Start an Oklahoma S Corp

Step 1: Choose a name

Choose a business name that will stand the test of time and that tells the marketplace in a professional manner what your business does (e.g., Oklahoma Plumbing Supply Warehouse, Inc.). We can reserve your business name while you get your company set up.  

Step 2: Appoint a registered agent

Like most other states, the Oklahoma Secretary of State requires all businesses to have a registered agent. A registered agent in Oklahoma receives official papers on behalf of your business such as legal documents. Although you can be your own registered agent, you may want to consider having someone else hold this responsibility. After all, should your business be served legal papers (like a lawsuit), customers who witness this may not be inclined to return to your business. Let your registered agent be someone else who is available at a legally-recognized address during normal business hours.

Step 3: Choose directors or managers 

At this point, you should appoint your foundational entity’s initial directors (corporation) or managers (LLC). You do this through a written company resolution. When first setting up a business entity, initial company resolutions can come from the founders/incorporators.

Step 4: File Formation Documents with the Oklahoma Secretary of State

Next, you formally create your foundational entity (i.e., corporation or LLC) by filing a Certificate of Incorporation for your corporation or Articles of Organization for your LLC with the Oklahoma Secretary of State.

Step 5: Filing Form 2553 to apply for S Corp status

Arguably this is the most important step in creating an Oklahoma S Corp. You must file Form 2553 with the Internal Revenue Service (IRS), which makes your C Corp or LLC into an Oklahoma S corporation. If you chose an LLC as your foundational entity, you first need to make a tax election with the Internal Revenue Service and the Oklahoma Tax Commission to treat it as a corporation.

What to Know Before Creating an S Corp in Oklahoma

An S Corp doesn’t fit every business model. Thus, one of the first things you should know about starting an S Corp is that it’s a C Corp or LLC by default until you file the right paperwork and qualify to make it an Oklahoma S Corporation. So, in effect, you’re modifying a foundational entity to further suit your particular business needs.

What is an S Corporation?

S Corporations operate best as small business vehicles which are governed like classic C Corps but have pass-through taxation like partnerships. However, unlike C Corps, S Corps have significant restrictions on shares and shareholders. 

What’s the Difference Between an S Corp and a C Corp?

The primary difference between an S corporation and a C corporation is C corporations have little or no restrictions on the amount and type of shares they issue and who can be a shareholder. However, to most small business owners, the biggest difference, and perhaps the biggest draw, is how S Corporations normally pay income taxes.

C Corporation income suffers from “double taxation.” What this means is the C Corp pays income taxes at the corporate level and then each shareholder pays taxes on their income from the C Corp. Alternatively, S Corporations have pass-through taxation. Pass-through taxation means that the S Corporation doesn’t have to pay taxes on its income. Rather, it passes its income on to the shareholders who then have to pay taxes at their personal income rate. 

What Are the Requirements to Create an Oklahoma S Corporation? 

When considering how to form an S Corporation in Oklahoma you first have to form a foundational entity (i.e., corporation or LLC), and then you have to file Form 2553 with the IRS making sure you satisfy all of the IRS requirements for S Corps. 

For your Oklahoma S corporation to receive the pass-through tax benefits from the IRS, it must fulfill certain requirements. The IRS requires that an Oklahoma S Corp:

• 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 any of the above limits what you envision for your business, then perhaps an Oklahoma S Corp isn’t the right entity. For instance, S Corps aren’t good for attracting large capital investments from a big shareholder pool. That said, we encourage you to consult a legal or financial professional about your business model when thinking about forming an Oklahoma S Corp. 

Can LLCs Choose an S Corporation Election?

They certainly can. An Oklahoma LLC can easily elect to be an S Corporation. However, if an LLC and an S Corp are both taxed as partnerships and are ideal small business vehicles, why elect to be taxed as an S Corp? Choosing to tax your LLC as an S Corporation could reduce some of your tax liabilities, especially payroll taxes. Learn more about LLCs and taxation on our Tax Information for Limited Liability Companies page. 

Pros and Cons of Creating an S Corporation

Most agree that S Corps are unusual and not the first choice of most entrepreneurs. However, when they fit they fit nicely, they can create real benefits for business owners. Therefore, we have listed below some pros and cons to help you weigh your decision. 

Pros

An Oklahoma S Corporation can be beneficial in many ways, such as:

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

If reducing your business’s tax footprint is a primary concern for you, then an Oklahoma S Corporation may fit nicely into your business plans.

Cons

There are also drawbacks to an Oklahoma S Corporation, such as:

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

Again, even though the above list outlines the most important considerations, speak to your legal or financial advisor to thoroughly determine if these factors are significant given your business model. 

We can help

If you’re looking to start an Oklahoma S Corp, then our S Corporation Service can do it quickly and accurately. You can also look to us for help if you need assistance with the maintenance or compliance needs of your business. Sometimes the hardest part is getting started. We’re here to help you get past getting started.