Forming S Corporation in Mississippi - Research Paper Example

? Forming S Corporation in Mississippi Task: Forming an S Corporation in Mississippi Introduction An S corporation is an organization that is entitled to deliver corporate income, losses, deductions and credits to their shareholders for federal tax determination. The corporation has between 1-100 stakeholders. The stakeholders of S corporations disclose the flow-through profits and losses on their individual tax revenue proportions. Duty is evaluated basing on their sole revenue tax rates. This permits the S corporations to avoid dual taxation on the corporate income. The S corporations are liable for tax on individual, integrated gains and passive returns (Goldstein & Davidson, 1992). Necessary documentation, filling fees, and filing For an entity to qualify for S corporation status, it must be a domestic corporation with shareholders, defined trust, and estates and should not constitute partnerships, corporations or nonresident foreign shareholders. Furthermore, it should not have more than 100 members, have one kind of stock, and not be an ineligible business entity (McQuown, 2004). In order to become an S corporation, the corporation must submit Form 2553 Election by a Small Business Corporation (PDF format) signed by the owners. The Mississippi S Corporations are for those who focus on the limited liability and the bureaucratic composition of corporations but containing a pass-through taxation of the business earnings (McQuown, 2004). The Mississippi S Corporation is simply a set business that becomes an S Corporation when its shareholders elect the outstanding tax status with the Internal Revenue Service (IRS) by filing an Internal Revenue Service’s Form 2553filed with the Internal Revenue Service (McQuown, 2004). This form is for electing tax categories. This is a mandatory requirement outlined in the state laws of Mississippi and the federal laws. The regulation as a sole entity that is different from its owners recognizes a Mississippi S Corporation. The S corporation owners enjoy partial liability for the arrears, obligations and liabilities accrued by the entity as well as a liability from possible lawful action. Protection of stakeholder individual assets is a key principle that Mississippi business owners want to incorporate. Usually, owners cannot lose more than the level they brought in the corporation. However, if the corporation is liquidated, the owners will not be liable for debts incurred. In case someone sues the concern and is, liable the courts can use the corporation’s asset to fulfill the judgment. However, if those assets do not satisfy the judgment, the courts will not be able to take owners’ possessions (McQuown, 2004). There are exceptions to owners’ limited liability to keep in mind. Usually, an exception to an owner’s limited liability occurs when the corporation has irresponsibly laid people or been used to extend fraud (Goldstein & Davidson, 1992). A Mississippi S Corporation does not pay income taxes. Although, an S Corporation that has more than one alien stakeholder files duty returns, the owners must embrace their share of the corporation’s profits or losses on their personal tax returns, as is done in single proprietorship, partnership and by a Limited Liability Company (Goldstein & Davidson, 1992). The tax law gives employees of the corporation the opportunity to enjoy exceptional fringe benefits on a tax-free basis. They can get provided group term life insurance up to $50,000, health insurance coverage, dependent care assistance up to $5,000, education up to $5,250, adoption aid and more (Goldstein, S. & Davidson, 1992). They can are also covered with medical reimbursement plans. In order to register a business as an S corporation the state of Mississippi requires an Articles of Incorporation or Certificate of Incorporation (Goldstein, S. & Davidson, 1992). Before forming an S corporation in Mississippi, the individuals must file legal documents with Mississippi state authorities so as be allowed to create a Mississippi Corporation and state filing fees fully paid (Weltman, 2010). Mississippi S Corporation shareholders mostly benefit from partial liability and can mislay no more than the level they invest in the corporation. Mississippi S Corporation shareholders cannot be liable for lawful decrees in contradiction to the corporation in relation to the company’s arrears or obligations. Prevention of Mississippi S Company shareholders’ individual assets is among key reasons Mississippi organization owners want to incorporate. The exceptions to stakeholders’ restricted liability where investors are subject (Goldstein, & Davidson, 1992). A Mississippi S Corporation can earn extra investment easier than the majority of the types of entities. As such, one can issue and sell securities or a variety of other monetary instruments as proof of claim in the concern. The sale of securities is often question to Mississippi and security stipulations. The ownership of the S corporation is transferrable by selling stock in the corporation. While elective rights can conflict, a Mississippi S organization can have a single security (Mancuso, 1994). Mississippi S Corporations are audited less recurrently than solitary proprietorships and enterprises. Mississippi S Corporations enjoy lead through taxation, so shareholders evade double taxation. A Mississippi S Corporation documents informational tax returns although it pays no income tax as an entity itself. Mississippi S corporation shareholders account their proceeds and losses on their individual tax earnings so that they use damages to offset other earnings (Mancuso, 1994). Income and losses allocated on the function of ownership percentages in the total assets of the corporation. Owners’ independent-employment duties do not apply on wages paid by the corporation. Mississippi recognizes both the federal S Corporation election and a qualified sub chapter S subsidiary (QSub) election. Thus, a QSub is treated as a division of its parent S corporation for state income and franchise tax purposes, and it does not file separate returns. The federal accounting periods and method also must be used for the state purposes, although some state modifications are required. An S Corporation is not an issue of proceeds but is an issue of the franchise tax and it may be required to pay a withholding tax. The franchise tax is $2.50 per $1,000, or fractional part thereof, of capital, with a $25 minimum. A parent S corporation must include the activity of its QSub(s) in calculating its income and the franchise tax. Nonresident shareholders are required to furnish the corporation with a signed Form 85-380, Nonresident Income Tax Agreement, by which they agree to file Mississippi returns, timely pay all taxes due, and be subject to personal jurisdiction for collection of tax with respect to the S corporation income. The S Corporation maintains the form as a part of its permanent tax files thus it is not sent with the return. If the S Corporation fails to obtain the agreement or if the nonresident shareholder fails to file a return and pay the state tax at an opportune moment, the S Corporation will be required to pay tax for the shareholder at the 