How to Start an S-Corporation in Kansas (2024 Guide)

Start an S-Corporation in Kansas

If you want to start an LLC in Kansas, there are things that you should consider. Kansas is the home to a thriving business community, making it an attractive location for entrepreneurs. One popular business structure is the S-Corporation, which offers several tax and operational advantages. This comprehensive guide will explore the process of starting an S-Corporation in Kansas, including the costs, steps, advantages, and disadvantages associated with this business structure.

Webinarcare Editorial Team will help you gain knowledge through thorough research and market study. Before starting your S-corp, all the steps in this article must guide you.

What is an S-Corporation?

An S-Corporation is a type of corporation that elects to be taxed under Subchapter S of the Internal Revenue Code. This tax treatment allows S-Corporations to enjoy pass-through taxation, meaning the corporation’s income, deductions, and credits flow through to the shareholders, who report this information on their individual tax returns. This structure helps to avoid the double taxation experienced by C-Corporations.

An S corporation (S corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other companies. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

Limitations and Requirements of S-Corp

As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-

  • Be a domestic corporation.
  • Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
  • Have just one type of stock.
  • Have a maximum of 100 shareholders or members.
  • Have only permitted individuals, certain trusts, and estates as stockholders or members.

You can apply for an S-Corp in Kansas if qualified for the limitations and requirements.

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How to Form an S-Corporation in Kansas?

To create S-Corp in Kansas, you must follow the below guidelines that include forming a business name, hiring a Registered Agent, filing your Articles of Organization, creating an operating agreement, requesting an EIN, and filing a form 2553.

Step 1: Register a Business Name in Kansas

After you have decided on the idea to start an S-Corp in Kansas, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.

If you want to set up an S-Corp, there is a complete guide on Kansas Business Name Search for a proper business name. Here are some guidelines you must follow while naming your S-corp.

  • Avoid profanities
  • The name should be available, and no other entity should have the same name in Kansas.
  • Limit of restricted words that need a license in Kansas
  • Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)

Step 2: Hire a Registered Agent

The next step in starting an S-corp in Kansas is hiring a Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents (such as subpoenas), all notices of lawsuits, and other official government correspondence. Forming an LLC with an S-corp will be easier if you have Registered Agent in Kansas.

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Step 3: File For Articles of Organization

The Articles of Organization is an important document to start your limited liability company (LLC). Kansas Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. For the Articles of Organization to be filed in KY Secretary of State, you need to pay a filing fee of $165. In Kansas, the filing fee of forming an LLC is $165 (by mail and $160 online) .

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Step 4: Creating an Operating Agreement

After you have filed your Articles of Organization, the next step is to create an operating agreement in Kansas. The operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following:

  • Article I: Organization
  • Article II: Management and Voting
  • Article III: Capital Contributions
  • Article IV: Distributions
  • Article V: Membership Changes
  • Article VI: Dissolution

After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure.

Step 5: Request for an EIN

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Kansas can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

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Step 6: File Form 2553 for your S-Corp Business

Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or at most 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS.

In Kansas, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520 .

Costs of Forming an S-Corporation

There are several costs associated with forming an S-Corporation in Kansas, including:

  1. Filing Fees: When forming a corporation in Kansas, you must file Articles of Incorporation with the Kansas Secretary of State and pay a filing fee of $90 for filing online and by mail.
  2. Statement of Information: After forming the corporation, you must file a Statement of Information (Form SI-550) within 90 days and pay a filing fee (currently $25). This statement must be filed annually after that.
  3. Franchise Tax: S-Corporations in Kansas are subject to the annual franchise tax, which is the greater of a minimum tax (currently $800) or a calculated tax based on the corporation’s net income.
  4. Other Costs: Depending on the nature of your business, additional costs may include obtaining licenses and permits, registered agent services, and professional fees for legal and accounting services.

Advantages of Forming an S-Corporation

There are numerous advantages to incorporating an S-Corp, but you should be aware of certain problems. Consider the following benefits of an S corporation:

Pass-through Taxation

S-Corporations enjoy pass-through taxation, which helps to avoid the double taxation faced by C-Corporations. This can result in potential tax savings for shareholders. Pass-through taxation is a tax system where the income, deductions, and credits generated by a business entity, such as Kansas General Partnership, limited liability company (LLC), or S-Corporation, are passed through to individual owners or shareholders instead of being taxed at the corporate level.

