Are you ready to take the plunge into entrepreneurship and establish a business entity that combines the best of both worlds—corporate structure and tax benefits? Starting an S Corporation (S Corp) in Oregon can be your ticket to navigating the entrepreneurial waters with added protection and flexibility.
Imagine having the power to shield your personal assets from business liabilities while enjoying the perks of pass-through taxation that keeps your hard-earned profits from being taxed twice. Intrigued? Embark on a step-by-step journey to transform your business idea into a thriving S Corp in the Beaver State. Ready to start? Dive in!
1. Understand the S Corporation
2. Choose a Business Name
3. Appoint Directors
4. File the Articles of Incorporation
5. Appoint a Registered Agent
6. Create Corporate Bylaws
7. Hold the First Board Meeting
8. Obtain an Employer Identification Number (EIN)
9. File Form 2553 with the IRS
10. Register for Oregon State Taxes
11. Maintain Corporate Compliance
Summary
1. Understand the S Corporation
An S Corporation is a type of corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code. This election allows the corporation’s income, losses, deductions, and credits to pass through to shareholders, avoiding the double taxation typically associated with C Corporations.
To qualify for S Corporation status, your business must meet specific requirements set by the IRS:
- Domestic Corporation: The corporation must be formed in the U.S. and must not be a foreign corporation.
- Eligible Shareholders: Shareholders must be individuals, certain trusts, or estates. Partnerships, corporations, and non-resident aliens cannot be shareholders.
- Shareholder Limit: The corporation can have no more than 100 shareholders.
- Single Class of Stock: The corporation can only have one class of stock, although different voting rights within that class are allowed.
- Ineligible Corporations: Certain entities, such as financial institutions, insurance companies, and international sales corporations, cannot elect S Corporation status.
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2. Choose a Business Name
Selecting a name for your S Corp is a crucial step in the formation process. The name must be unique and meet Oregon’s legal requirements. Here’s what you need to consider:
- Uniqueness: The name must be distinguishable from existing businesses registered in Oregon. You can check for name availability through the Oregon Secretary of State’s business name search tool.
- Inclusion of Required Terms: The name must include one of the following terms: “Corporation,” “Incorporated,” “Company,” or “Limited,” or their abbreviations (e.g., Corp., Inc., Co., Ltd.).
- No Misleading Implications: The name should not imply that the corporation is engaged in activities outside its stated purpose or mislead about the nature of the business.
3. Appoint Directors
Directors play a pivotal role in managing the corporation. Oregon requires at least one director for the corporation. The directors are responsible for overseeing the corporation’s activities and making major decisions. Here’s what you need to do:
- Selection: Appoint individuals who will serve as directors. They can be residents of any state or country, but at least one must be an Oregon resident.
- Documentation: Although the names of the directors are not required in the Articles of Incorporation, having them appointed before filing is necessary. The board of directors will be responsible for managing the corporation’s affairs.
4. File the Articles of Incorporation
The Articles of Incorporation are the formal document that creates your corporation. In Oregon, you need to file this document with the Secretary of State. The Articles of Incorporation include:
- Corporate Name: The name of your corporation.
- Duration: The length of time the corporation will exist, which can be perpetual or for a specific duration.
- Registered Agent: The name and address of the registered agent who will receive legal documents on behalf of the corporation.
- Authorized Shares: The number of shares the corporation is authorized to issue.
- Incorporators: The names and addresses of the individuals who are forming the corporation.
- Initial Directors: Although not mandatory, including the names and addresses of the initial directors can be beneficial.
You can file the Articles of Incorporation online, by mail, or in person. The filing fee is $100. Once processed, the corporation is officially formed, and you will receive a certificate of incorporation from the Secretary of State.
5. Appoint a Registered Agent
A registered agent acts as the official point of contact for your corporation. The agent receives legal documents, such as lawsuits and official government correspondence, on behalf of the corporation. Requirements for the registered agent in Oregon include:
- Residency: The registered agent must be a resident of Oregon or a business entity authorized to conduct business in the state.
