How to move from Sole proprietorship to S corporation


There are several main measures to transition from a single ownership to a S company. Many individuals who go into business on their own prefer to serve as sole proprietors.

As the company expands they will find that their tax and accounting requirements do not have the correct business structure.

You need to follow some basic procedures if you are a company owner looking to transfer your sole ownership to a S corp.

Read on to find out how to move from a sole proprietorship to an S corporation

1. Ensure Eligibility

You first have to check your eligibility to transfer your sole proprietorship to an S corp.

Unlike base corporations, the types of businesses that may become S corporations are subject to certain limitations.

Wherever the company performs business, how much you pay your employees and the type of business you can own is governed by the federal government.

For example, an enterprise that receives most of its export earnings is not eligible to become a S corp.

Moreover, if you have foreign or corporate investors in your business, you are not eligible for S corp status. Form 2553 includes a full list of S Corp Eligibility limitations.

2. File articles of incorporation

You would then have to file the Articles of Incorporation. You will usually get certain forms from the Secretary of State.

Usually these offices are responsible for the company organizations.

Federal tax law requires that S companies meet clear criteria which must be reflected in this certificate.

An S company , for example, must have only one class of stock. Moreover they can’t have more than 100 members.

In addition, to qualify for the S corp, shareholders must be individuals, certain trusts, or properties.

Filling out the Articles of Incorporation is necessary to transfer the sole ownership to a S corp.

3. Fill out Form 2553

Moreover, when forming a company, you must fill out Part I of Form 2553.

Also known as the “Election By A Small Business Company” form, it must be signed by all shareholders before being sent to IRS.

Be sure to keep your EIN and date of incorporation on hand when filling out the form.

Importantly, the legal advisor must also enter the contact details.

That is who the IRS would contact if they have a question about the form.

Additionally, if you have more than 100 shareholders and some are family members, check the box on the form below.

It is imperative that you fill out Part I of Form 2553 to accept changes in your organization structure

4. Choose your fiscal year

Some companies are allowed to pick their fiscal year on Form 2553 under Part II.

This section applies only to companies whose tax year is not going to function in the calendar year.

This could be applicable, for example, to seasonal enterprises and all others that have the intention of working on an alternate schedule.

If you think an alternate tax year might be required, consult with an accountant or financial advisor. A lot of companies don’t have to fill out Part II of Form 2553.

If you do have an alternative tax calendar, however, pick your fiscal year before submitting the form.

5. File Operating Agreement

You will need to register your operating agreement inside the state of registration of your S-corp.

For example , in order to shape your Florida business, you must file this document with the Department of State of Florida.

This document describes the organizational structure of your company, as well as how it will be operated.

Usually it contains both the Articles of Incorporation and the business bylaws.

Usually, the board of directors of the corporation creates bylaws as a collection of rules and regulations for internal control of the company. — state has various filing standards and corporate records recording agencies are responsible for each.

In Summary

There are several main measures to transition from a single ownership to a S company.

Second, you need to make sure your company is willing to move to a S corp agency.

Then file with the Secretary of State the Articles of Incorporation. Furthermore, you must fill out Part I of Form 2553.

From there, if your business has an alternative tax calendar, pick your fiscal year.

In addition, file an operating agreement in compliance with the legislation of your Jurisdiction.

To move from a sole proprietorship to a company S, follow these steps.

Komolafe Timileyin is a passionate entrepreneur that loves to solve entrepreneurial issues. He is also a blogger and an upcoming Engineer.

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