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

Start an S-Corporation in Mississippi

If you want to start an LLC in Mississippi, there are things that you should consider. Mississippi 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 Mississippi, 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 Mississippi if qualified for the limitations and requirements.

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How to Form an S-Corporation in Mississippi?

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

Step 1: Register a Business Name in Mississippi

After you have decided on the idea to start an S-Corp in Mississippi, 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 Mississippi 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 Mississippi.
  • Limit of restricted words that need a license in Mississippi
  • 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 Mississippi 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 Mississippi.

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Step 3: File For Certificate of Formation

The Certificate of Formation is an important document to start your limited liability company (LLC). Mississippi Certificate of Formation 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 Certificate of Formation to be filed in MO Secretary of State, you need to pay a filing fee of $50. In Mississippi, the filing fee of forming an LLC is $50.

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Step 4: Creating an Operating Agreement

After you have filed your Certificate of Formation, the next step is to create an operating agreement in Mississippi. 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 Mississippi 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 Certificate of Formation 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 Mississippi, 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 Mississippi, including:

  1. Filing Fees: When forming a corporation in Mississippi, you must file Articles of Incorporation with the Mississippi Secretary of State and pay a filing fee of $50 for filing online.
  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 Mississippi 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 Mississippi 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 Mississippi are subject to the annual franchise tax, which can financially burden some businesses.