In this system, business profits and losses are reported on the owners’ or shareholders’ individual tax returns, and taxes are paid at their individual income tax rates. This avoids the issue of double taxation, which occurs in C-Corporations where income is taxed at both the corporate level and again when distributed to shareholders as dividends. Pass-through taxation is generally advantageous for small businesses and their owners, as it simplifies tax filings and often results in lower overall taxes.

Limited Liability Protection

Shareholders of an S-Corporation have limited liability protection, meaning their personal assets are protected from the corporation’s debts and obligations. Limited liability protection in an S-Corporation refers to the legal separation between the personal assets of the shareholders (owners) and the business assets, which protects shareholders from being personally responsible for the company’s debts and legal obligations.

In an S-Corporation, shareholders’ personal assets, such as their homes, cars, and personal savings, are not at risk if the business faces financial difficulties or lawsuits. The shareholders’ liability is limited to the amount they have invested in the company. This limited liability is a significant advantage of incorporating a business as an S-Corporation, as it provides a safeguard for the personal financial well-being of the business owners.

It is important to note that limited liability protection can only be supported if the shareholders maintain proper corporate formalities, such as keeping separate business and personal finances, holding regular shareholder meetings, and maintaining accurate business records. In such cases, courts may “pierce the corporate veil” and hold shareholders personally liable for the company’s debts and obligations.

Transferability of Shares

Shares in an S-Corporation are more easily transferable than those in an LLC, allowing for greater flexibility in ownership changes. Transferability of shares in an S-Corporation refers to the ability of shareholders to sell, gift, or otherwise transfer their ownership interest in the company to another person or entity. This is an important aspect of an S-Corporation’s structure, as it allows for flexibility in ownership and the potential for raising capital through the sale of shares.

However, there are certain restrictions on the transferability of shares in an S-Corporation, which are imposed by the Internal Revenue Service (IRS) to maintain the company’s eligibility for S-Corp status:

  • Shareholders: The number of shareholders in an S-Corporation is limited to a maximum of 100. Only individuals, certain trusts, and estates can be shareholders; other corporations and partnerships are generally not allowed.
  • Eligible Shareholders: Only U.S. citizens and resident aliens can be shareholders in an S-Corporation. Non-resident aliens are not allowed to hold shares.
  • One Class of Stock: S-Corporations can only have one class of stock. All shares must have the same rights and privileges, such as voting rights and distribution preferences. However, differences in voting rights are allowed if they are not tied to economic rights (e.g., distribution preferences).
  • Perpetual Existence: Perpetual existence refers to the concept that a business entity, such as an S-Corporation, can continue to exist indefinitely, regardless of changes in ownership or management. This means the corporation can outlive its original founders and shareholders and continue to operate even if individual shareholders pass away or decide to sell their shares.

This characteristic of an S-Corporation provides stability and continuity for the business, as it ensures that the corporation’s operations, contracts, and legal obligations remain unaffected by changes in ownership. It also makes it easier for the company to attract investors and raise capital. Potential investors can be confident that the business will continue to exist even if the original owners are no longer involved.

Disadvantages of Forming an S-Corporation

Despite these advantages, moving to an S corporation only sometimes makes sense – or at the very least, necessitates a thorough review of certain situations. The following issues may arise in particular:

Restrictions on Shareholders

S-Corporations are subject to specific restrictions, such as a maximum of 100 shareholders and limitations on the types of eligible shareholders (e.g., only individuals, certain trusts, and estates).

Single Class of Stock

S-Corporations are limited to issuing only one class of stock, which can limit flexibility in raising capital or creating different ownership structures. A single class of stock in an S-Corporation refers to the requirement that the corporation only issues one type of stock with equal rights and characteristics for all shareholders. This means that all shares of stock must have the same economic rights, such as dividend distribution preferences and liquidation rights, as well as voting rights. The single class of stock requirement is one of the key criteria the Internal Revenue Service (IRS) sets for a corporation to qualify for S-Corp status.

Increased Complexity

Forming and maintaining an S-Corporation requires more paperwork, record-keeping, and compliance with state and federal regulations than simpler structures like LLCs.

