The U.S Census Bureau reported that in May 2022, over 420 000 new business applications were received.
An S corp is a standard business entity such as an LLC or a C-corporation that elects to be treated as an S-corp for taxation purposes.
Setting up a business in the state of New York does not have to be complicated, especially with the step-by-step guide provided below.
1. Name the business
Searching for a business name is easy when using some of the free online business name generators available. There are a few key points to remember when choosing a name namely;
- The name must be unique and distinctive.
- The name can not already be in use by another business or closely resemble another business name.
- The name can not contain industry words such as bank, government or insurance.2. Appoint a registered agent
A registered agent can be either the owner or any other individual employed by the business, or most businesses choose to appoint a registered agent to act on their behalf.
The registered agent receives all important legal notices and documentation on behalf of the business and keeps record of them for the required period specified by the state.
2. Appoint a registered agent
A registered agent can be either the owner or any other individual employed by the business, or most businesses choose to appoint a registered agent to act on their behalf.
The registered agent receives all important legal notices and documentation on behalf of the business and keeps record of them for the required period specified by the state.
3. File formation paperwork
In New York, an LLC must file Articles of Organization to be registered. The Articles of Organization is similar to the Articles of Incorporation and is a legal requirement for any businesses wishing to be registered in New York.
The following information is required:
- Name and address of the registered agent
- Principal business address
- The business name
4. Create an Operating Agreement
An Operating Agreement is a legal document that specifies how a business will be managed, who the owners are and how shares are divided.
New York is one of 5 states that legally requires businesses to have an operating agreement in place. According to law, an operating agreement can be drafted before, at the time of or within 90 days of filing the articles of organization.
5. Apply for an EIN
An employer identification number (EIN) can be obtained from the IRS and is required for most businesses. An S corp New York is required to obtain an EIN, also sometimes referred to as a “sales tax number” or “sales tax ID”.
After the EIN has been received, a business must also register with the New York state by applying online through New York Business Express or contacting the Department of Labor at 1 888 899-8810 or (518) 457-4179.
6. Apply for S-Corp Status
Filing for S-corp status, requires a business to fill out and file Form 8832, Entity Classification Selection, in order to be classified by the IRS as a corporation. Then, Form 2253, Election by a Small Business Corporation, must also be submitted in order to be taxed as an S corp.
The state of New York does not automatically treat a business as an S-corp for state tax purposes. This can be achieved by filing Form CT-6, Election by a Federal S Corporation to be Treated As a New York S Corporation.
Requirements of an S Corporation
Before electing S corp status the following requirements must be met;
- An S corp can have a maximum of 100 shareholders.
- Shareholders must be individuals and can not be a business entity.
- A shareholder must be a U.S citizen. Non-resident aliens are not allowed to be shareholders.
- Only one class of stock (also common stock) can be issued.
Benefits of an S corp
S corps are favored by many corporations due to its pass through taxation. This means that the income, losses and deductions are able to pass through to the shareholders who then declare it on their personal income tax submissions. This can result in a large saving on federal income tax at the corporate level.
Another benefit is the self-employment taxes. The IRS does require that shareholders are paid a reasonable salary that is in line with the market rate. This is to avoid shareholders paying themselves $1 a year and therefore exempt themselves from contributing to Medicare or Social care. Again, this can result in a substantial saving by only paying tax on salary and not on the profits received.
