Start an Alaska S Corp

Requirements and limitations of S Corporations

Only certain businesses can choose an S Corp election. To be eligible for S Corporation classification, an entity must:

• Be a domestic corporation
• Have only one class of stock
• Have only allowable shareholders, which include individuals, certain trusts, and estates
• Not be an ineligible corporation, such as certain financial institutions, insurance companies, and domestic international sales corporations
• Have no more than 100 shareholders

If your business entity doesn’t meet these filing requirements, it will not qualify for an S Corp classification. 

File Form 2553 with the IRS

If your business does meet these minimum filing requirements, you can then file for election as an S Corp by completing and filing Form 2553 with the IRS. Importantly, this has to be done: 

• No more than 2 months and 15 days after the beginning of the tax year in which the election is to take effect, or
• At any time during the tax year preceding the tax year that the election is to take effect.

Visit the IRS website for more detailed instructions on how to properly and timely file Form 2553 for your Alaska business. 

Weighing the pros and cons of creating an S Corporation

Like many business entities, an S Corp designation has its pros and cons. Take a look at them below and weight them before deciding if an S Corp election is right for your business.

The pros of an S Corp

In addition to pass-through taxation, some of the most common advantages of creating an S Corporation include: 

• Improved asset protection
• Cash method of accounting
• Tax-favorable characterization of income

The cons of an S Corp

As with most things, there are certain cons to take note of as well. For example, common disadvantages associated with forming an S Corporation include: 

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

Thus, before setting your entity up as an S Corp, carefully consider these pros and cons. This will help you determine whether an S Corporation classification meets the needs and goals of your business. If you’re still not sure if an S Corp classification is right for your Alaska business, be sure to consult an experienced business lawyer to discuss your options in more detail. 

What to know before creating an S Corporation in Alaska

At the time of formation, the default for a business entity is classification as a C Corporation. Thus, if you want your business to be set up as an S Corp, you’ll have to actively change its status. 

Of course, forming an S Corp may not be the right move for all businesses. Thus, before deciding whether to make this election, there are a few important things you should know. 

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

Again, the default classification for a corporation at the time of formation is as a C Corp. Notably, C Corps must file and pay taxes on their corporate income at the entity level in addition to the shareholder level on each individual’s income taxes. Thus, while S Corps benefit from pass-through taxation, C Corps do not. 

However, although C Corps can’t avoid double taxation, they do benefit from greater flexibility and less stringent requirements in the formation process. 

What are the requirements to create an S Corporation? 

To create an S Corporation, you must first form a business that falls within the limitations identified above. Then, you have to file Form 2553 with the IRS within one of the timeframes listed above.

Can LLCs choose an S Corporation election? 

Yes, LLCs can choose an S Corporation election. While not appropriate for all businesses set up as an LLC, there are a number of advantages, particularly when it comes to self-employment taxes, that can make this a great option for many LLCs.

We can help

Ready to get started? Form your S Corp today with our help. We can also support your business venture from start to finish with a wide variety of formation, compliance, and maintenance products and services. Start your company and file as an S Corp with us today.

If an S Corp isn’t the right fit for your business, our Alaska LLC Formation Services and our Alaska Corporation Formation Services can help make the business formation process a breeze. And even after formation, you can use our Worry-Free Compliance Service to better ensure that you stay legally compliant with the state. In short, we have all the tools and resources necessary to help you start, manage, and grow your business.