Starting an S Corporation in Arkansas
Form an S Corp in Arkansas in 7 steps to avoid double taxation on corporate income. File your business online and elect an S Corp status at the same time.
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Swyft Filings is committed to providing accurate, reliable information to help you make informed decisions for your business. That's why our content is written and edited by professional editors, writers, and subject matter experts. Learn more about how Swyft Filings works, our editorial team and standards, what our customers think of us, and more on our trust page.
When you run a small business, taxes are a significant expense. Select S corp status for your tax designation, and you could reduce the amount you owe the IRS. The following guide will walk you through how to set up an S corporation in Arkansas.
S Corporation in Arkansas: Key Takeaways
Arkansas limited liability companies (LLCs) and C corporations that choose to be an S corp avoid double taxation and benefit from reduced self-employment taxes.
The S corporation tax designation involves company income and losses passing through to shareholders.
According to the Arkansas Corporate Franchise Tax Act of 1979, all corporations and LLCs must pay an annual franchise tax fee.[2]
Unlock tax savings and ensure compliance with critical regulations with our assistance.
What Is an S Corporation?
An S corporation is not a formal business entity but an IRS tax designation. You adopt S corp status for your company under Internal Revenue Service (IRS) tax code Subchapter S. Arkansas limited liability companies (LLCs) and C corporations that choose to be an S corp avoid double taxation and benefit from reduced self-employment taxes.
Tax Considerations for an S Corporation in Arkansas
Selecting S corp status can mean paying fewer business taxes. The S corporation tax designation involves company income and losses passing through to shareholders. The income is then taxed on their personal income tax returns rather than at a corporate level. This results in paying less taxes by avoiding double taxation.
Double taxation refers to paying taxes twice. First at the corporate level and again on individual tax returns when there are sales of stock and distributions. If your company chooses S corp tax treatment, you can also save a great deal on self-employment tax.
Arkansas Tax Treatment of S Corporations
Arkansas business owners elect S corp status to save on federal income taxes. Company shareholders pay substantially less in self-employment tax. Another benefit of S corp status is that shareholder personal assets are protected. To be able to file for S corp designation in Arkansas, your company must be an LLC or C corporation. Elect S corp status by filing IRS Form 2553.[1]
Arkansas Franchise Tax for S Corporations
According to the Arkansas Corporate Franchise Tax Act of 1979, all corporations and LLCs must pay an annual franchise tax fee.[2] This includes filing an annual franchise tax report. Failure to file and pay the tax can result in penalties, interest, and additional fees and can lead to revocation of the right to do business in the state.
Fees for filing the franchise tax report are $5 for credit cards and $3 for ACH. Filing is free if you mail in or deliver the form.
Pass-Through Taxation
Pass-through taxation is when shareholders pay most of the company’s taxes on their personal income tax returns. The income earned by the company “passes through” to shareholders, who then only pay taxes on their share of company earnings. By paying most of the company taxes personally, fewer taxes are paid overall.
Requirements for Forming an S Corporation in Arkansas
Before proceeding, ensuring your business qualifies for S corp status is essential.
According to the Arkansas Secretary of State, an S corporation must be a limited liability company or C corporation in the “view of the state and comply with state corporation laws.”[3] Certain types of business, including banks, thrifts, insurance companies, and domestic international sales corporations are not permitted S corp status.
When your company adopts the S corp tax designation, shareholders are considered employees. As such, they must each receive a reasonable salary. This requires the business to run payroll.
To form an S corp in Arkansas, you must also follow these IRS requirements for an S corporation.[4]
Be an eligible domestic corporation (LLC or corporation)
Be comprised of allowed shareholders (individuals, certain trusts, and estates)
S corporation shareholders must be U.S citizens or resident aliens
Have only one class of stock
Have no more than 100 shareholders
Shareholders have consented to obtain S corp status
Companies that become an S corp in Arkansas must file annual franchise tax reports with the Arkansas Department of Finance Administration.
How to File as an S Corp in Arkansas in 6 Steps
You must form an LLC or C corporation before filing as an S corporation in Arkansas. Here are the steps to forming a business in Arkansas eligible for S corp status.
Step 1: Choose a Business Name
Select a unique business name that accurately describes your product or services before forming an S corporation in Arkansas. According to Arkansas naming guidelines, your company name must also be distinguishable from all other registered names in the state.[5]
When forming an LLC, the name must also contain the words Limited Liability Company, Limited Company, or LLC.
Additionally, the following types of companies require prior approval from another state agency, board, or commission:
Bank or trust
Engineer or engineering
Medical or dental practice
Insurance
Razorback(s) or Arkansas Razorbacks(s)
Check that your business name is available in Arkansas before attempting name reservation by checking for preliminary name availability on the Arkansas Secretary of State website’s business name search tool.[6]
Also, reserve your business name URL to set up your website. Consider protecting your business name by filing for a name trademark with the United States Patent and Trademark Office (USPTO).[7] The other option is to apply for a state trademark with the Arkansas Secretary of State.[8] State trademarking is less expensive and quicker, but federal trademarking offers more protection.
