Start a Montana S Corp

S Corporation Requirements and Limitations

Though they are a great option for many businesses, S Corporations do have some limitations. The IRS requires your business to meet certain requirements to elect Montana S Corp status including:

• Be a domestic corporation or other eligible business
• Have only 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 concerned about whether your business fits these requirements or if this is the right tax structure for your company, it’s a good idea to speak to a financial professional. 

Pros and Cons of Creating a Montana S Corp

There are some great reasons to form a Montana S Corp, but there are also a lot of things to consider. Here are some of the pros and cons. 

Pros

There is a lot to think about. Some of the benefits of an S Corp include:

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

Tax liability is a big concern for a lot of business owners. S Corporations address that concern with pass-through taxation. Instead of being taxed at the corporate level and personal level, taxes pass through to individual income taxes of the shareholders or members.  

Cons

The type of business you have may impact whether a Montana S Corp is right for you. An S Corp can involve:

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

Double taxation is a concern for a lot of business owners, but may not be an issue for your particular type of business. If so, the cons of an S Corp may outweigh the pros.  

What to know before creating an S Corporation in Montana

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 your particular business venture. 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 Corporation. 

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

The biggest difference between S Corporations and C Corporations is how they pay taxes. An S Corporation is a business entity that has elected to pass its corporate income, losses, credits, and deductions to its shareholders or members to include on their personal income taxes. 

C Corporations are separately taxable entities and are subject to double taxation. Income is taxed at the corporate level and again on the individual tax returns of members or shareholders. C Corporations can also issue more stock than S Corporations. 

What are the requirements to create an S Corporation? 

To create an S Corporation, you have to form a business that falls within the limitations identified above. You must also file Form 2553 with the IRS not more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding that the election is to take effect. There are exceptions to the timeline if specific circumstances have prevented you from making a timely election.  

Can LLCs choose an S Corporation election?

A limited liability company can elect to be an S Corporation. Many LLCs find this beneficial because corporations often require more formalities than starting an LLC. Learn more about LLCs and taxation on our Tax Information for Limited Liability Companies page. 

We can help

If you’re ready to form your S Corporation, we are here to help. Making the election at the same time as forming your LLC or corporation will simplify the process. We are here to help support you from formation to compliance and maintenance so that you can spend more time focusing on growing your business. 

Whether you’re in Helena or Missoula, our products and services are here to help you at any stage of your entrepreneurial journey.