Start a Missouri S Corp

What are the requirements to create a Missouri S Corporation?

Prior to choosing your business’s tax structure, it’s a good idea to understand the IRS requirements and limitations of a Missouri S Corp. 

• You must have a domestic corporation or LLC
• The corporation can have no more than 100 shareholders
• Shareholders cannot be nonresident aliens
• All shareholders must be private individuals (not other business entities)
• The business may only issue one class of stock, meaning that all members must get the same distributions
• The corporation must be an eligible entity—ineligible entities include certain financial institutions, insurance companies, and domestic international sales corporations

If you aren’t sure whether you qualify for S corporation status, consider talking to a tax or finance professional. 

Pros and Cons of Creating an S Corporation

S Corporations aren’t the best option for every business, but they are for a lot of businesses. Here are some of the pros and cons. 

Pros of S Corp election

S Corps are pass-through taxation entities. This means that taxes are reported on the personal income taxes of shareholders or members and the business isn’t taxed at the corporate level. This is the most prevalent benefit of electing to file as an S Corporation. C Corporations are subject to double taxation. S Corp election can also protect your personal assets from business debts and allow you to use the cash method of accounting. Self-employed business owners may have the option to classify some of their income tax as distributions and some as salary, which could result in tax savings. 

Cons of S Corp election

Missouri S Corporations must adhere to other obligations of the business structure which is more formal than that of a C Corp. S Corps have more stringent eligibility requirements than other businesses, and require more money to form and maintain. It’s worth keeping in mind that an S Corporation can have no more than 100 shareholders and only one class of stock. Because of the options for payment classification, S Corps are often subject to increased IRS scrutiny. 

What to know before creating an S Corporation in Missouri

An S Corp election is beneficial for many businesses, but not all. So it’s important to consider the pros and cons before reaching a decision for your company. It’s also important to know that, if you choose to form a corporation, when you complete the filing requirements, the default tax structure election is that of a C Corporation. Filing Form 2553 is the way to change that default election. 

Timing is important. File the Form 2553 no more than two months and 15 days after the beginning of the tax year the S Corp election is to take effect. You can also file any time during the tax year preceding the tax year it is to take effect. The IRS has a list of exceptions that may apply if circumstances prevented you from making an election within the normal timeframe. 

What is an S Corporation?

Defined by Subchapter S of the IRS tax code, an S corporation is a tax designation that’s chosen by an LLC or corporation. It’s important because it governs how the business is taxed.

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

C Corporations do have more flexibility in the number and types of shares that they can issue. But when people choose an S Corp election, they typically do so for tax purposes. C Corporations are subject to double taxation—which is taxation at both the corporate and individual levels. Most companies that choose S Corp election do so to take advantage of pass-through taxation where the business income is only taxed once, at the individual level.

What are the requirements to create an S Corporation?

To form an S Corporation you must first form a company that fulfills the requirements listed above. Then, after forming an eligible company, you can elect the S Corp status by filing Form 2553 with the IRS.

Can LLCs choose an S Corp election?

Both LLCs and corporations can choose the S Corp election. Owners of a Missouri S Corporation are considered employees of the business. This designation has the potential to allow them to save on self-employment taxes depending on how they’re classified. Read more about taxes for LLCs.  

How we can help with your Missouri S Corporation election

We know the business formation can get confusing. We are here to help with tools and services that help you save time, energy, money when starting and operating your business. If you’re in the process of starting your Missouri LLC, let us guide you through the steps with our LLC formation service and elect S Corp status at the same time, so you don’t have to worry about it later.

There are a lot of components to owning a business and you don’t have to be an expert to be successful. That’s what we’re here for. We exist to support business owners from formation to compliance and business maintenance. Our goal is to make it easier for you to focus on your company and your customers.