In an Mississippi 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 Mississippi 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 the process to incorporate in Mississippi?
In Mississippi, you can incorporate by filing Articles of Incorporation with the Secretary of State.
Can a non-resident form an S-Corporation in Mississippi?
Yes, a non-resident can form an S-Corporation in Mississippi.
In Mississippi, what is the minimum number of shareholders required for an S-Corporation?
In Mississippi, an S-Corporation requires a minimum of one shareholder.
Is there a maximum limit for the number of shareholders in an S-Corporation in Mississippi?
No, there is no maximum limit for the number of shareholders in an S-Corporation in Mississippi.
What is the minimum amount of capital required to start an S-Corporation in Mississippi?
There is no minimum amount of capital required to start an S-Corporation in Mississippi.
What are the tax advantages of an S-Corporation in Mississippi?
S-Corporations in Mississippi can avoid paying federal income tax at the corporate level, and instead, the profits and losses pass through to shareholders’ individual income taxes.
Can an S-Corporation in Mississippi issue different classes of stock?
No, an S-Corporation in Mississippi can only issue one class of stock.
What are the corporate formalities needed to maintain an S-Corporation in Mississippi?
To maintain an S-Corporation in Mississippi, corporate formalities such as annual meetings and adopting bylaws are necessary.
What is the cost to form an S-Corporation in Mississippi?
The cost to form an S-Corporation in Mississippi is $50 for the filing fee.
Can an S-Corporation in Mississippi be owned by another corporation?
Yes, an S-Corporation in Mississippi can be owned by another corporation.
What are the annual requirements for an S-Corporation in Mississippi?
An S-Corporation in Mississippi needs to file an annual tax return with the state and pay an annual franchise tax.
Does Mississippi have a business privilege tax for S-Corporations?
Yes, Mississippi has a business privilege tax that is due by March 15th of each year.
Can an S-Corporation in Mississippi have international shareholders?
Yes, an S-Corporation in Mississippi can have international shareholders.
What are the restrictions on ownership of an S-Corporation in Mississippi?
An S-Corporation in Mississippi can only have residents of the United States as shareholders.
What is the process for obtaining an S-Corporation status in Mississippi?
An S-Corporation in Mississippi is obtained by meeting IRS criteria and completing Mississippi Annual Report Form 78-200 with the Secretary of State.
Is Mississippi considered a business-friendly state for S-Corporations?
Yes, Mississippi is known to have a favorable business climate for S-Corporations.
Can a single member LLC (limited liability company) be taxed as an S-Corporation in Mississippi?
Yes, a single-member LLC in Mississippi can opt to be taxed as an S-Corporation.
What type of businesses are best suited to form an S-Corporation in Mississippi?
Small businesses with relatively few shareholders and prefer pass-through taxation are best suited to choose an S-Corporation in Mississippi.
How often must Mississippi S-Corporations hold shareholder meetings?
Mississippi S-Corporations must hold annual shareholder meetings.
What is the deadline for Mississippi S-Corporations to file their annual tax returns?
Mississippi S-Corporations must file their annual tax returns by March 15th.
What is the process for dissolving an S-Corporation in Mississippi?
To dissolve an S-Corporation in Mississippi, shareholders must vote to dissolve, then file notice of the dissolution with the Secretary of State.
Are there any penalties for filing Mississippi S-Corporation taxes late?
Yes, Mississippi S-Corporations that file their taxes late have a penalty that accrues at a rate of 5% per month.
What is the process for changing a Mississippi S-Corporation status to a C-Corporation?
Changing a Mississippi S-Corporation status to a C-Corporation requires adoption of bylaws, corporate minutes, and filing Articles of Amendment.
Does Mississippi offer any special tax incentives for S-Corporations?
Yes, Mississippi has an Economic Development Assistance program that offers incentives to businesses creating job opportunities.
Which Federal forms does a Mississippi S-Corporation have to file?
Mississippi S-Corporations file Forms 1120S and state Forms 83-105 annually.
What are the registration fees for an S-Corporation with federal and state authorities in Mississippi?
The standard filling fee for federal for S status of Mississippi S-Corporation is $75, and state filling fees range between $50-$200.
Can a Mississippi S-Corporation pay their shareholders a salary?
Yes, Mississippi S-Corporations can pay their shareholders a salary.
As an S-Corporation, how do I report profits and losses on my tax return in Mississippi?
As an S-Corporation in Mississippi, profits and losses are reported on Form 1120S, and individual shareholders then report their share on their personal income tax return.
What is an S-Corporation in Mississippi?
A type of corporation that passes income, deductions, and credits to shareholders for tax purposes.
How can I start an S-Corporation in Mississippi?
File the articles of incorporation with the Mississippi Secretary of State.
Can anyone start an S-Corporation in Mississippi?
Yes, anyone can start an S-Corporation in Mississippi.
Can an S-Corporation be taxed as a partnership in Mississippi?
No, S-Corporations are taxed differently than partnerships in Mississippi.
Is Mississippi a good state to start an S-Corporation in?
Yes, Mississippi is a business-friendly state with a low cost of living and low taxes.
How much does it cost to start an S-Corporation in Mississippi?
It costs $50 to file articles of incorporation with the Mississippi Secretary of State.
What documents do I need to start an S-Corporation in Mississippi?
Articles of incorporation and an S corporation election form.
Can an S-Corporation be a non-profit in Mississippi?
No, S-Corporations cannot be non-profit in Mississippi.
What is the maximum number of shareholders allowed in an S-Corporation in Mississippi?
The maximum number of shareholders allowed in an S-Corporation in Mississippi is 100.
What type of business entity should I choose for my small business in Mississippi?
It depends on the goals and needs of your business, but an S-Corporation may offer tax advantages.
Can out-of-state residents own shares of an S-Corporation in Mississippi?
Yes, out-of-state residents can own shares in a Mississippi S-Corporation.
How often does an S-Corporation need to file taxes in Mississippi?
S-Corporations in Mississippi need to file taxes annually.
Can an S-Corporation have foreign shareholders in Mississippi?
Yes, S-Corporations in Mississippi can have foreign shareholders.
Are there any residency requirements for shareholders of an S-Corporation in Mississippi?
No, there are no residency requirements for shareholders of an S-Corporation in Mississippi.
Does an S-Corporation need to file annual reports in Mississippi?
Yes, S-Corporations in Mississippi need to file an annual report with the Secretary of State.
Can an S-Corporation in Mississippi have multiple classes of stock?
No, S-Corporations in Mississippi cannot have multiple classes of stock.
How much do S-Corporations in Mississippi need to pay in taxes?
S-Corporations in Mississippi do not actually pay income taxes as a separate entity. Shareholders include earnings and losses on their own tax returns.
Is there a minimum age requirement for shareholders in an S-Corporation in Mississippi?
No, there is no minimum age requirement for shareholders in Mississippi.
Does Mississippi offer any tax incentives for S-Corporations?
Yes, Mississippi offers various tax incentives for businesses, including S-Corporations.
Can an S-Corporation registered in Mississippi do business in other states?
Yes, S-Corporations registered in Mississippi can do business in other states, but they may be required to file foreign entity registration paperwork.
Can an S-Corporation in Mississippi be owned by another business entity?
Yes, other business entities can own shares in an S-Corporation in Mississippi.
How long does it take to start an S-Corporation in Mississippi?
Once the articles of incorporation are filed, it typically takes 3-5 business days for the Secretary of State to process the paperwork.
How can I convert an LLC to an S-Corporation in Mississippi?
You would need to file a Form 8832 with the IRS to have your LLC elect S-Corporation tax status.
Can I change from an S-Corporation to a different business entity in Mississippi?
Yes, you can change your business entity, but it would require filing different paperwork.
How long does an S-Corporation in Mississippi remain active?
An S-Corporation stays active until it terminates or commits an event that requires dissolution.
Does each Mississippi S-Corporation have a unique name?
Each S-Corporation in Mississippi must file with a unique name, and needs to consider which other names are currently taken.
What is Mississippi’s tax rate on S-Corporations?
Mississippi does not have a separate tax for S-corporations, so the business income is taxed on shareholder individual tax returns.
Does an S-Corporation in Mississippi need a board of directors?
An S-Corporation’s requirement to have a board of directors in Mississippi can depend on the corporation’s articles of incorporation.
What’s the best way to register my Mississippi LLC as an S corporation?
An LLC must first be registered with the Mississippi Secretary of State, to register it into an S-corporation, business owners must file form 2553 with the Internal Revenue Service by the 16th of the third month of the tax year.

