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The S corporation (S corp) is a specialized tax entity rather than business structure that offers two significant benefits to business owners. The first is the ability to attract investors and raise money through the issuance and sale of stock. The second is that S Corps have tax benefits that reduce a business’s tax profile.
If these two benefits seem attractive to you, then an Oklahoma S corporation may be right as your business model. However, before forming an Oklahoma S corp, let’s talk about what an S corporation fundamentally is and then how to set one up in Oklahoma.
To begin, bear in mind that an S corporation is simply a tax election under the Internal Revenue Code (IRC) and isn’t like other formal business entities like a corporation or limited liability company (LLC). Rather, as a tax election under Subchapter S of the IRC, an S corp passes its income on to its shareholders to be taxed at their own personal income tax rate.
We get into more of those specifics on our S corporation business structure information page. However, below we’ll discuss many of the other benefits of an Oklahoma S corp and the steps to form one.
The next thing you need to know about starting an Oklahoma S corporation is how to start a business in general. We’ll simplify starting up your Oklahoma S corp with our Oklahoma LLC Formation Service and our Oklahoma Corporation Formation Service, which will get the foundation (e.g., C corp or LLC) of your Oklahoma S Corporation established. Going forward, we can offer you support with our various business development and maintenance services.
Choose a business name that will stand the test of time and that tells the marketplace in a professional manner what your business does (e.g., Oklahoma Plumbing Supply Warehouse, Inc.). We can reserve your business name while you get your company set up.
Like most other states, the Oklahoma Secretary of State requires all businesses to have a registered agent. A registered agent receives official papers on behalf of your business such as legal documents. Although you can be your own registered agent, you may want to consider having someone else hold this responsibility. After all, should your business be served legal papers (like a lawsuit), customers who witness this may not be inclined to return to your business. Let your registered agent be someone else who is available at a legally-recognized address during normal business hours.
At this point, you should appoint your foundational entity’s initial directors (corporation) or managers (LLC). You do this through a written company resolution. When first setting up a business entity, initial company resolutions can come from the founders/incorporators.
Next, you formally create your foundational entity (i.e., corporation or LLC) by filing a Certificate of Incorporation for your corporation or Articles of Organization for your LLC with the Oklahoma Secretary of State.
Arguably this is the most important step in creating an Oklahoma S Corp. You must file Form 2553 with the Internal Revenue Service (IRS), which makes your C Corp or LLC into an Oklahoma S corporation. If you chose an LLC as your foundational entity, you first need to make a tax election with the Internal Revenue Service and the Oklahoma Tax Commission to treat it as a corporation.
An S Corp doesn’t fit every business model. Thus, one of the first things you should know about starting an S Corp is that it’s a C Corp or LLC by default until you file the right paperwork and qualify to make it an Oklahoma S Corporation. So, in effect, you’re modifying a foundational entity to further suit your particular business needs.
S Corporations operate best as small business vehicles which are governed like classic C Corps but have pass-through taxation like partnerships. However, unlike C Corps, S Corps have significant restrictions on shares and shareholders.
The primary difference between an S corporation and a C corporation is C corporations have little or no restrictions on the amount and type of shares they issue and who can be a shareholder. However, to most small business owners, the biggest difference, and perhaps the biggest draw, is how S Corporations normally pay income taxes.
C Corporation income suffers from “double taxation.” What this means is the C Corp pays income taxes at the corporate level and then each shareholder pays taxes on their income from the C Corp. Alternatively, S Corporations have pass-through taxation. Pass-through taxation means that the S Corporation doesn’t have to pay taxes on its income. Rather, it passes its income on to the shareholders who then have to pay taxes at their personal income rate.
When considering how to form an S Corporation in Oklahoma you first have to form a foundational entity (i.e., corporation or LLC), and then you have to file Form 2553 with the IRS making sure you satisfy all of the IRS requirements for S Corps.
For your Oklahoma S corporation to receive the pass-through tax benefits from the IRS, it must fulfill certain requirements. The IRS requires that an Oklahoma S Corp:
If any of the above limits what you envision for your business, then perhaps an Oklahoma S Corp isn’t the right entity. For instance, S Corps aren’t good for attracting large capital investments from a big shareholder pool. That said, we encourage you to consult a legal or financial professional about your business model when thinking about forming an Oklahoma S Corp.
They certainly can. An Oklahoma LLC can easily elect to be an S Corporation. However, if an LLC and an S Corp are both taxed as partnerships and are ideal small business vehicles, why elect to be taxed as an S Corp? Choosing to tax your LLC as an S Corporation could reduce some of your tax liabilities, especially payroll taxes. Learn more about LLCs and taxation on our Tax Information for Limited Liability Companies page.
Most agree that S Corps are unusual and not the first choice of most entrepreneurs. However, when they fit they fit nicely, they can create real benefits for business owners. Therefore, we have listed below some pros and cons to help you weigh your decision.
An Oklahoma S Corporation can be beneficial in many ways, such as:
If reducing your business’s tax footprint is a primary concern for you, then an Oklahoma S Corporation may fit nicely into your business plans.
There are also drawbacks to an Oklahoma S Corporation, such as:
Again, even though the above list outlines the most important considerations, speak to your legal or financial advisor to thoroughly determine if these factors are significant given your business model.
If you’re looking to start an Oklahoma S Corp, then our S Corporation Service can do it quickly and accurately. You can also look to us for help if you need assistance with the maintenance or compliance needs of your business. Sometimes the hardest part is getting started. We’re here to help you get past getting started.
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.
With an Oklahoma S Corp you will have limited liability benefits of a C Corp while also getting pass-through advantages for your income taxes.
It’s best if a corporate name is professional and something that will stand the test of time. Also consider a name that will give your potential customers an idea of what you do (e.g., Oklahoma Wholesale Tool Company, Inc.).
Whether to turn your LLC into an S Corp will depend on a number of factors individual to your business. However, you won’t need to separately identify your LLC as an S Corp in its name.
Taxes for an S Corp are calculated at your personal income tax level rather than the corporate level. We encourage you to review the specific requirements with both the IRS and the Oklahoma Tax Commission. It’s also best to consult your tax professional for personalized advice.