Franchise Tax

S-Corporations in Kansas are subject to the annual franchise tax, which can financially burden some businesses.

In an Kansas S-Corporation context, the franchise tax is usually based on the company’s income, net worth, or a combination of both. Since S-Corporations are pass-through entities for federal income tax purposes, meaning that their income is not taxed at the corporate level but rather passed through to individual shareholders, they may be exempt from or subject to lower franchise tax rates in some states than traditional C-Corporations.

However, S-Corporations must still comply with Kansas franchise tax requirements, which may include annual filings and tax payments. It is crucial for S-Corporation owners to understand the specific rules and regulations in their state of operation and to consult with a tax professional to ensure compliance and minimize their tax.

FAQs

What is an s-corporation and how does it differ from a regular corporation in Kansas?
An s-corporation is a corporation that has elected to be taxed as a partnership under Subchapter S of the Internal Revenue Code. It differs from a regular corporation in that it passes through income, deductions, and credits to its shareholders for tax purposes.
What are the advantages of setting up an s-corporation in Kansas?
The primary advantage of setting up an s-corporation in Kansas is that it provides the owner with liability protection while allowing them to enjoy the tax benefits of a partnership.
What are the eligibility requirements for s-corporation status in Kansas?
To qualify for s-corporation status in Kansas, a corporation must meet certain criteria, including having no more than 100 shareholders, having shareholders that are individuals, estates, and certain trusts, and having only one class of stock.
Can LLCs be s-corporations in Kansas?
Yes, LLCs can elect to be taxed as s-corporations in Kansas as long as they meet the eligibility requirements and file the appropriate paperwork with the IRS.
How long does it take to set up an s-corporation in Kansas?
The process of setting up an s-corporation in Kansas involves filing articles of incorporation with the Secretary of State and obtaining tax identification numbers from the IRS. The process can take anywhere from a few weeks to a few months, depending on the complexity of the corporation’s structure and the volume of filings being processed by the state and federal agencies.
What is the Kansas corporate income tax rate for s-corporations?
Kansas does not have a separate income tax rate for s-corporations. Instead, the income generated by the s-corporation is passed through to the shareholders and is taxed as personal income, subject to individual income tax rates.
Are there any annual reporting requirements for s-corporations in Kansas?
Yes, s-corporations in Kansas are required to file an annual tax return with the Kansas Department of Revenue in addition to filing the necessary federal tax forms with the IRS.
What are the filing fees for setting up an s-corporation in Kansas?
The filing fee for setting up a corporation in Kansas is $90, with an additional fee of $35 for expedited processing.
Can non-US residents set up an s-corporation in Kansas?
Yes, non-US residents can set up an s-corporation in Kansas as long as they have a US tax identification number and meet the other eligibility requirements.
What is the Kansas sales tax rate for s-corporations?
The Kansas sales tax rate for s-corporations is the same as the rate for other businesses, currently set at 6.5% statewide.
What types of businesses can benefit most from setting up as an s-corporation in Kansas?
Small businesses and startups that are looking to minimize their tax liabilities while still enjoying the benefits of limited liability protection can benefit most from setting up as an s-corporation in Kansas.
Are there any restrictions on using an established business name for an s-corporation in Kansas?
Yes, an s-corporation in Kansas cannot use a name that is already in use by another corporation in the state. Additionally, the name must meet other regulatory requirements related to business type and legality.
Is it necessary to have a registered agent in Kansas for an s-corporation?
Yes, it is necessary to have a registered agent in Kansas for any corporation. This agent must have a physical address in the state and be available to receive legal documents on behalf of the corporation during business hours.
What is the process for electing s-corporation status in Kansas?
The process for electing s-corporation status in Kansas involves filing IRS Form 2553 as soon as possible after the corporation is established.
What are the rules governing the number of shareholders that an s-corporation can have in Kansas?
S-corporations in Kansas are restricted to no more than 100 eligible shareholders.
What is the state tax rate for s-corporations in Kansas?
There is currently no separate state tax rate for s-corporations in Kansas. Instead, the income generated by the corporation is passed through to the shareholders and taxed as personal income at the appropriate state level rates.
What types of assets can be transferred to an s-corporation in Kansas?
Any legally proscribed asset, as well as any asset allowed by tax laws, can be transferred to an s-corporation in Kansas.
What is the legal structure of an s-corporation in Kansas?
An s-corporation in Kansas is a separate legal entity, owned by its shareholders and managed by a board of directors.
Are the shareholders of an s-corporation in Kansas liable for the corporation’s debts and other liabilities?
No, the shareholders of an s-corporation in Kansas are not personally liable for the corporation’s debts and other liabilities. This is one of the key benefits of incorporating in this way.
How is an s-corporation taxed in Kansas?
As pass-through entities, s-corporations in Kansas do not pay income tax at the entity level. Instead, the income generated by the corporation is passed through to the shareholders, who report it as personal income on their own tax returns.
What are the annual reporting requirements for s-corporations in Kansas?
