In Delaware, you may incorporate a S corporation (S corp) by founding a limited liability company (LLC) or a corporation and then choosing S corp status from the IRS when applying for an EIN.
An S corporation is a tax categorization, not a company structure, according to the IRS. The S corp classification is used to lower a company’s tax burden.
In our How to Start a S Corp in Delaware tutorial, we’ll walk you through the steps.
Table of Contents
Considerations Before Forming a S Corp
You must examine the following things before founding a S corporation:
Is a S corporation the best option for your company?
S corporation limitations
Why is an LLC the ideal structure for the S corporation tax status?
Are the tax benefits of a S corporation good for you?
Is a S Corporation the Best Business Structure for You?
Restrictions on S Corporations
S corporations are restricted to one class of stock and 100 stockholders, among other things. For more information, see our What Is a S Corporation? guide.
Why is an LLC the best structure for S Corporation tax status?
As entrepreneurs, we feel that incorporating a S corporation via an LLC is the best option since the benefits of founding a corporation are offset by S corp limitations. LLCs are also less difficult to manage than corporations.
Are S Corporation Tax Benefits Right for You?
You must determine if the S corp tax status is preferable to the default LLC tax status for your company. Read our LLC vs. S corp tutorial to fully grasp the tax benefits of a S corp.
Restrictions on S Corporations
S corporations are restricted to one class of stock and 100 stockholders, among other things. For more information, see our What Is a S Corporation? guide.
Why is an LLC the best structure for S Corporation tax status?
As entrepreneurs, we feel that incorporating a S corporation via an LLC is the best option since the benefits of founding a corporation are offset by S corp limitations. LLCs are also less difficult to manage than corporations.
Are S Corporation Tax Benefits Right for You?
You must determine if the S corp tax status is preferable to the default LLC tax status for your company. Read our LLC vs. S corp tutorial to fully grasp the tax benefits of a S corp.
Forming an LLC and Choosing S Corp Status in Delaware
To form an LLC and elect S corp status, follow these five simple steps:
Step 1: Give Your LLC a Name
Step 2: Select a Registered Agent.
Step 3: Submit your Certificate of Formation.
Create an Operating Agreement in Step 4
Step 5: Obtain an EIN and submit Form 2553 to elect S Corporation tax status.
Step 1: Give Your LLC a Name
The first and most significant step in forming an LLC in Delaware is deciding on a name.
Make certain that the name you chose conforms with Delaware’s naming rules and is readily searched by prospective customers.
1. Follow the Delaware LLC name guidelines:
The word “limited liability corporation” or one of its acronyms must be in your name (LLC or L.L.C.).
Your LLC’s name cannot include terms that may be confused with a government organization (FBI, Treasury, State Department, etc.).
The terms Company, Association, Club, Foundation, Fund, Institute, Society, Union, Syndicate, Limited, Public Benefit, or Trust may appear in your name.
Unless the firm is authorized as a bank by the state, your name cannot include the term “bank” or any variant. However, if the context clearly does not relate to a banking company or misleads the public about the nature of the firm, the term “bank” or any variant may be used. Bank Shot Basketball LLC is an example of a permitted usage.
Your name must be distinct from any other current company in the state.
For further details, see the Delaware state act on LLC name rules.
2. Does the name exist in Delaware? To determine whether your proposed LLC name is available, utilize the general information name search on the Delaware Division of Corporations website.
3. Is the URL accessible?
We suggest that you check to see whether your company’s name is accessible as a web domain. Even if you don’t intend to construct a company website right away, you may want to purchase the URL to prevent others from gaining it.
Step 2: Select a Delaware Registered Agent
Your Delaware LLC must have a registered agent.
A registered agent for your LLC will accept legal papers and tax notifications on your behalf. When you submit your LLC’s Certificate of Formation, you will name your registered agent.
Many company owners opt to use the services of a registered agent. Many of these firms will incorporate your LLC for a modest price and provide free registered agent services for the first year.
Step 3: Fill out the Delaware LLC Formation Certificate.
To officially register an LLC, the Delaware Certificate of Formation is used.
Step 4: Draft an Operating Agreement for your LLC.
An LLC operating agreement is a legal document that defines your LLC’s ownership and member responsibilities.
Step 5: Apply for an EIN and fill out Form 2553 on the IRS website.
An EIN is a number assigned by the US Internal Revenue Service (IRS) to companies in order to identify and tax them. It is basically a business’s Social Security number.
When you apply directly with the IRS, EINs are free.
Select S Corporation Tax Status
The IRS will give a link to Form 2553, the Election by a Small Business form, during the online EIN application process.