How to Form an S Corp or LLC

05 Nov How to Form an S Corp or LLC

Whether you’re just starting out or are wanting to make a change, as a business owner, we know you want to set up your business for long term success while also protecting yourself in the process. This consideration can make choosing between forming an LLC or an S Corp challenging. 

In this blog post, we’ll review the differences and similarities between LLCs and S Corps, plus the different processes for forming these businesses — and why you should get help from the JJH Law team while you’re at it. 

What’s the difference between an S Corporation and an LLC?

To understand the basics of forming an S Corp or LLC, let’s first compare similarities and differences between the two. 

An LLC: 

• Has an owner or multiple owners — referred to as “members” 
• Doesn’t issue stock 
• Owners are not personally liable for the debt or liabilities of the business
• Doesn’t pay federal taxes. Instead, LLCs pay state taxes and the member(s) report losses and gains on their personal tax returns
• More flexible in how it is governed

An S Corp:

• Can be a tax-designation for an LLC, or set up as a corporation. 
• Has incorporators, a board of directors, and shareholders. Shareholders elect the board of directors, who make decisions about the business.  
• Issues stock 
• Doesn’t pay federal taxes. Instead, S Corp’s pass income, losses, deductions, etc. along to their shareholders to file on their individual tax returns 
• Is a small, closely-held corporation, with a maximum of 100 shareholders
• Can only have one stock class
• Must file IRS Form 2533 to reach S Corp status and pay taxes to the Federal government
• Has strict requirements regarding its records and meetings

Why use a lawyer to form your business

• An attorney will be there to advise you and help you choose what type of business formation is best for you and your business
• There are a lot of legal documents required to file as an LLC or S Corp. An attorney will draft and file all of the necessary documents for you 
• You should have an expert write your Operating Agreement (for an LLC) or your Corporate Bylaws (for an S Corp). Although you aren’t technically required to file either in the state of Oregon or Washington, they are both a good idea to have because:
  • They help establish your business’s operating rules – including how your business will function, what happens if you and your partners get into a disagreement, and what you’ll do if you decide to sell or shutter
  • Shows banks, investors, creditors, the government, etc. that your LLC or corporation is legitimate and a separate business entity from yourself 

In short, working with an attorney to form your business is going to help you make a better informed decision on your formation status, and save you the time and headache of writing – and filing – a lot of important, but complicated, paperwork. 

How to form an LLC 

Here are the basic steps you can expect when forming an LLC in Oregon or Washington: 

1. Choose a name for your LLC. You don’t want to choose a name that’s already been taken, so it’s a good idea to check the Secretary of State’s Business Registry Database. You can view the database for Oregon here and the database for Washington here. 

2. Select a Registered Agent. This is an individual or a business entity who agrees to accept legal documents in the event that your LLC is sued. They must be located at a street address in Oregon. A registered agent can be an officer or employee at your LLC, your attorney, or another business. 

3. Complete and file your Articles of Organization. To do this, you should have the following information on hand: 

• Your LLC’s name and street address
• A duration for your business (most of the time, this is perpetual)
• The name and address of your registered agent 
• Whether your LLC will be member-managed or manager-managed
• A description of the services the LLC will provide
• A list of the names and addresses of each owner of the LLC 
• A list of names and addresses for at least one manager of the LLC 
• The filing fee of $100

4. Create your LLC’s Operating Agreement. Though not legally required in Oregon or Washington, this is an important legal document that can protect you in the future. 

5. Pay your LLC taxes.  An LLC can be taxed as a corporation, limited liability partnership, or a single member LLC. Depending on how you file, your tax responsibilities will be different. If you are planning to employ more than one person at your LLC, you’ll also need to apply for an Employer Identification Number (EIN) through the IRS.

6. File your annual report with the Secretary of State. All businesses in Oregon and Washington are required to do this. 

How to form an S Corp 

If you’re considering whether or not to form an S Corp, it’s a good idea to review the steps you’ll need to take. They are as follows: 

1. Pick your corporate name. To avoid choosing an already claimed name, you can view the business registry database for Oregon here and the database for Washington here. 

2. Select a registered agent. 

3. Complete and file your Articles of Incorporation. You can file these online or via mail. The Articles of Incorporation include:

• Your corporation’s name and street address
• The name and address of your registered agent 
• The number of shares your corporation can issue 
• The names and address of each incorporator 
• The names and address of the initial president and the initial secretary
• The name and address of an individual with direct knowledge — this is a controlling shareholder who knows how the business operates
• The filing fee of $100

4. Create your Corporate Bylaws. These do not need to be registered in Oregon or Washington, but are an important step in defining how your corporation will operate.

5. Prepare a corporate records book. This doesn’t have to be fancy — you can simply keep this in a binder secured in a safe location when not in use. The corporate records book just needs to be a place where you can keep all of the important documents regarding your corporation in the event you are audited by the IRS. It should include: the articles of incorporation, the corporate bylaws, annual reports, meeting minutes from directors and shareholder’s meetings, motions made by the board, stock ownership records, and more. 

6. File your annual report with the Secretary of State. 

7. Pay your corporate taxes. Before you can do this, you need to apply for an Employer Identification Number (EIN) and submit Form 2533 with the IRS.

JJH Law can help

Our business formation attorneys at JJH Law have the experience and expertise required to help you correctly form the best type of business to accomplish your goals.

Contact us today to learn more about our business formation services.