Start a Rhode Island S Corp

Step 1: Choose a name

You can choose almost any name you want for your Rhode Island S corporation. But there are two big rules you need to follow. First, the name can’t be the same as an existing entity. Second, the name has to include some sort of variation of limited liability company for an LLC, or a variation of “corporation,” “incorporated,” “company,” or “limited,” for a corporation. If you’d like to reserve your business name while taking care of setting up your S corp, then we can help.

Step 2: Pick a registered agent

Your S corporation election needs a registered agent. In Rhode Island, this title is known as “resident agent.” A resident agent is a person or entity you appoint to receive official notices and legal documents on the entity’s behalf. This position doesn’t give the resident agent any control over the entity. Know that we can get you a Rhode Island resident agent.

Step 3: Name directors or managers

If you have an LLC, you’ll need managers to run the daily operations of your entity. If your entity is a corporation, you need to appoint directors. Directors or managers can be owners of the entity, unrelated parties, or a mixture of both.

Step 4: File RI Articles of Incorporation/Articles of Organization  

Any business type will need to keep track of and file a series of legal documents. LLCs need to file Articles of Organization and corporations need to file Articles of Incorporation with the Rhode Island Department of State Business Services Division. Our Formation Services can handle this process for you so you don’t have to worry about these legal documents.

Step 5: File Form 2553 to turn business into an S Corporation

For your entity to be converted into an S Corporation, you must file IRS Form 2553. In some cases, an LLC has to elect to be taxed as a corporation first by filing IRS Form 8832. The conversion to an S Corp can only be made at certain times. To convert an entity for the current tax year, the conversion must occur during the first two months of that year. After the initial two months, you may still be able to file Form 2553, though the conversion won’t take place until the next tax year.

S Corporation Limitations and Requirements

You must meet specific criteria before an LLC or Corporation may choose S Corp Status. The entity:

• May not have more than 100 owners
• Must be owned by U.S. residents, trusts, or estates
• Must have only one class of stock
• May not be an ineligible entity such as a financial institution or insurance company

If one of these requirements isn’t met, then you won’t be able to elect S Corporation status. An S Corp might not be the best option if you’re looking to bring in a lot of shareholders or foreign investors to join your business.

Pros and Cons of Forming a Rhode Island S Corporation

Although there are benefits of having a C corporation, deciding whether a Rhode Island S corp is right for you depends largely on your preferences and needs. There are certain benefits of an S corporation.

Rhode Island S corp pros:

• Limited liability protects personal assets from business debts and liabilities
• Pass-through taxation can simplify the tax treatment of the business
• Avoidance of double taxation issues of C Corps and the self-employment taxes of LLCs

S Corps have their own downsides. The main cons of an S Corp include:

• More expensive and complicated than a sole proprietorship
• Ongoing maintenance requirements
• You could face tighter IRS scrutiny when you employ yourself through an S Corp

If you decide to create an S Corp, we’re happy to help you with the process.

What to Know Before Creating an S Corporation in Rhode Island

An S Corporation is a good option for many business owners, but not all of them. It may be a good idea to evaluate the pros and cons of an S Corp to ensure it’s the right entity for you. You never know, a C corporation may be the better option. Again, as we mentioned earlier, when you create a corporation, it’s a C corporation by default. To convert to an S corp, you have to file Form 2553.

What is an S Corporation?

An S Corporation in Rhode Island is a pass-through tax entity. This means that the income from a Rhode Island S Corporation passes directly to its owners. Instead of having to pay an extra tax on corporate profits, S Corporation shareholders only need to pay income taxes when they file their own individual returns. Because an S Corp can only be an LLC or corporation, this means Rhode Island S Corporations also have limited liability. You shouldn’t be held personally responsible for any debts or liabilities of the business except in certain extreme cases.

What is the Difference Between a Rhode Island S Corp and a C Corp?

One difference is that C Corporations can issue more shares of stock and create more classes of stock than an S Corporation. Though important, this isn’t really the biggest difference. The big difference between an S and C Corp has to do with taxes.

In Rhode Island, S Corporations are taxed as pass-through entities. A typical C Corp pays corporate income taxes on the income earned by the company. S Corporation owners pay taxes on the income as if it were their own income and not the entity’s income. An S Corp’s pass-through taxation simplifies taxes and helps prevent the burden of double taxation. 

Can LLCs Choose an S Corporation Election?

Yes! An LLC can also elect S Corporation status. Most LLCs that convert do so for tax reasons. As an owner of a limited liability company (LLC), you’re usually responsible for paying a self-employment tax on net earnings. However, if your entity is an S corporation, you may not owe any self-employment tax if you receive a reasonable salary from the company. However, S Corp status doesn’t eliminate Social Security and Medicare withholdings. If you’re interested in learning more about LLC tax issues, check out our article on the subject.

We can help 

While all this may seem overwhelming, we’re here to help. As you form your company and transform it into an S Corporation in Rhode Island, we can guide you through every step of the process. Whenever you form a new company, we can help you keep it running smoothly. If you need Business Plan, an EIN, or would like state compliance help with our Worry-Free Compliance Service, we are here to help.