Start an Arizona S Corp

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If you’re looking for a business structure that can help you raise capital and cut down on your tax liabilities, an S Corporation might be the way to go. But what is an S Corporation, and how do you start one? An S Corporation isn’t a business entity like a limited liability company (LLC), it’s actually a tax election approved by the Internal Revenue Service (IRS). With the S Corp tax status election, your business profits, deductions, losses, and credits can pass through to the shareholders and be taxed at their personal income tax rates. 

Start an S Corp in Arizona

How to Start an S Corporation in Arizona

You can find lots of helpful information about how S Corporations work on our S Corporation information page. We can also walk you through the benefits of an S Corp structure and the general steps to form one right here. Normally, an S Corporation isn’t a stand-alone business structure. It’s rather a way you choose to run and pay taxes for another business structure such as a standard corporation (known as a C Corporation) or limited liability company (LLC).

1. Choose a Business Name

Your business name goes on your official filings and can help you attract patrons. When you form an Arizona Corporation or LLC, you need to choose a name that’s distinguishable from other names on file with the state. Also, your business’s name needs to identify whether it’s a corporation or LLC.  

2. Appoint a Statutory Agent in Arizona

To keep your Arizona S Corporation legally compliant, you need to have a statutory agent. Your statutory agent is responsible for accepting legal documents and official correspondence for your business. Some states call this a “registered agent.” If you’re having a hard time locating a good statutory agent, our Registered Agent Service is here to help you get it done quickly. 

3. Choose Directors or Managers

An Arizona corporation needs a Board of Directors, and an Arizona LLC needs one or more managers. These are the individuals who handle your business affairs. If you start an LLC, your members can be your managers, or you can select management that is separate from the members. 

4. File Articles of Incorporation/Organization with the Arizona Corporation Commission

Electing to run an S Corporation requires filing a lot of paperwork, including filing paperwork with the state. If you start your business as an Arizona business corporation, you need to file Articles of Incorporation with the ACC. If you start your business as an Arizona LLC, you need to file Articles of Organization with the ACC. You’ll also likely need to pay a fee when filing these documents. 

5. Publish Articles of Incorporation/Organization

Many Arizona businesses have to publish their Articles of Incorporation/Organization in an appropriate newspaper within 60 days of the ACC approving or filing the business formation documents. To comply with this filing requirement, some businesses have to publish these formation documents multiple times.

6. File Form 2553 to turn business into an S Corporation

You can turn your Arizona corporation or LLC into an S Corporation by filing Form 2553 with the IRS. If you start your business as an LLC, you need to file Form 8832 to designate it as a corporation before you can file Form 2553.  

S Corporation Requirements and Limitations

S Corporations can be easier to run than other entities, but they’re not without their own complexities and potential drawbacks. The IRS requires your business to fulfill certain requirements before you can run an S Corporation in Arizona. Your business must:

If you’re looking to build lots of capital through a large shareholder base, an S Corporation might not be the entity for you, but it’s a good idea to speak to legal and financial professionals about your best business options. 

Pros and Cons of Creating an S Corporation

Is the S Corporation tax designation right for your business or not? This decision is highly dependent on your unique circumstances, but we can give you some factors to consider. 

Pros

Running your business as an S Corporation can be beneficial in many ways, such as:

If one of your biggest concerns about choosing the right business structure is your amount of tax liabilities, an S Corporation might be the right selection for you.

Cons

There can also be drawbacks to an S Corporation. This normally depends on who you are and the type of business you have.

Once again, we encourage you to speak to a tax and/or legal professional to determine if these factors are significant in the face of your specific needs. 

What to know before creating an S Corporation in Arizona

Just because the S Corp designation is beneficial for many doesn’t mean it works for every business owner. It’s good to know the pros and cons of this tax election to figure out if it’s the best for your particular business venture. One of the first things to know about starting a corporation is that it’s a C Corporation by default until you file the right paperwork and follow the right rules to make it an S Corporation. 

What is an S Corporation?

S Corporations are basically small business corporations that have limited corporation shareholders but aren’t subject to corporate double taxation. 

What’s the difference between an S Corporation and a C Corporation?

C Corporations can issue more shares of stock and more classes of stock than an S Corporation, but for many, that’s not the most significant difference between S Corporations and C Corporations. A big difference and big draw for many who elect to be S Corporations instead of C Corporations is how S Corporations normally pay income taxes.

C Corporations pay double income taxes because the business pays income taxes at the corporate level, and then each shareholder has to pay taxes on the distributions they receive from the corporate income. On the other hand, S Corporations normally enjoy pass-through taxation. Pass-through taxation means that the S Corporation normally doesn’t have to pay taxes on its income; only the shareholders have to pay taxes on their shares of the corporate income. 

What are the requirements to create an S Corporation? 

To create an S Corporation, you have to form a business that falls within the limitations identified above, and you have to file Form 2553 with the IRS within one of the timeframes listed above. 

Can LLCs choose an S Corporation election?

Yes! An LLC can elect to be an S Corporation. This can be great news for many because starting an LLC often requires fewer formalities than starting a corporation. So, if LLCs are so easy to start, what’s the point of choosing the S Corp qualification? Choosing to tax your LLC as an S Corporation could reduce some of your tax liabilities. Learn more about LLCs and taxation on our Tax Information for Limited Liability Companies page. 

How We Can Help

Sometimes, the largest battle in running a successful business is getting started. If you’re looking to start a business as an S Corporation, our S Corporation Service can give you the tools to do it quickly and accurately. Our mission is to support entrepreneurs from start to finish.

If an S Corp isn’t the right business structure for you, our Arizona LLC Formation Service and our Arizona Corporation Formation Service can help you with the first steps of getting your business off the ground. Once you’ve started your establishment, we can continue to support you with our numerous business development and maintenance servicesOur mission is to support entrepreneurs from start to finish. You can look to us for help if you need assistance with the formation, maintenance, or compliance needs of your enterprise. 

Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

FAQs

  • What are the benefits of creating an S Corporation in Arizona?

    Creating an S Corporation can help you avoid double taxation while still giving you protection from personal liability and the option to sell shares of your business.

  • How should I choose a name for my Arizona S Corp?

    When naming your business, one of the main Arizona S Corporation requirements is that the name be distinguishable from other names on file with the state. It also needs to contain the appropriate words to designate it as a corporation or LLC. Check with the ACC for more details about naming your Arizona S Corp.

  • Should I identify my LLC as an S Corporation?

    In general, you don’t use versions of the word “corporation” in the name of your LLC. Instead, you identify your LLC as an S Corporation by filing the proper tax returns at the state and federal levels.

  • How should I calculate taxes for my S Corporation? 

    The best way to calculate taxes for your S Corporation depends on the characteristics of your business. Speak to a tax professional about what options are best and most appropriate for your circumstances.

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