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

Start an S-Corporation in Oregon

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

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How to Form an S-Corporation in Oregon?

To create S-Corp in Oregon, 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 Oregon

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

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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). Oregon 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 PA Department of State, you need to pay a filing fee of $100. In Oregon, the filing fee of forming an LLC is $100.

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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 Oregon. 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 Oregon 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 Oregon, 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 Oregon, including:

  1. Filing Fees: When forming a corporation in Oregon, you must file Articles of Incorporation with the Oregon Secretary of State and pay a filing fee of $100 for online and by mail filing.
  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 Oregon 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 Oregon 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 Oregon are subject to the annual franchise tax, which can financially burden some businesses.

In an Oregon 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 Oregon 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 for starting an s-corporation in Oregon?
To start an s-corporation in Oregon, you must file Articles of Incorporation with the Oregon Secretary of State.
What are the requirements for incorporating as an s-corporation in Oregon?
To be eligible for s-corporation status in Oregon, your corporation must meet certain IRS criteria and be incorporated in Oregon.
How long does it take to incorporate an s-corporation in Oregon?
The time it takes to incorporate an s-corporation in Oregon depends on how quickly the required paperwork is completed and processed.
How much does it cost to incorporate an s-corporation in Oregon?
The cost to incorporate an s-corporation in Oregon can vary depending on various factors such as legal fees, filing fees, and taxes.
What taxes does an s-corporation in Oregon have to pay?
An s-corporation in Oregon is responsible for paying state and federal income taxes and other taxes like sales tax and employment taxes.
Can I convert my existing business to an s-corporation in Oregon?
Yes, you can convert your existing business to an s-corporation in Oregon, but it is recommended to consult with a legal and tax professional first.
Can my business be structured as an LLC and still be treated as an s-corporation for tax purposes in Oregon?
Yes, an LLC can elect to be taxed as an s-corporation in Oregon.
What is the difference between a standard corporation and an s-corporation in Oregon?
The difference between a standard corporation and an s-corporation in Oregon is primarily in the way they are taxed.
What is the IRS Form 2553, and when do I file it in Oregon?
IRS Form 2553 is an election by a small business corporation to be treated as an s-corporation for tax purposes. You must submit this form to the IRS and the Oregon Department of Revenue.
Are there any annual reporting requirements for s-corporations in Oregon?
Yes, s-corporations in Oregon must file an annual report with the Oregon Secretary of State.
Can non-residents form an s-corporation in Oregon?
Yes, non-residents can form an s-corporation in Oregon, but they need to appoint a registered agent for service of process in the state.
Can a foreign corporation do business in Oregon as an s-corporation?
Foreign corporations can do business in Oregon as an s-corporation but they must file a foreign qualification first.
Is there a minimum number of shareholders required to form an s-corporation in Oregon?
An s-corporation in Oregon must have at least one shareholder, who must be a resident of the US.
Can I have multiple businesses under one s-corporation in Oregon?
Yes, one s-corporation can own multiple businesses, but they should follow the rules and regulations.
How do I choose a name for my s-corporation in Oregon?
The name for your s-corporation in Oregon must be distinct, and as required by law.
How do I register my s-corporation’s name in Oregon?
To register your s-corporation’s name in Oregon, you must file an Oregon name reservation application/form.
How can I check if my s-corporation’s name is available in Oregon?
You can search the Oregon Secretary of State’s Business Registry for the availability of a name for your s-corporation.
Is an s-corporation in Oregon required to have a corporate officer or director?
Yes, an s-corporation in Oregon must have at least one director.
Can an s-corporation in Oregon have multiple owner-employees?
Yes, an s-corporation in Oregon can have multiple owner-employees.
Are there any limits on how much an owner-employee of an s-corporation in Oregon can take as salary?
While there are no specific limits on how much an owner-employee of an s-corporation can take as a salary in Oregon, they must take a “reasonable salary” as per IRS guidelines.
What is an annual shareholder meeting, and is it required for s-corporations in Oregon?
An annual shareholders meeting is a meeting held by an s-corporation in Oregon, where the shareholders discuss and make decisions about various issues.
Does an s-corporation in Oregon require a board of directors?
No, but the corporation should have a board of directors to manage and make strategic financial decisions.
Can an s-corporation in Oregon have multiple classes of stock?
No, outside of limited circumstances with that arise with larger corporates an s-corporation in Oregon cannot have more than one class of stocks.
What are the advantages of an s-corporation in Oregon?
The advantages of an s-corporation in Oregon include reduced taxation on owners, limited liability, easer compliance, and more.
Is it possible to dissolve an s-corporation in Oregon?
Yes, it is possible to dissolve an s-corporation in Oregon, as long as you follow the correct procedures and have cleared all state and federal taxes.
Can an s-corporation in Oregon provide benefits to its employees?
Yes, an s-corporation in Oregon can provide benefits to its employees.
What happens to my s-corporation in Oregon if I pass away?
If you pass away, your s-corporation in Oregon will typically continue to exist and do business as a going concern.
Can an s-corporation in Oregon change its status to a C-corporation?
Yes, an s-corporation in Oregon can change its status to a C- corporation provided it follows the legal procedures, including dissolving its s-corp status with the IRS.
Can an s-corporation in Oregon change its status to an LLC?
Yes, an s-corporation in Oregon can change its status to an LLC by filing Conversion documents with the Internal Revenue service and the required government offices.
How do I form an S-corporation in Oregon?
You can form an S-corporation in Oregon by filing articles of incorporation with the Oregon Secretary of State.
Are there specific eligibility requirements for forming an S-corporation in Oregon?
Yes, in order to form an S-corporation in Oregon, you must meet certain eligibility requirements as outlined by the Internal Revenue Service.
What kind of taxes does an S-corporation in Oregon have to pay?
S-corporations in Oregon are not subject to state income tax, but they do have to pay federal taxes.
Can I have a single shareholder in my S-corporation in Oregon?
Yes, Oregon allows for a single shareholder to form an S-corporation.
How much does it cost to form an S-corporation in Oregon?
The fee to file articles of incorporation and form an S-corporation in Oregon is currently $100.
Is there an annual fee for maintaining an S-corporation in Oregon?
Yes, S-corporations in Oregon are required to pay an annual fee of $150 to maintain their status.
What documents do I need to file to form an S-corporation in Oregon?
You will need to file articles of incorporation and any necessary biographical disclosure statements with the Oregon Secretary of State.
How long does it take to form an S-corporation in Oregon?
It typically takes 5-10 business days to form an S-corporation in Oregon after your documents are submitted.
Does Oregon offer any tax incentives for S-corporations?
Oregon offers a Business Energy Tax Credit and other tax credits that S-corporations may be eligible for.
Can S-corporations in Oregon raise capital through the sale of stocks or other securities?
Yes, S-corporations in Oregon can raise capital through the sale of stocks or other securities.
What are some advantages of forming an S-corporation in Oregon?
S-corporations in Oregon offer liability protection for shareholders, pass-through taxation, and easier access to capital than sole proprietorships or partnerships.
Are S-corporations in Oregon required to hold shareholder meetings?
Yes, S-corporations in Oregon are required to hold shareholder meetings.
Is an attorney required to form an S-corporation in Oregon?
An attorney is not required to form an S-corporation in Oregon, but it is recommended to seek legal advice as needed.
Can S-corporations in Oregon have more than one class of stock?
No, S-corporations in Oregon are not allowed to have more than one class of stock.
Is there a limit on the number of shareholders in an S-corporation in Oregon?
No, there is no limit on the number of shareholders in an S-corporation in Oregon.
Can S-corporations in Oregon be converted to C-corporations?
Yes, S-corporations in Oregon can be converted to C-corporations at any time.
Can S-corporations in Oregon have non-voting shareholders?
Yes, S-corporations in Oregon can have non-voting shareholders.
Does Oregon impose any franchise taxes on S-corporations?
Oregon does not impose any franchise taxes on S-corporations.
Can S-corporations in Oregon have subsidiaries?
Yes, S-corporations in Oregon can have subsidiaries and own other businesses.
Are S-corporations required to file any additional forms or paperwork in Oregon?
S-corporations in Oregon are required to file an annual report with the Secretary of State.
Can S-corporations in Oregon elect to be taxed as partnerships instead of S-corporations?
No, S-corporations in Oregon are not allowed to be taxed as partnerships.
Are S-corporations in Oregon liable for state unemployment taxes?
Yes, S-corporations in Oregon are liable for state unemployment taxes.
What is the process for closing an S-corporation in Oregon?
The process for closing an S-corporation in Oregon involves filing articles of dissolution and cancelling any necessary business licenses or permits.
Are there any restrictions on who can be officers or directors of an S-corporation in Oregon?
No, there are no restrictions on who can be officers or directors of an S-corporation in Oregon.
Is there a residency requirement for forming an S-corporation in Oregon?
No, there is no residency requirement for forming an S-corporation in Oregon.
What is the deadline for filing the annual report for S-corporations in Oregon?
The annual report for S-corporations in Oregon is due on the anniversary of the corporation’s formation.
Can S-corporations in Oregon make political donations or contributions?
Yes, S-corporations in Oregon can make political donations or contributions.