5% rate. There can be restrictions on fringe benefits for key shareholders. The owners deal with the daily functions. This means that they are workers thus eligible for fringe benefits such as group insurance plans, tax-favored stock option, bonus plans, retirement and profit sharing plans. The employees normally labor for a concern that gives them stock priorities and bonuses at the right time when they need them (Weltman, 2010). On a general term, the concern is unending and enjoys succession since it does not end with death of a single shareholder as evident in most of the leading business types (Goldstein, S. & Davidson, 1992). The public thinks of corporations as being more considerable than a sole proprietorship and partnership. (Goldstein, & Davidson, 1992) This research is an attempt to present appropriate information that one should be informed in creating an S concern in Mississippi. This paper sets the pace in forming an S corporation by providing appropriate information needed in addressing the S process. C and S corporations There are two different types of Corporations in Mississippi thus the C and S. Their similarities are evident in limited liability since the owners can safeguard their assets. Furthermore, capital is raised by selling shares in relation to other constituent processes. Indeed, it is fundamental for both corporations to participate in general meetings. In S corporations, the number of owners equals 100 whilst in C corporations there are no limits. Concurrently, in S corporations there are restrictions on the citizenship status. This is unlike the C Corporation. Advantages of the S Corporation The independent existence of the corporation enables its development, and the uninterrupted continued functioning of the business irrespective of challenges. Fractional possession shares are accommodated in the original offering of stock without difficulty. The procurement, sale, and stock provision make it probable to have changes in ownership without worrying the corporation's capability to carry out business. The obligation that the corporation's investments and proceedings be different from the funds and records of shareholders decreases the danger of unrecognized equity insolvencies. Corporation pays no wages taxes and corporation income or losses are delivered directly to the shareholders (Mancuso, 1994). When the corporate shield and other investments and savings of the shareholders are not in danger, the individual life of stockholders is abridged. The yearly summits of stockholders and discussions with legal guidance can offer stimulus for enhanced communication for the stockholder group and can offer comprehensive guidance for managing. The access to credit and the capability to vulnerable needed assets are enhanced basing on the corporation's business standards, guidelines, and practices of forthcoming lenders. Remunerations representing a return on investment are not focused to self-employment though investors-employees obtain satisfactory compensation for labor and control of the business (Weltman, 2010). Disadvantages of the S Corporation Some investors may need individual guarantees from corporate officials as a condition of providing credit, thus negating the restriction of liability. It is possible for conflicts or differences to emerge among the bondholders thus restraining decision-making. Limitations on the disposal of stock or buy agreements instituted in the laws may shun minority stockholders from regaining the value of their asset in the corporation. The shareholders are subject to speculation on the development of the organization basing on credit and shares by the corporation. Stock shares divided among numerous persons who are not dynamic on the corporate process thus developing an elective block that does not sustain requirements and choices anticipated by management investors may pose concerns (Mancuso, 1994). A Mississippi kind S Corp is a corporation, which nominates to be handled as a pass-through unit for tax dedications. Therefore, since all corporate income is channeled directly to the stockholders including the income on their separate tax proceeds, S Corporation is not entitled to dual taxation in most States. This is a draw back to its development and results to low income on its business. Additionally, over time, corporation paid profits for stockholder-employees become expensive to maintain and outstrip the capacity of the business to pay. This limits the corporation’s capability to maintain its stakeholder who may look for better opportunities. Moreover, employment benefits which include life insurance , personal insurance, and housing expenses is taxable revenue to shareholder employees with two percent or even more stock shares and to employees that are openly related to individuals owning two percent or more of the corporation. Through the accumulation of such demands as insurance and other aids, the stakeholder have to count on funds to secure the business thus being more expensive to address (Harroch & Smith, 1997). Consequently, if the corporation that runs the business-appreciated assets gets dissolved, valuable income duties on the additional amount generated. This will mean that the shareholders will have to count for loses in the income after the annual statement is delivered to them. When the standard tax status by the Internal Revenue Service is of high value, it puts the corporation at a risk thus failing to satisfy stakeholder in Mississippi (Mancuso, 1994). More confusing, Mississippi laws require the appointment or election of one or two persons who functions as the LLC president and treasurer, but who are called “managers” (the first position is called the “Chief Manager”; the second position is called the “treasurer” (Mancuso, 1994). This brings confusion due to nonstandard nomenclature. Finally, in setting up an S Corporation in Mississippi, an individual ought to be well- organized, thus setting the pace of doing business in such environment. MaxFilings is an example of a formula that allows the configuration with the correct steps that addresses ethical standards. This makes it simple to save the corporate information and data within a single spot online, thus making changes regardless of the time; furthermore, demands are made online at any time. As an entity takes shape in Mississippi, it is fundamental to think about developing and promoting a new S Corporation that is set up abiding with the necessary state laws and requirements of the federal government. References Goldstein, A., & Davidson, R. (1992). Starting your subchapter "S" corporation: how to build a business the right way. Virginia, VA: Wiley Publisher. Harroch, R. & Smith, G. (1997). Start-Up and Emerging Companies: Planning, Financing and Operating the Successful Business, With Forms on Disk, Volume 2. New York, NY: Law Journal Press. Mancuso, A. (2007). Form Your Own Limited Liability Company. New York, NY: Nolo Publishers. McQuown, J. (2004). Inc. Yourself: How to Profit by Setting Up Your Own Corporation Career. New York, NY: Press Publishers. Weltman, B. (2010). Small Business Taxes 2011: Your Complete Guide to a Better Bottom Line J K Lasser's Small Business Taxes. New Jersey, NJ: John Wiley and Sons Publishers. Read More