How to Set up S Corporation

How you elect your business can have a reverberating risk for your financial health.

Learn how to avoid this by turning your business into an S corporation. Read and learn how.

In every business, the probability of loss and liability is high and if you do not play your cards well in defining what kind of business do you have then you might regret you have not taken care of it when problem starts to arise. If you are a businessman and registered it as a venture of sole proprietorship or partnership, you better think again. There are many available businesses scheme for you so you can avoid paying higher tax and to be legally liable to all the debts of your business or corporation.

One scheme you can apply to your business is to make it into an S Corporation. But what is the benefit of this kind of corporate tax structure and how to set up S corporation. Below are some points that will surely help you:

Benefits of Setting up S Corporation

There are basically four major pros of how to set up S corporation. First is the absence of corporate tax. This is the biggest selling point of this business ownership. The gains and profits of the corporation is pass on to one’s personal income tax. Second is the reduce tax gains. This makes it an opportunity for you to sell your business as a retirement strategy. Third is this can write-off your startup losses. It is expected that in the first year of your business, it will suffer loss and huge amount of expenses. This can be setup with your personal income tax. And the last is liability protection. Under this scheme of corporation classification, this entitles the owner to have protection against liabilities. Though this protection is not a complete protection.

Rules on S Corporation

Given that the pros of an S corporation are already provided, here are some basic procedures in making your business an S corporation. First you have to fill up Form 2553 with the IRS. When you are through filling up this form there are four regulation that you have to follow to completely change your business into an S corporation.

  • The number of shareholders of the company should not exceed the number of 75, with the wife and husband counted as one.
  • Shareholders can be certain trusts, estates or individuals
  • Shareholders should be American residents
  • All the members of the shareholders should agree with the structure of S corporation


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