Form a Maine S Corp

Requirements and limitations of S Corporations

Importantly, not all entities are eligible for classification as an S-Corp. To qualify for an S Corporation election, an entity must:

• Be a domestic corporation
• Have only allowable shareholders, such as individuals, certain trusts, and estates
• Have no more than 100 shareholders
• Not be an ineligible corporation, such as certain financial institutions, insurance companies, and domestic international sales corporations
• Have only one class of stock

So long as your business entity meets these minimum filing requirements, you are eligible to choose an S Corp election. 

What to know before creating an S Corporation in Maine

Before you decide to formally make your S Corp election, there are a few important things you need to know. For example, by default, your entity will be classified as a C Corp at formation.

Here’s some more important information you should know before creating an S Corporation in Maine: 

What’s the difference between an S Corporation and a C Corporation?

As you consider whether to make an S Corp election or keep the default C Corp classification, it’s important to understand the primary differences between the two. 

The primary difference is that S Corps benefit from pass-through taxation, while C Corps do not. Instead, C Corporations must file and pay income taxes at both the corporate level and at the shareholder level on the income taxes of the entity’s individual owners. 

What are the requirements to create an S Corporation? 

To create an S Corporation, you have to form a business that falls within the limitations identified above, and you have to file Form 2553 with the IRS within one of the timeframes listed above. If you are an LLC, you will need to file 

Before making an S Corp election, you will need to set up an LLC or a C corporation. Not sure what type of business structure to select? Creating a detailed business plan early on can help you assess your business needs and goals to make the right decision. And when you’re ready to form your entity, we can help you with that, too.

Here are instructions for forming an LLC and a corporation in Maine.

S-Corp Election Steps for LLCs

For detailed formation steps, see our Maine LLC formation guide.

• Step 1 – Choose a name
• Step 2 – Choose a ME Registered Agent
• Step 3 – Choose Directors or Members/Managers
• Step 4 – File ME Articles of Incorporation or Certificate of Formation
• Step 5 – Apply for S Corp status with IRS Form 2553

S-Corp Election Steps for Corporations

For detailed formation steps, see our Maine Corporation formation guide.

• Step 1 – Name your Maine corporation
• Step 2 – Appoint directors
• Step 3 – Choose a Maine registered agent
• Step 4 – File the Maine Articles of Incorporation
• Step 5 – Create corporate bylaws
• Step 6 – Draft a shareholder agreement
• Step 7 – Issue shares of stock
• Step 8 – Apply for necessary business licenses and permits
• Step 9 – File for an EIN and review tax requirements
• Step 10 – Submit your corporation’s first report
• Step 11 – Apply for S Corp status with IRS Form 2553

File Form 2553 to turn the business into an S Corporation

Finally, once you’ve successfully set up the legal business entity, it’s time to make your S Corp election. You must do so by filing Form 2553 with the IRS. For LLCs, however, be sure to first change your entity classification to Corporation status by filing IRS Form 8832. 

Don’t forget to first get an Entity Identification Number (EIN) for your business, which we can help you do in a matter of minutes.

File Form 2553 with the IRS

After you formally create your legal business entity, you can then file paperwork with the IRS to make your Maine S Corporation election.

Regardless of whether you’ve decided to form a corporation or an LLC, your next step is to file your Form 2553 with the IRS. Again, by default, your entity will be classified as a C Corp at formation. However, Form 2553 allows you to request a status change to a Maine S Corporation. 

It’s also important to know when to make your S Corp election. Specifically, the IRS requires that you complete and file your Form 2553: 

• No more than 2 months and 15 days after the beginning of the tax year in which the election is to take effect

OR

• At any time during the tax year preceding the tax year the election is to take effect

For more information on when and how to file your Form 2553, visit the IRS website

Weighing the pros and cons of creating an S Corporation

So, how do you know whether to proceed as a C Corp or make an S Corp election instead? 

Ultimately, the decision will come down to what works best for the needs of your entity. Assessing the pros and cons can help you make the best choice for your business. Common advantages of an S Corp election include: 

• Asset protection
• Pass-through taxation
• Tax-favorable characterization of income
• Ability to utilize cash method of accounting

As with most things, however, there are also certain disadvantages to take into consideration. Some disadvantages of forming an S Corporation include: 

• Higher formation and maintenance expenses
• Tighter tax qualification obligations
• Stock ownership restrictions
• Closer IRS scrutiny
• Less flexibility in allocating income and losses

S Corp election may not be right for all businesses. Thus, be sure to carefully consider the competing pros and cons before making your decision.