When founding a company, many Florida entrepreneurs choose to file as an S-Corp. There are many benefits to doing so, both for the business and for the owners. However, many want to forgo this option because they are unfamiliar with the required filing methods. This article will detail the steps explaining how to form an S-Corp.
1) Understand What A S-Corp Is
Filing taxes as an S-Corporation allows business shareholders to avoid double taxation requirements. Choosing to file as this type of company can be particularly beneficial because Florida does not charge a personal income tax. When registering as an S-Corp, companies merely change their standing from a corporation to the specifically-classified S-Corp standing.
When filing as an S-Corp, business income and losses are passed through to the owners’ personal tax returns. This is done at a rate proportional to how many shares they own. So if one individual had 60 or 100 stocks, they would receive 60% of the income on their personal tax return. Again, because Florida does not have an income tax, this could be a beneficial way for business owners to put more money in their pockets.
2) Ensure The Business Meets The S-Corp Requirements
When it comes to filing as an S-Corp, businesses are under stringent requirements. The company must be based in the United States. Only U.S. residents and citizens are allowed to operate as shareholders. Additionally, the company must have no more than 100 shareholders if they wish to obtain S-Corp status.
If the company does not meet these requirements, owners should not waste their time trying to register as an S-Corp. As mentioned, these requirements are quite rigid. If a company does not qualify for S-Corp status, there are still opportunities to obtain a tax break and save money. But, there’s no point in owners reading any further through this document, because there is no chance their business would be approved for S-Corp status.
3) Choose a Name for The Company
Choosing a name is one of the most exciting parts of creating a business, but it can also be one of the most frustrating. That’s because entrepreneurs cannot just choose a name out of thin air. They must go to a database on the Florida Department of State to ensure that their proposed name is not currently in use by another company. For many, this can be a frustrating step. But it’s important to do this before completing any other actions. Otherwise, the state of Florida will likely reject the corporation application, and owners will be scrambling trying to make up for lost time and come up with a new name.
Similarly, it’s also important to remember that the business must include something in the name that indicates they are a corporation. Many companies put this at the end of their name, using words such as “Company,” “Corporation,” or “Incorporated.” Some companies prefer to use short-hand abbreviations as well; respectively, “Co.,” “Corp.,” “Inc.”
4) File Initial Paperwork
To begin filing as an S-Corp in the state of Florida, entrepreneurs will submit paperwork to the Florida Department of State, Divisions of Corporations. When filing, entrepreneurs should be prepared to provide an Articles of Incorporation. This document will contain pertinent information regarding the business, including the:
- Name of the company
- Address of the company
- Purpose of the company’s operations
- Information regarding the registered agent, including his or her name and address
- Information regarding the potential number of shares the company may issue
- Information for all corporate officers of the company, including names and addresses
5) Secure Business Licenses
Even though a company has received corporation status does not necessarily mean that they are compliant with the state of Florida. To conduct business, they also may need to secure a business license. Companies may be subject to business licenses on both the state and local level. Without completing the proper business license paperwork, a company could risk losing their good standing with the Florida Department of State. If found to be conducting business without appropriate licenses, the Department of State could issue severe fines and could even move to dissolve the company.
6) File S-Corp Paperwork
Once an entrepreneur has completed step 4 successfully, the state of Florida will now consider them to be a corporation. Once recognized as a corporation, the company must then elect to become an S-Corp. This election can occur any time once the state of Florida has granted the initial corporation application.
Filing for S-Corp status involves filing a Form 2553 with the Internal Revenue Service. Note that business owners will not register this form with the state of Florida. Instead, they present it to the federal government. To file this form, business owners will need to provide information relevant to the way their company files taxes. This includes information such as the business:
- State of Incorporation
- Date of Incorporation
- Employer Identification Number
- Corporation Year
If there is debate amongst shareholders of the company as to whether the firm should elect S-Corp status, it may be wise to delay the filing. That’s because every shareholder must sign the Form 2553 that the business would submit to the IRS. This means that there must be unanimous consent amongst all shareholders, which could be difficult for some corporations to obtain.
Also, note that corporations in Florida can file this paperwork at any time. Many believe that they must submit the Form 2553 with the IRS as soon as they become certified as a corporation however, this is not the case. There is no timeline or expiration date as to when a business can or cannot file a Form 2553. So, if business owners don’t feel that it makes sense to file taxes as a S-Corp their first year but feel as though it makes sense to do so a couple of years down the road, that option exists.
By following these steps, business owners should have an excellent understanding of how to form an S-Corp in the state of Florida.
Business Filing Section