Learn the steps to create an S Corp in Wisconsin and how we can help make it easier.
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If you feel that partnership is too informal and a C corporation is too clumsy for your business model, perhaps an S corporation (S Corp) is right for you. An S Corp is designed for small businesses and can both generate investment capital through stock sales and also offer a reduced tax profile. So what is a standard S Corporation and how do you start one?
First, know that an S Corporation is not a standalone entity like a C corporation or limited liability company (LLC). Rather, it is a federal tax election under the IRS. Its primary IRS benefit is conferring various beneficial tax treatments on its shareholders such as pass-through income which the shareholders then address at their personal income tax rate. Of course, there is more to S Corps than just tax benefits, and we encourage you to read further on our S Corporation information page. In this guide, we discuss the various aspects of an S Corp and how to set one up.
The first thing you need to know before starting a Wisconsin S Corp is how to start a business in general. We make that simple using our Wisconsin LLC Formation Service and our Wisconsin Corporation Formation Service. Setting up a C Corp or LLC as the foundational entity for your Wisconsin S Corporation is the first step. Once that is established we offer continuing support with our various business development and maintenance services.
Choose a business name that will last for the life of your business. Also, we suggest you pick a name that is both professional and also gives the public an idea about what you do (e.g., Wisconsin Lake Surveying Services, Inc.). Keep in mind that you will need to choose a name that is not already in use by another entity in the state.
Wisconsin state law requires all businesses to have a registered agent. A registered agent receives official papers on behalf of your business such as service of process.
Next, you need to appoint people to run your S Corp, which can either be initial directors (corporation) or managers (LLC). You can do this through a written company resolution, which should come from the founders/incorporators.
The next step is to register your foundational entity with the state. To do so, you’ll need to file Articles of Incorporation for your C Corp or Articles of Organization for your LLC with the DFI.
Finally, you’ll file Form 2553 with the Internal Revenue Service (IRS). This is the most important step to create an S Corp. This form makes your C Corp or LLC into a Wisconsin S Corporation. If an LLC is your foundational entity, you first need to make a tax election with the IRS and possibly the Wisconsin Department of Revenue to treat it as a corporation.
Unless you file the right paperwork with the IRS to make your entity an S Corporation, it will be subject to default taxation rules. For a corporation, that means it will be taxed as a C Corp. An LLC will be taxed as either a sole proprietorship or a partnership depending on the number of members.
At their essence, S Corporations are small business corporations that have several restrictions on shares and shareholders but also grant pass-through taxation to their shareholders and therefore do not pay corporate income tax themselves.
C Corps have a virtually unrestricted ability to issue more shares and classes of stock than an S Corporation. As you saw above, S Corps have significant restrictions on shares and shareholders. However, the biggest difference between C Corps and S Corps, and equally the biggest draw, is how S Corporations deal with corporate income.
While C Corporations pay taxes on corporate income and then each shareholder has to pay taxes on their income from the corporation (i.e., double taxation), S corporations avoid this problem with pass-through taxation. That means they pass through their income to shareholders so only the shareholders have to pay taxes on the Wisconsin S Corp’s income.
To set up an S Corporation in Wisconsin you first must form a business with the DFI and then file form 2553 with the IRS.
Even though S Corps are straightforward small business vehicles, the IRS still requires you to fulfill specific requirements to validly create an S Corporation in Wisconsin. The IRS requirements are:
These are some pretty limiting requirements. If you think, based on the above, that a Wisconsin S Corp may not be right for you, check with your legal and financial professionals to see if they think the S Corp fits your long-term business model.
Yes, LLCs can elect S Corp designation. Even though LLCs are simple and dynamic, they still can benefit from S Corp status. This usually is because S Corps have an advantage in employment taxes over LLCs. Learn more about LLCs and taxation on our Tax Information for Limited Liability Companies page.
Because S Corps are very specific in their purposes, we have created a list below with some pros and cons to help you weigh your decision.
Running a Wisconsin S Corporation can be beneficial in many ways, such as:
S corporations are an excellent choice if tax liability is one of your biggest concerns.
Of course, there can also be drawbacks to a Wisconsin S Corp, such as:
After reading the above, if you are now on the fence about forming an S Corp, we encourage you to speak to your tax and/or legal professional to determine if these factors are significant given your circumstances.
We can help you start a Wisconsin S Corp quickly and easily with our S Corporation Service. We also offer ongoing business support, so you can continue to look to us to assist with the maintenance or compliance needs of your enterprise.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
With a Wisconsin S Corp you will have the limited liability benefits of a C Corp while also getting pass-through advantages for your income taxes.
It is best if a corporate name is professional and something that will stand the test of time. Also consider a name that generally tells you what the company does (e.g. Wisconsin Wholesale Warehouse Expeditors, Inc.).
Provided that you are following the Wisconsin naming requirements regarding use of “LLC” or “limited liability company” there is no need to identify your LLC as an S Corp.
Taxes are calculated at your personal income tax level rather than the corporate level. We encourage you to review the specific requirements with both the IRS and the Wisconsin Department of Revenue. Also consult your tax professional, since tax filing is highly specialized.