Start an Arizona S Corp

S Corp Requirements and Limitations

S Corporations can be easier to run than other entities, but they’re not without their own complexities and potential drawbacks. The IRS requires your business to fulfill certain requirements before you can run an S Corporation in Arizona. Your business must:

• Be a domestic corporation or other eligible business
• Have certain kinds of corporate shareholders, including individuals, estates, exempt organizations, and certain trusts, but not partnerships, corporations, or non-resident immigrants
• Have no more than 100 shareholders
• Have no more than one class of stock
• Not be an ineligible corporation such as an insurance company, international sales corporation, or a certain kind of financial institution

If you’re looking to build lots of capital through a large shareholder base, an S Corp might not be the entity for you, but it’s a good idea to speak to legal and financial professionals about your best business options. 

Pros and Cons of Creating an S Corp

Are the tax advantages of having S Corp status right for your business? This decision is dependent on your circumstances, but we can give you some factors to consider. 

Arizona S Corp Pros

Running your business as an S Corp can be beneficial in many ways, such as:

• Protecting your personal assets
• Eliminating corporate double taxation
• Allowing you to use the cash method of accounting

If one of your biggest concerns about choosing the right business structure is your amount of tax liabilities, an S Corp might be the right selection for you.

Cons

There can also be drawbacks to an S Corp. This depends on who you are and the type of business you have. Some of the disadvantages of S Corps include:

• Additional expenses for formation and maintenance
• Restrictions on issuing shares
• More extensive IRS oversight
• More stringent eligibility requirements

Once again, we encourage you to seek professional tax or legal services to determine if these factors are significant in the face of your specific needs.  

What to know before creating an Arizona S Corp

Just because the S Corp designation is beneficial for many doesn’t mean it works for every business owner. It’s good to know the pros and cons of this tax election to figure out if it’s the best for you. One of the first things to know about starting a corporation is that it’s a C Corporation by default until you file the right paperwork and follow the right rules to make it an S Corp. 

What’s the difference between an S Corporation and a C Corporation?

C Corporations can issue more shares of stock and more classes of stock than S Corporations, but for many, that’s not the most significant difference. A big difference and big draw for many who elect S Corp tax status is how S Corporations pay income taxes.

Unlike S Corporations, other corporations pay income tax twice: first on the corporation’s profits, and then again on the individual C Corporation shareholders’ passive income earnings. However, with S Corp tax status, the corporation’s profits are taxed once. Any tax liability is paid by corporation shareholders on their personal income tax returns.

Can LLCs choose an S Corporation election?

Yes! An LLC can elect to be an S Corporation. This can be great news for many because starting an LLC often requires fewer formalities than starting a corporation. So, if LLCs are so easy to start, what’s the point of choosing the S Corp qualification? Choosing to tax your LLC as an S Corporation could reduce some of your tax liabilities. Learn more about LLCs and taxation on our Tax Information for Limited Liability Companies page. 

We can help

Sometimes, the largest battle in running a successful business is getting started. If you’re looking to start an Arizona business as an S Corporation, our S Corporation Service can give you the tools to do it quickly and accurately. Our mission is to support entrepreneurs from start to finish.

If an S Corp isn’t the right business structure for you, our Arizona LLC Formation Service and our Arizona Corporation Formation Service can help you with the first steps of getting your business off the ground. Once you’ve started your establishment, we can continue to support you with our numerous business development and maintenance services. Our mission is to support entrepreneurs from start to finish. You can look to us for help if you need assistance with the formation, maintenance, or compliance needs of your enterprise.