S-Corp Election Resolution - By David Gass

Writing corporate resolutions should be simple and contain language adequate enough to show that the board of directors exercised its legal duty of care and loyalty. Resolutions should reflect meetings or written consent soon after the agreed upon actions happen.

Deciding what type of corporate tax structure is best for your small business can sometimes be a perplexing job. Unless an S-Corp election is made when a business incorporates, a new incorporation is automatically a "regular" corporation (C Corp.). In order to elect treatment as an S-Corp., there are certain eligibility requirements which much be met.

An S Corporation (Small Business Corporation) is a business elected for S Corporation Status through the IRS. This status allows the taxation of the company to be similar to a partnership or sole proprietor as opposed to paying taxes based on a regular corporate tax structure.

Taxes are handled differently, because an S Corp is a pass-through tax entity, meaning that the profit or loss of the business is shown on the personal income tax return of the owners. But a C Corp is a totally separate taxable entity, so the profits and losses are taxed directly at the corporation level. This can sometimes lead to double taxation, because dividends paid to owners may have already been taxed on the corporation.

No Corporate Tax: The biggest attraction of this S Corporation business ownership is the tax advantages. The profits and losses of the business pass through to the corporation owner's personal income tax. Like a Limited Liability Company, the tax "pass through" allows you to avoid "double taxation".

This is perhaps the uppermost reason why a board of directors outlines a resolution and elects to change their tax status.

Corporations who wish to become an S-corporation must file Form 2553 with the IRS; each stockholder of the corporation is required to sign the form.

S-Corporation Requirements:

The corporation must be a domestic, small business corporation

• No more than 35 shareholders
• Only one class of stock; voting rights do not create second class of stock
• Only natural persons can be shareholders, including qualified trust and estates
• No nonresidents alien shareholders

Companies which choose to be treated under the provisions of subchapter S of the Internal Revenue Code generally must adopt a calendar year end. Personal service corporations are also normally required to use a calendar year-end.

As a general rule all records, resolutions and recorded minutes of your corporation should be kept for a period of no less than six years.

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