Also Read

Why You Should Start Mississippi S Corp

One of the biggest benefits of forming an S Corp is the pass-through taxation structure it offers. This means that the profits and losses of the business are passed through to the individual shareholders, who then report this income on their personal tax returns. This can lead to significant tax savings, as income from the S Corp is not subject to self-employment tax. In addition, S Corps are often eligible for certain tax credits and deductions that are not available to other types of business entities.

Another advantage of forming an S Corp is the ability to attract investors and raise capital. Because S Corps are allowed to have up to 100 shareholders, they can offer ownership stakes in the company to a larger pool of investors. This can be advantageous for businesses looking to grow quickly or expand into new markets. Additionally, investors may be more attracted to investing in an S Corp because of the pass-through taxation structure, which can lead to higher returns on their investment.

Forming an S Corp also provides protection for the personal assets of the shareholders. In the event that the business is sued or goes bankrupt, the personal assets of the shareholders are typically shielded from any liabilities of the business. This can provide peace of mind for entrepreneurs who want to protect their personal wealth while still taking on the risks associated with starting or running a business.

Finally, forming an S Corp can also offer credibility and legitimacy to your business. S Corps are required to adhere to certain formalities, such as holding regular meetings and keeping accurate financial records. This can help establish your business as a professional and well-managed organization in the eyes of customers, suppliers, and potential partners.

In conclusion, starting an S Corp in Mississippi can offer a number of advantages for entrepreneurs looking to structure their business for success. From tax savings and investor attraction to asset protection and credibility, forming an S Corp can provide a solid foundation for your business to grow and thrive. If you are considering starting or expanding a business in the Magnolia State, it may be worth exploring the benefits of forming an S Corp to see if it is the right choice for you.

Conclusion

Forming an S-Corporation in Mississippi 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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