Step 2: Appoint Directors and a Registered Agent
Arkansas law requires that the number of directors cannot be less than three unless one or two shareholders own all of the corporation’s shares. In that case, the number of directors may be one or two but not less than the number of shareholders.
Your company also requires a Registered Agent. Such a person or organization is authorized to receive official correspondence for your business. Company members like S corp directors or S corporation shareholders can fill this role, but that is generally not advisable. An Arkansas Registered Agent must have a physical address in the state and be available Monday through Friday, 9 am to 5 pm.
When you act as your own Registered Agent, you risk your privacy. Your address becomes a matter of public record. Many small business owners find hiring an outside Registered Agent service like Swyft Filings an easier and safer option.
Step 3: File Articles of Incorporation
Filing Articles of Incorporation with the Arkansas Secretary of State makes your business official. The filing fee is $50 to do so by mail[9] and $45 to file online.[10]
Also known as a Certificate of Formation and Certificate of Organization, this form must include the following:
Company name
Number of shares corporation is authorized to issue
Registered agent’s name and address
Name and address of each incorporator
Name of at least one director or officer (At least one officer must be listed for franchise tax requirements)
Primary purpose of the company
Annual report contact information
Signature of organizer
Every year after forming your company, you must file an Annual LLC Franchise Tax Report with the Arkansas Department of Finance and Administration and pay applicable taxes on or before May 1. The filing fee for the annual report, whether online or by mail, is $150.[11]
Step 4: Create an S Corp Operating Agreement
The State of Arkansas does not require small business owners to file an S Corp Operating Agreement, but creating one is advisable. Such a document outlines the structure and operation of the company, including what is expected of directors and members and how you will handle money. The agreement also includes the bylaws, which every small business should have.
Here is what to include in your S corp operating agreement:
Names of shareholders and members
Member and manager duties
Bylaws
Financial interests of members
How you distribute profits
How to cast votes
Whether you can transfer LLC interests to third parties
How you would dissolve the LLC
Step 5: Apply for an Employer Identification Number
Before electing S corp status in Arkansas, you need an employer identification number (EIN) from the IRS. EINs are similar to social security numbers for businesses. The IRS tracks your company’s income tax and employment taxes with this number. You also need an EIN to open business checking and savings accounts.
Apply for an EIN on the IRS website.[12] Swyft Filings can also get you an EIN free of charge without you dealing with the IRS.
Step 6: File Form 2553 for S Corporation Election
The final and most crucial step to obtain S corp status is to file Form 2553 with the IRS.[13] This form is for S corporation election for your business entity.
Form 2553 requires the following:
Business EIN
Date of incorporation
State of incorporation
Date of election
Chosen tax year
Whether family members will be treated as one shareholder
Contact information
Names and addresses of shareholders
Shareholder percentage of stock owned
Fiscal year selected
Signatures
The IRS requires that you file Form 2553 within 75 days of starting an LLC or C corporation, or anytime in the year before the tax year of the S corporation election, or no more than 75 days following the beginning of the tax year when the S corp status tax designation is to take effect.
If you don’t file Form 2553 promptly, to gain S corp status and be taxed as an S corporation, you must also file Form 8832, Entity Classification Election.[14]
Arkansas S Corp vs. Arkansas LLC
Before gaining S corp status, consider the benefits and drawbacks of S corporation election. It could be that forming an S corp won’t work well for your business regarding tax purposes and tax treatment. You could discover that remaining a limited liability company is your best option.
Advantages of Starting an LLC in Arkansas
An Arkansas LLC is easy and inexpensive to form and maintain. LLCs enjoy fewer record-keeping requirements, including not having to have annual meetings and record minutes. There are no limits on the number of members in your LLC, and you can choose whatever management structure you desire. In contrast, S corporations can only have one class of stock and no more than 100 shareholders.
Many small business owners form a limited liability company to protect personal assets. When you start an LLC, no one can take your personal savings and home to pay company debt.
An Arkansas LLC also benefits from pass-through taxation. Company profits and losses pass through to shareholders and are taxed on personal tax returns. This structure avoids the double taxation mentioned previously. If you like the sound of these many benefits, set up your LLC with Swyft Filings.
Disadvantages of Starting an LLC in Arkansas
It costs $45 to file online and $50 to file by mail when forming an LLC in Arkansas. You must also file an annual franchise tax report and pay applicable taxes and a filing fee of $150. You also require a Registered Agent service for your company and must pay for this service if a company member does not act as your Registered Agent.
Advantages of Forming an S Corporation in Arkansas
Like an LLC, an S corporation election offers personal asset protection. Those assets you own personally cannot be seized to pay company debt.
Most small business owners choose S corp status in Arkansas for the substantial tax advantages. In addition to achieving pass-through taxation and paying most business taxes at a lower personal level, having an S corporation in Arkansas saves money on self-employment tax. You only pay self-employment tax on a reasonable salary. The remaining business income profits are distributed to company shareholders free of tax.
