Forming an S-Corp is a smart move for many small businesses, as it provides them with the opportunity to benefit from both a partnership, and a C-Corporation. However, it’s important to recognize and respect the fact that the state in which the S-Corp is operating in, can take action to dissolve it at any time, if certain annual maintenance steps aren’t satisfactorily completed.
If you’re concerned about your S-Corp being involuntarily dissolved, you can follow the three steps below to ensure that this never happens. If you require assistance with any of these procedures, you can always seek professional help from an entity management firm in your state, who will make sure you never face involuntary dissolution, or can advise you should you fall prey to it.
Steps to prevent involuntary dissolution
One: Create annual reports
All companies are required to create annual reports, and S-Corps are no different. To hold on to your S-Corp status and the many benefits provided to C-Corps, you should prepare year-end financial reports that include Cash Flow, a Profit and Loss Statement, Balance Sheet and Statement of Owners’ equity. You are also required to hold an annual meeting and provide evidence of that fact in the form of detailed minutes.
Two: Pay the state
In order to maintain your S-Corp status, you must ensure that you pay the annual registration fee to the applicable state, and properly file any paperwork and documents required by the state. Some states require a minimum franchise tax to be paid within the first three months of a S-Corps accounting period, and net income earned during the initial year, is taxed at a rate of 1.5%.
To find out the specific requirements for your state, schedule a consultation with a professional entity management firm in your region, to make sure you follow everything to the letter.
Three: File a corporate tax return
The last step every S-Corp must take to avoid involuntary dissolution by the state, is to file a corporate tax return every year. This tax is due on the 15th of March, and takes longer to file than a personal income tax return.
Filing your corporate tax return is made easy with the help of a professional accounting firm or CPA, and should there be any question of the return being completed on time, you can file an extension request with the state and federal government. However, provided you seek professional help in a timely manner, you should be able to avoid any late filing and the penalties often associated with it.
With the right guidance and proper attention to the requirements of maintaining an S-Corp, there’s no reason why you should ever be faced with the prospect of involuntary dissolution.