In addition to filing annual tax returns with the Kansas Department of Revenue and the IRS, s-corporations in Kansas are required to maintain corporate records and hold annual shareholder meetings, among other requirements.
Do shareholders of an s-corporation in Kansas have limited liability protection?
Yes, the shareholders of an s-corporation in Kansas enjoy the same limited liability protection as shareholders of other types of corporations.
What is the minimum filing threshold for Kansas corporate income tax?
Kansas does not have a minimum filing threshold for corporate income tax, meaning that all corporations that operate in the state must file an annual tax return.
Are there any ongoing fees or taxes that s-corporations are required to pay in Kansas beyond annual business registration fees?
In addition to annual business registration fees, s-corporations in Kansas are typically subject to other taxes and fees like business personal property taxes and unemployment insurance.
What are the rules governing the distribution of profits by an s-corporation in Kansas?
An s-corporation in Kansas must allocate and distribute its profits to shareholders proportionally based on their share ownership.
Are there any special considerations for nonprofit organizations wishing to set up as s-corporations in Kansas?
Yes, nonprofit organizations can set up as s-corporations in Kansas as long as they meet certain eligibility requirements and file the necessary paperwork with the IRS.
Where can I find more information about setting up an s-corporation in Kansas?
More information about setting up an s-corporation in Kansas can be found on the Kansas Secretary of State’s website, as well as on the IRS website and through other business resources designed for entrepreneurs.
What is an s-corporation in Kansas?
An s-corporation is a business that elects to pass corporate income, losses, deductions, and credit through to its shareholders for federal tax purposes.
How do I start an s-corporation in Kansas?
To start an s-corporation in Kansas, you must first register your business with the Kansas Secretary of State and then apply for federal tax status with the IRS.
Is there a fee to start an s-corporation in Kansas?
Yes, there is a fee to start an s-corporation in Kansas. The fee varies depending on the specific type of business entity.
How long does it take to start an s-corporation in Kansas?
It typically takes 5-10 business days to start an s-corporation in Kansas.
Do I need to file articles of incorporation in Kansas to start an s-corporation?
Yes, you need to file articles of incorporation in Kansas to start an s-corporation.
What types of businesses can be S-corporations in Kansas?
Any business that meets the IRS requirements for an S-corporation can be an S-corp in Kansas.
How many shareholders can an S-corporation have in Kansas?
An S-corporation in Kansas can have no more than 100 shareholders.
Can LLC’s be S-corporations in Kansas?
Yes, LLC’s can elect to be treated as S-corporations for tax purposes in Kansas.
Is there a minimum business income required to form an S-corporation in Kansas?
No, there is no minimum business income required to form an S-corporation in Kansas.
What are the benefits of forming an S-corp in Kansas?
Benefits of forming an S-corp in Kansas include limited liability protection and potential tax advantages.
How is an S-corp in Kansas taxed?
An S-corp in Kansas is not taxed at the corporate level; instead, income and losses are passed through to shareholders.
What paperwork do I need to file to start an S-corporation in Kansas?
To start an S-corp in Kansas, you need to file articles of incorporation and potentially other documentation with the Secretary of State.
Can a non-US resident start an S-corp in Kansas?
Yes, a non-US resident can start an S-corp in Kansas as long as they meet the requirements for incorporating in the state.
Do Kansas S-corps have to pay corporate income tax?
S-corps in Kansas are not required to pay corporate income tax.
Are there any tax breaks for S-corps in Kansas?
Yes, there may be tax breaks available for S-corps in Kansas depending on the specific circumstances.
Do S-corps in Kansas need to file an annual report?
Yes, S-corps in Kansas must file an annual report with the Secretary of State.
Is there a requirement for S-corps in Kansas to hold annual meetings?
There is no statutory requirement for S-corps in Kansas to hold annual meetings, but it may be advisable to do so.
Can S-corps in Kansas have foreign shareholders?
Yes, S-corps in Kansas can have foreign shareholders.
Are there any residency requirements for shareholders of S-corps in Kansas?
There is no residency requirement for shareholders of S-corps in Kansas.
Can S-corporations pay dividends to shareholders in Kansas?
Yes, S-corps in Kansas can pay dividends to shareholders.
Are S-corp shareholders in Kansas liable for corporate debts and lawsuits?
Shareholders of an S-corp in Kansas generally have limited liability protection.
Do S-corps in Kansas have to pay payroll taxes?
Yes, S-corps in Kansas may be required to pay payroll taxes for their employees.
Can S-corps in Kansas deduct business losses on their tax returns?
Yes, S-corps in Kansas can deduct business losses on their tax returns.
Can S-corps in Kansas deduct charitable contributions on their tax returns?
Yes, S-corps in Kansas can deduct charitable contributions on their tax returns.
Can S-corps in Kansas deduct business expenses on their tax returns?
Yes, S-corps in Kansas can deduct reasonable and necessary business expenses on their tax returns.
Are there any restrictions on the type of business that can be an S-corp in Kansas?
As long as a business meets the IRS requirements for an S-corp, there are no restrictions on the type of business that can be an S-corp in Kansas.
Do members of an S-corp in Kansas have voting rights?
Members of an S-corp in Kansas typically have voting rights.
What is the process for closing down an S-corp in Kansas?
The process for closing down an S-corp in Kansas involves filing articles of dissolution with the Secretary of State and potentially paying outstanding debts and taxes.

