Start a West Virginia S Corp

S Corporation Requirements and Limitations 

Without filing Form 2553 your business entity will default to C Corp status. That said, if you properly file the form with the IRS, your West Virginia S Corp will be formed. Bear in mind that S Corps have certain limitations imposed by the IRS when they are created from a C Corp. The following are the IRS restrictions on S Corps when the foundational entity is a C Corp:

• S Corps can only have one class of stock
• S Corps can have a maximum of 100 shareholders
• Be a domestic business
• Generally only natural persons who are U.S. citizens, or certain trusts or estates, can be S Corp shareholders
• Not be an ineligible corporation, including insurance companies, domestic international sales corporations, or certain financial institutions

The benefit of properly creating your S Corp with the Internal Revenue Service is that it retains the limited liability protection of a C Corp but has the pass-through tax treatment of a partnership.

Pros and cons of creating an S Corporation

Once you commit to a foundational entity, that decision will last for the life of your business. As such, we have created a list of pros and cons to help you weigh your decision about creating an S Corp. 

Pros

• Limited liability protects your personal assets
• Pass-through taxation
• Favorable tax characterization of income
• Permits the cash method of accounting

Cons

• Increased reporting and maintenance requirements
• Tight IRS tax qualification requirements
• Restrictions on shareholders
• Restrictions on shares
• Increased IRS scrutiny
• Less flexibility in allocating income and loss

We offer additional information in our different business structures guide. In that guide, we get further into the nitty-gritty and flesh out some other considerations that might help you.

What to know before creating an S Corporation in West Virginia

When you create a business corporation in West Virginia, it’s a C Corporation by default until you make it an S Corporation.  C Corporations and LLCs might miss out on certain tax benefits if they don’t elect S Corporation status. However, your business has to follow certain rules before it can become a Florida S Corp. 

Form 2553

If an S Corporation is the right choice for you, you need to choose when to file the form. You normally have only two times you can file it, and they are: 

• Within two months and 15 days after the start of the tax year when you want your S Corp status to apply
• Any time before the start of the tax year when you want your S Corporation status to apply

Sometimes you can file it late, but that often requires additional paperwork and proof that your late filing was due to a reasonable cause. 

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

When you file an S Corp tax election with the IRS it is treated as a partnership rather than a C Corp for federal tax purposes. That said, your S Corp still retains all the benefits of a traditional C Corp, but also gets the benefits of a general partnership (e.g., pass-through taxation). But the differences between an S Corp and a C Corp don’t stop there. Following are other important differences between S Corps and C Corps:

• S Corps can have only one class of shares.
• S Corps can have a maximum of 100 shareholders. 
• Generally, only natural persons who are U.S. citizens can be S Corp shareholders.

Further, all S Corps start as C Corps. To change over to an S Corp, you need to file Form 2553 with the IRS. This form will elect partnership tax treatment rather than traditional corporate tax treatment for your S Corp.

What are the requirements to create an S Corporation? 

To form an S Corporation, you have to operate within the limitations we listed above and file the proper paperwork. In addition to the basic state filings for all corporations and LLCs, the main part of your West Virginia S Corporation filing requirements is submitting Form 2553 to the IRS.

To properly submit this form, your business needs to have an Employer Identification Number (EIN). We can help you get your EIN in next to no time with our Employer ID Number Service. 

Can LLCs choose an S corporation election? 

Absolutely. You can elect S Corp tax treatment for your West Virginia LLC so long as it qualifies under the IRS guidelines. The most common reason an LLC makes an S Corp election is for self-employment tax treatment. For further information on why an LLC would choose S Corp tax treatment, we encourage you to review our discussion on LLC tax treatment.

We can help

Let us help you start your business in minutes. Allow us to give you a hand setting up your West Virginia S Corporation so you can focus on growing your business.

Whether you’re in Wheeling or Charleston, we have all the products and services to help your small business thrive. Reach out to us today!