- 1). An S corporation does not pay taxes. Instead the profits or losses are distributed to the shareholders who then pay the taxes as individuals. S corporations have many benefits of both being a corporation and of being a small business.
- 2). Use the forms provided by your state and file your Articles of Incorporation with your state's secretary of state or use an on-line agency that can do this for you. There will be a fee.
- 3). Elect directors and appoint your officer(s). These positions can be filled by the same person. Again, the forms are standard.
- 4). Prepare by-laws -- information on the day to day operation of your business.
- 5). Calculate the shareholders basis and distribute shares to the shareholders. Keep all your papers and records together in a safe place.
- 6). Remember the S corporation is a separate entity from its directors, officers and shareholders. That keeps you and your business separate for tax advantages and some legal safety.
- 7). It is best to consult with a good business attorney and accountant when setting up an S corporation or any other legal business format. There are also sites on the Internet that can help.
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