Start a Minnesota S Corp

S Corporation Requirements and Limitations

Making an S Corp election for your Minnesota business can provide a number of benefits. However, not all entities will meet the Minnesota S Corporation filing requirements. 

Specifically, to qualify to make a Minnesota S Corp election, your business must: 

• Be a domestic corporation
• Have only allowable shareholders, such as individuals, certain trusts, and estates
• Have no more than 100 shareholders
• Be an eligible business — certain financial institutions, insurance companies, and domestic international sales corporations are ineligible
• Have only one class of stock

Even if you do qualify, an S Corp classification might not be the right fit for your business. Thus, if you’re not sure whether to make an S Corp election, contact a legal or tax professional to discuss the best options for your business. 

The pros and cons of creating an S Corporation

Although there are a variety of benefits associated with making an S Corp election, there are certain disadvantages to be aware of, too. Thus, be sure to carefully consider both the competing pros and cons before deciding how you want to proceed. 

Advantages of forming an S Corp include: 

• Asset protection
• Pass-through taxation
• Tax-favorable characterization of income
• Ability to utilize cash method of accounting

However, there are drawbacks to take into account as well. Some cons of forming an S Corp include: 

• Higher formation and maintenance expenses
• Tighter tax qualification obligations
• Stock ownership restrictions
• Closer IRS scrutiny
• Less flexibility in allocating income and losses

So, should you form an S Corp for your Minnesota business? Unfortunately, the answer to this question will vary from entity to entity. Ultimately, the decision depends on the particular needs and goals of your business.  

What to know before creating an S Corporation in Minnesota

Before deciding to make an S Corp election for your Minnesota business, there are a few important things to note. For example, by default, your business will be set up as a C Corporation. This will be the case unless and until you file the necessary paperwork to make the change to an S Corporation. 

Below is some more information on what to know before creating an S Corporation in Minnesota. 

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

There are a few key differences between S Corporations and C Corporations.

For example, C Corporations can issue more shares and classes of stock than S Corps. For many business owners, however, the primary difference is that S Corps benefit from pass-through taxation, meaning that the entity itself doesn’t have to pay taxes on its income. C Corporations do have to file and pay income taxes at both the corporate level and at the shareholder level.

Can LLCs choose an S Corporation election? 

Yes, LLCs can make an S Corporation election. And in fact, many owners choose to form an LLC to benefit from the lower start-up costs and flexibility of that business entity. After forming their LLC, they then elect an S corp IRS classification to benefit from the various associated tax advantages.

We can help

Starting a new business can feel overwhelming at times, but we’re here to make the process and smooth as possible. We’ve made it our mission to support owners throughout the business lifecycle from start to finish. When you’re ready to form an S Corp in Minnesota, we can help you get started and assist you at every step along the way after the formation process is complete.