An S Corporation (S. Corp) is a corporation that passes corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes. These shareholders then report any income and losses on their personal tax returns. By doing this, an S. Corp avoids double taxation on corporate income.
Read below to learn more about the eight steps that are required to create and maintain an S. Corp in Illinois.
Step One – Prepare and file Articles of Incorporation
To establish the existence of a corporation in Illinois, its Articles of Incorporation must be filed with the Office of the Illinois Secretary of State. The Articles will include the Corporation name, its registered agent, the number of shares the corporation is authorized to issue, the purpose of the corporation and the information of the incorporator.
Step Two – Set up a corporate records book
A corporate records book will need to be kept to record all of your S. Corp’s important papers. To properly maintain your S. Corp, you will need to include things like minutes of director and shareholder meetings in your corporate records book. This book should be housed at the principal office of the S. Corp.
Step Three- Prepare By-Laws
Corporate By-laws provide direction on the management and operation of a corporation. By-laws are internal documents, and although they are not legally required and do not need to be filed with the State of Illinois, it is still recommended that you adopt them.
Step Four – Appoint Corporate Directors
Initial corporate directors need to be appointed to serve until the first annual meeting of the shareholders. The information of the initial directors will need to be placed in the corporate records book but does not need to be filed with the State of Illinois.
Step Five – Hold your first Board of Directors meeting
At the first meeting of your S. Corp’s Board of Directors, the directors will meet to appoint officers, adopt By-laws, select a bank, authorize shares of stock and adopt a stock certificate and corporate seal. The directors will also need to approve your corporation’s S. Corp status at this initial meeting.
Step Six – Issue stock
Stock needs to be issued to each shareholder. In an Illinois S. Corp, only one class of stock is allowed so that each share will get the same treatment in regards to allocation of income, distribution, and loss.
Step Seven – Maintain annual reporting requirements
In Illinois, to maintain your S. Corp, you must file an annual report with the Secretary of State. Typically, the report can be filed online or by mail, but if the S. Corp owns property outside of Illinois or conducts business outside of Illinois, the report must be filed by mail.
Step Eight – Comply with tax and regulatory requirements
Your S. Corp will need to make sure it complies with other tax and regulatory requirements. For example, the S. Corp will need to obtain a federal employer identification number (EIN), and as an S. Corp, it must submit Form 2553 Election by a Small Business Corporation to properly elect its status for tax purposes.