Also Read

Why You Should Start Kansas S Corp

First and foremost, forming an S Corp can provide significant tax benefits for business owners. S Corporations are pass-through entities, which means that the profits and losses of the business are passed through to the individual shareholders. This allows business owners to avoid the issue of double taxation, where the business is taxed at the corporate level and then the shareholders are taxed on their dividends. Instead, as an S Corp shareholder, you only have to pay taxes on your share of the business’s profits, potentially saving you money in the long run.

Additionally, forming an S Corp can also offer limited liability protection for business owners. By establishing your business as a separate legal entity, such as an S Corp, you can protect your personal assets from any liabilities or debts incurred by the business. This means that if the business were to face legal issues or financial troubles, your personal assets, such as your home or savings, would be shielded from potential lawsuits or creditors.

Furthermore, forming an S Corp can also offer flexibility for business owners in terms of management and ownership. S Corporations have a more formal structure than other business entities, such as sole proprietorships or partnerships, which can make it easier to attract investors or partners in the future. Additionally, S Corps allow for the issuance of different classes of stock, which can be appealing for business owners looking to offer different levels of ownership or dividend rights to shareholders.

In addition to these advantages, forming an S Corp can also provide credibility and professionalism to your business. By establishing your business as an S Corp, you are signaling to customers, vendors, and potential investors that you are serious about your business and committed to maintaining a strong legal and financial foundation. This can help you attract clients and partners, build trust in the marketplace, and differentiate your business from competitors.

If you’re thinking about starting a business in Kansas, consider the potential benefits of forming an S Corporation. By choosing this business structure, you can take advantage of tax benefits, limited liability protection, flexibility in management and ownership, and increased credibility for your business. With these advantages in mind, starting a Kansas S Corp may be the right choice for you as you embark on your entrepreneurial journey.

Conclusion

Forming an S-Corporation in Kansas can be a beneficial decision for small business owners seeking liability protection, pass-through taxation, and easier transfer of ownership. By meeting the requirements set by the IRS and following the necessary steps, business owners can take advantage of an S-Corp’s unique structure and benefits. However, it is essential to consider the potential drawbacks, such as increased paperwork and limitations on ownership, before making a final decision. Consulting with a legal or financial professional can help business owners determine if an S-Corporation is right for their needs and goals.

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