Disadvantages of Forming an S Corporation in Arkansas
There are S corp limitations. Only 100 shareholders and one class of stock are allowed. If you think your company will grow quickly, this tax treatment may not be wise for your business.
Additionally, only certain types of trusts and estates can qualify for S corp status. Shareholders can only be U.S. citizens or resident aliens. If you are planning overseas expansion, there may be better choices than S corp status for your small business.
You must also run payroll with S corp status, which means additional administrative tasks and costs. S corps also tend to be more closely scrutinized by the IRS.
Get the Legal Benefits of an LLC with the Tax Benefits of an S Corp
S corps offer substantial tax advantages combined with the personal asset protection of LLCs. These tax benefits include pass-through taxation and significantly reduced self-employment tax.
Ready to File for S Corp Status in Arkansas?
A business formation service is a good option if you want expert assistance setting up your S corp. Swyft Filing’s business formation specialists will set up your S corporation quickly. Our experts will take the guesswork out of the formation process for you.
Maximize Tax Benefits: Experience pass-through taxation with Arkansas S corp status and avoid double taxation.
Access a One-Stop Solution: Establish an LLC or C corporation easily and then transition to S corp status, all within our platform.
Stay Compliant: Our compliance alerts help keep you up-to-date on all the complex compliance requirements of an S corp so you can stay on the government’s good side.
FAQs:
What is an S Corporation in Arkansas?
S corp status is an IRS tax election rather than a formal business entity. Certain types of companies are eligible for S corp status. S corp election features the benefits of pass-through taxation. This means income and losses flow through the company shareholders’ individual tax returns, and shareholders pay taxes on reasonable salaries. This results in paying much less self-employment tax.
Does Arkansas recognize S corporations?
Yes, Arkansas recognizes S corporations in good standing.
What is the turnaround time for filing for S corp status with the IRS?
The IRS currently says that companies filing for S corp status will receive a determination regarding if their election is approved 60 days after filing Form 2553.
What is the difference between an S corp and an LLC?
Both LLCs and S corporations feature pass-through income taxation, but S corps offer even more tax savings. S corp shareholders only pay self-employment tax based on a reasonable salary. The remaining profits get distributed to members with no self-employment tax required.
What are the requirements for an S corporation in Arkansas?
For an Arkansas small business to qualify for S corp status, the company must be an LLC or C Corp with no more than 100 shareholders and offer only one form of stock. All shareholders must be U.S. citizens or resident aliens.
Are taxes for LLCs and S corps the same?
S corp and LLC taxes are not the same. While both business classifications feature pass-through taxation on shareholder personal income tax returns, S corps offer additional tax savings. Owners of S corporations need only pay taxes on a reasonable salary. The remaining profits are not taxed. On the other hand, LLC shareholders must pay self-employment and personal income tax on all profits.
What is the S corp tax rate?
The IRS determines the S corporation tax rate based on shareholder personal tax rates. Those rates are currently running between 10% to 37%.[15]
How do I dissolve an S corporation in Arkansas?
If you want to dissolve your company in Arkansas, you must file Articles of Dissolution with the Secretary of State. The filing fee is $45 online and $50 by mail.[16]
Bibliography:
Internal Revenue Service. “About Form 2553, Election by a Small Business Corporation.” Accessed February 27, 2023.
Arkansas Secretary of State. “Franchise Tax / Annual Report Forms.” Accessed February 27, 2023.
Arkansas Secretary of State. “Corporations FAQS.” Accessed February 27, 2023.
Internal Revenue Service. “S Corporations.” Accessed February 27, 2023.
Arkansas Secretary of State. “Name Availability Guidelines.” Accessed February 27, 2023.
Arkansas Secretary of State. “Search Incorporations, Cooperatives, Banks and Insurance Companies.” Accessed February 28, 2023.
United States Patent and Trademark Office. “Trademark basics.” Accessed February 28, 2023.
Arkansas Secretary of State. “Trademark/Service Mark.” Accessed February 28, 2023.
Arkansas Secretary of State. “Certificate of Organization for Limited Liability Company.” Accessed February 28, 2023.
Arkansas Secretary of State. “Certificate of Organization for Domestic LLC.” Accessed February 28, 2023.
Arkansas Secretary of State. “Franchise Tax/Annual Report Forms.” Accessed March 3, 2023.
Internal Revenue Service. “Apply for an Employer Identification Number (EIN) Online.” Accessed March 3, 2023.
Internal Revenue Service. “Form 2553.” Accessed March 3, 2023.
Internal Revenue Service. “Form 8832.” Accessed March 3, 2023.
Internal Revenue Service. “IRS provides tax inflation adjustments for tax year 2022.” Accessed March 3, 2023.
Arkansas Secretary of State. “Articles of Dissolution.” Accessed March 3, 2023.
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