FAQ's
What is an S corporation?
An S corporation is a standard corporation
that has elected a special tax status with the
Internal Revenue Services (IRS) by filing Form
2553. The formation requirements for an S
corporation are the same as those for a C
corporation wherein formation documents must be
filed with the appropriate state agency and the
necessary state filing fees paid.
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What paperwork is required to
incorporate?
A certificate of incorporation conforming to
Texas law must be prepared and filed with the proper
state authority, and filing fees must be paid.
All you need to do is complete the intake order form
or place an order by phone and we will prepare and
file your certificate of incorporation. It’s
simple, just fill out the intake form or call our
office at 713-524-1920 to get started.
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Who can form an S corporation?
There are no restrictions as to who can form a C
corporation however, when Form 2553 is filed
with the Internal Revenue Service (IRS) to obtain
S corporation status, there are restrictions
imposed on the ownership. In order to qualify for
S corporation status, the S corporation
can have no more than 100 shareholders, who must all
consent in writing to the election to be an S
corporation. The shareholders cannot be
non-resident aliens. Also, an S corporation
can have only one class of stock (disregarding
voting rights).
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What should I name my S
corporation?
Choose the name of your S corporation
carefully. It is very important that you portray the
image you want for your new S corporation.
Legally, the name you select must not be
“deceptively similar” to any existing corporation or
must be “distinguishable on the record” of your
state. For example, if a corporation named Flower
Corp. exists in your state, you probably would not
be allowed to name your business Flour Inc. It is
possible that the name you select will not be
available; therefore we ask for a second choice on
the incorporation order form.
Additionally, the name you choose must show your
business is incorporated. Texas requires that the
corporate name be followed by a corporate ending
such as "Corporation," "Incorporated," or an
abbreviation such as "Inc." or "Corp".
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What is pass-through taxation?
Pass-through taxation is a type of taxation that
results when a corporation has elected a special tax
status, S corporation status, with the
Internal Revenue Service (IRS). This special tax
status eliminates the possibility of double taxation
common to C corporations. With S
corporations, a corporate income tax return is
filed but no tax is paid at the entity level.
Instead, the profits or losses of the S
corporation are passed-through to the
shareholders and are reported on their individual
tax returns.
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What are authorized shares of
stock?
S corporations must indicate the number of
shares of stock they wish to authorize (and a par
value associated with each share) in the articles of
incorporation. The number of authorized shares is
the total number of shares available for an S
corporation to issue to shareholders; however
the S corporation does not need to issue the
total number of authorized shares. Some S
corporations opt to hold a certain number of
un-issued shares in order to add additional owners
at a later date or to increase the ownership
percentage for a current shareholder.
An issued share of stock shows ownership in the S
corporation and each shareholder obtains a
certificate representing the ownership value of the
S corporation.
S corporations can alter the number of
authorized shares or the par value of shares at
anytime in the life of the S corporation by
filing a share amendment with the state.
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What is a share’s par value?
The par value of a share is its minimum stated
value. Par value typically does not correlate to
the actual value of a share. Common par values are
$0.01, $1.00 or no par. The actual value of a share
is its fair market value, or what someone is willing
to pay for a share of stock. For public companies,
actual value is determined by the price investors
are willing to pay for each share on the national
exchange. For private companies, the actual value
of a share is typically determined by the overall
value of the S corporation or the book value.
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What is the organizational
structure of a S corporation?
The organizational structure of an S corporation
relies on three basic groups: shareholders,
directors and officers.
An S corporation is owned by shareholders;
however, they do not directly manage the S
corporation. Instead, they influence corporate
decisions through indirect methods such as electing
and removing directors, approving or disapproving
amendments to the articles of incorporation and
voting on major corporate issues.
The directors, who comprise the “board of
directors,” are responsible for managing the affairs
of the S corporation. Usually, directors make
only the major business decisions. They also appoint
and supervise the officers who make the day-to-day
business decisions of the S corporation.
Officers are responsible for the everyday management
of the S corporation.
It is important to note that a shareholder may serve
on the board of directors and as an officer. In
fact, most states allow S corporations to
have only one shareholder who serves as the sole
director and officer.
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How many directors do I need
to form an S corporation?
Only one director is required in Texas although you
are allowed to have more.
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How do I get started with the
incorporation process?
After making the decision concerning what entity
structure is best for your business, articles of
incorporation must be filed with the state
government and initial fees must be paid. We can
help you satisfy this step.
After your articles are filed, your S corporation
must hold an organizational meeting where bylaws are
adopted and the incorporation process is completed.
Share certificates should be distributed to
shareholders and these transactions should be
recorded on the S corporation's stock
ledger. All of this information should be kept in a
corporate record book.
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What is Rush Filing service?
As the quickest way to form your business, the Baba
Law Firm offers a Rush Filing Service option to gain
state approval of your formation in either the same
day (depending on time of order) to 24-48 hours. We
strive to complete your order the same day in most
situations. This high priority service only costs an
additional $79 to your order.
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How soon will I receive my
documents?
It is important to note that the 24 or 48 hour
filing time is for the formation only. It typically
takes longer for the states to produce the filed
documents. Once we receive your documents from the
state, we will ship them to you via FedEx Overnight
delivery. This means you should have your documents
in hand anywhere from just a few days to one week
after filing.
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Why should I include Rush
Filing with my formation service?
Using our Rush Filing service secures your name and
filed date in as little as 24 hours. This service is
particularly valuable when you need proof of
formation to secure a contract or open a bank
account.
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