- Availability: The registered agent must be available during regular business hours to receive documents.
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6. Create Corporate Bylaws
Bylaws are internal rules that govern the operation and management of the corporation. It outlines the rights and responsibilities of directors, officers, and shareholders. Although bylaws are not required to be filed with the state, it is essential for smooth corporate governance. Bylaws typically include:
- Director and Officer Roles: Descriptions of the powers and duties of the corporation’s directors and officers
- Meeting Procedures: Guidelines for holding and conducting board meetings and shareholder meetings
- Stock Issuance: Procedures for issuing and transferring shares of stock
- Amendments: Processes for amending the bylaws
7. Hold the First Board Meeting
After the corporation is officially formed and the bylaws are adopted, the first board meeting should be held to take important initial actions. During this meeting, the board typically:
- Appoints Officers: Designates individuals to serve as the corporation’s officers, such as President, Treasurer, and Secretary.
- Adopts Bylaws: Officially adopts the corporate bylaws.
- Issues Stock: Issues shares of stock to the initial shareholders, recording the number of shares and the consideration paid.
- Opens a Bank Account: Authorizes the opening of a corporate bank account to manage business finances.
- Adopts Corporate Seal: (Optional) Adopts a corporate seal for official documents.
The minutes of this meeting should be documented and maintained as part of the corporation’s official records.
8. Obtain an Employer Identification Number (EIN)
An EIN, also known as a Federal Tax Identification Number, is required for tax purposes and other business functions. You will need an EIN to:
- Open a business bank account
- File federal and state tax returns
- Hire employees
You can obtain an EIN by completing an online application on the IRS website or by submitting Form SS-4. The application process is straightforward and free of charge.
9. File Form 2553 with the IRS
To elect S Corporation status, you must file Form 2553, Election by a Small Business Corporation, with the IRS. This form must be signed by all shareholders and filed within two months and 15 days after the beginning of the tax year in which you want the S Corporation status to take effect. The form includes:
- Corporation Information: Name, address, and EIN of the corporation
- Shareholder Information: Names, addresses, and consent of all shareholders
- Tax Year Information: The tax year for which the S Corporation election is being requested
10. Register for Oregon State Taxes
Depending on the nature of your business, you may need to register for various state taxes with the Oregon Department of Revenue. Common registrations include:
- Corporate Excise Tax: Oregon imposes a minimum tax on corporations based on their Oregon sales. The amount varies depending on the corporation’s revenue.
- Employee Withholding Tax: If you have employees, you must register for employee withholding tax to withhold state income tax from their wages.
- Unemployment Insurance Tax: This tax is required for businesses with employees and helps fund unemployment benefits.
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11. Maintain Corporate Compliance
Once your S Corp is established, ongoing compliance is essential for maintaining good standing. Key compliance requirements include:
Annual Report
Oregon requires corporations to file an annual report with the Secretary of State. The report is due on the anniversary of your incorporation, and the filing fee is $100.
Meeting Minutes
Keep detailed minutes of board and shareholder meetings. These records are important for corporate governance and legal compliance.
Financial Records
Maintain accurate and comprehensive financial records, including balance sheets, income statements, and cash flow statements.
Tax Filings
File federal and state tax returns on time. Even though an S Corp does not pay federal income tax, it must file an annual information return (Form 1120S) with the IRS.
Summary
Starting an S Corporation in Oregon involves several important steps: understanding the S Corp structure, choosing a compliant business name, appointing directors, filing the Articles of Incorporation, appointing a registered agent, creating bylaws, holding the initial board meeting, obtaining an EIN, filing Form 2553 with the IRS, registering for state taxes, and complying with additional regulatory requirements. Maintaining ongoing corporate compliance is crucial for long-term success.
By following these steps carefully, you can establish your S Corp in Oregon and enjoy the benefits of limited liability protection and pass-through taxation. Consider consulting with legal and tax professionals to ensure all requirements are met and to receive tailored advice for your specific situation.
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