Also Read

Why You Should Start Oregon S Corp

One of the primary reasons why you should consider starting an Oregon S Corp is the tax advantages that it offers. S Corporations are considered pass-through entities, meaning that business profits are not taxed at the corporate level. Instead, the profits “pass through” to the shareholders, who report them on their individual tax returns. This can result in significant tax savings, as S Corporation owners are able to avoid double taxation on corporate profits.

Additionally, S Corporations have the unique ability to offer their shareholders a salary as well as dividends, providing more flexibility in how income is distributed among the owners. This can be particularly beneficial for owners who want to minimize self-employment taxes by paying themselves a reasonable salary and taking the rest of their income in the form of dividends.

Another reason to consider starting an Oregon S Corporation is the limited liability protection that it offers. Like C Corporations, S Corporations provide owners with limited liability protection, meaning that the shareholders’ personal assets are generally protected from the debts and liabilities of the business. This can be particularly important for businesses with significant exposure to risk, as it helps shield personal assets from potential lawsuits or creditors.

In addition to tax advantages and limited liability protection, S Corporations also offer a variety of options for raising capital. S Corporations can have an unlimited number of shareholders, allowing for greater flexibility in raising funds for your business. This can be particularly beneficial for businesses looking to attract investors or expand through equity financing.

Furthermore, S Corporations are subject to fewer regulations and formalities than C Corporations, making them a more attractive option for smaller businesses. S Corporations are not required to hold annual meetings or follow strict recordkeeping requirements, which can save time and money for busy business owners.

Overall, there are numerous reasons why you should consider starting an Oregon S Corporation for your business. From tax advantages and limited liability protection to flexibility in raising capital and reduced regulatory burden, S Corporations offer a range of benefits that can help your business thrive and grow. If you are considering starting a business in Oregon, be sure to explore the many advantages that an S Corporation can offer your venture.

Conclusion

Forming an S-Corporation in Oregon 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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