident alien shareholders cannot be included
- Individuals, estates and certain trusts may be included.
- The cannot be more than 100 shareholders
- Only one class of stock can be made available
- Not be a pre-determined ineligible company. This might include insurance companies, some financial institutions, and domestically-based international sales businesses.
How to Form an S Corporation
Forming an S Corporation requires a great deal of paperwork, planning and probably quite a few headaches. While that may be, there are four basic steps that need to be taken overall, and it is a good idea to familiarize yourself with them.
- First, be sure to have the bylaws of the company created, fill out and finalize the articles of incorporation and assess several resolutions.
- Second, be sure to incorporate a FL S- Corp business as a corporation in the state where the majority of the business will take place.
- Third, review the required qualifications listed above to be 100 percent sure that your company meets the eligibility criteria for registering as an S Corporation.
- Finally, be sure to notify the IRS that the corporation will be classified as an S Corporation for tax purposes. After notifying them, be sure to fill out IRS Form 2553 in the appropriate time period. The rule of thumb for filing the 2553 form is to have it completed and sent to the IRS by the 15th day of the third month after the company has been incorporated.
- Do I need an attorney to start an S Corporation?
- Why should I choose an S-Corp over a C-Corp?
- What is form 2553, and why do I need it for an S-Corp?
- Are there any deadlines for S-Corporation Status?
- How do bylaws work with an S-Corp?
Absolutely not! While it is recommended that you consult with an attorney throughout this process, our License Checklist & Forms Packet is more than enough to give you the important information, as well as the correct forms needed in Florida to start your S-Corp. What is most important is that you educate yourself fully before opening an S Corporation. The benefit to hiring an attorney is that they have gone through this process with other clients many times and they will be sure to remember even the smallest details that need to be taken care of. Hiring an attorney may cost you more money, but it will help with the stress associated with forming an S Corporation in Florida.
The main differences between S-corps and C-Corps is "pass through" taxation and the restrictions that come with publicly trading in the stock market. "Pass through" taxation means that shareholders, including the owners will report income gains and losses from the company on their own personal tax return. As for publicly trading in the stock market, if you want a small company that happens to have less than 100 shareholders (this number fluctuates, and is changed often so be sure to consult your local chamber of commerce to be sure of the most current number of shareholders you are allowed to have) than an S-Corp is perfect. If you feel your company will have more than 100 shareholders, you can always start as an S-Corp, but you will need to eventually convert to a C-Corp to enjoy having more shareholders and trading more than one class of stock.
This is a form that allows corporations to be classified as Subchapter S for their business taxes. It is vital that this form is filled out and approved so that S-Corps can enjoy the tax benefits that come along with them.
Yes, but only in terms of filing the 2553 form. You can form an S Corporation at any time of the year; however, if you do not file the 2553 form before March 31 of the year you are applying for Subchapter S tax status then it is unlikely you will qualify for Subchapter S status during that year. When you apply before the 1st of the year, you are able to submit for S Corporation election at any time throughout the year. You just need to be sure to submit all paperwork at least 75 days in advance.
This is a necessary document that needs to be created for any type of corporation. The bylaws will lay out the exactly what needs to happen in order to comply with the goals and formalities regarding the business. All S Corporations are required to have bylaws in place.
To learn more, download the new Business License Checklist & Forms Packet to assist you with the Florida S-Corporation process, as well as offer you helpful information on popular S-Corporation topics.