Setting up a small business corporation

Small business taxes and legalitiesCredit: Photo by Jane Gates

Becoming an S corporation can helpful for a sole proprietorship or a small business because it will offer protection from some forms of liability. The S corporation is a legal format that allows the small business corporation to avoid paying taxes so the shareholders receive the profits or losses as distributions and cover the tax liability as individuals. If you are an owner of a small business and your business becomes indebted financially, the obligation will not fall on you personally. This way you don’t risk losing your home or other personal property to pay back any business monetary obligations. In short, the purpose of creating an S corporation is to keep your business and your personal obligations and liabilities separate.

To take advantage of these personal protections, you can set up your Articles of Incorporation with an on-line agency or directly by contacting your secretary of state for the proper forms. There are even online S corporation kits available that will provide forms and help to walk you through the process.

Submit the fees with the filled out forms and elect your directors. You will also appoint officers of your corporation. If your business is small, the same person can hold multiple positions.

Prepare information that covers the daily operations of your business. These are the by-laws and form part of the package you will be putting together to incorporate.

An attorney or a good accountant can then help you calculate the shareholders basis so you can assign the shares to be distributed to your shareholders. You can be both an officer and a shareholder in your S corporation.

Keep all your records and papers organized and in a safe location so you can access them easily.

Making your business into an S corporation has both tax and personal advantages. Make sure you follow all the proper steps and call in a professional if you aren’t sure how to handle any of the forms required.