Arkansas S corporations provide a unique business structure that combines the benefits of limited liability and pass-through taxation. They begin as standard corporations but can elect S corporation status by submitting IRS Form 2553 after completing the state registration process.

Much like Arkansas C corporations, S corporations are recognized as independent legal entities, effectively separating them from their owners or shareholders. In many respects, they are treated as individuals under the law. 

This separation of legal identities is particularly valuable because it grants shareholders of Arkansas S corporations limited liability protection. This means that shareholders are shielded from the business’s debts, obligations, and potential legal actions, safeguarding their personal assets and financial interests. 

This added layer of protection can provide peace of mind for those looking to engage in business activities while minimizing personal risk.

“Protection of shareholders’ personal assets is one of the major reasons Arkansas business owners choose to incorporate.”

Shareholders typically can’t lose more than their investment in the corporation. Even if the corporation goes bankrupt, shareholders won’t be responsible for its debts. Additionally, if the corporation faces a lawsuit and is found liable, forming an S corp safeguards a shareholder’s personal belongings, like their home, car or bank account.

It’s essential to note some exceptions to limited liability. For instance, it doesn’t apply if the corporation recklessly harms people or engages in fraudulent activities.

At MaxFilings, we help you incorporate your S corp in Arkansas. Our pricing is transparent and competitive, and it covers all state fees and charges with no hidden surprises later on.

Important points to consider when forming an Arkansas S corporation

Overview

• To establish an Arkansas corporation, you must submit official documents to the state and fulfill state filing fee requirements.
• You should also file Form 2553 with the IRS to elect special tax status.
• Legally, an Arkansas S corporation is recognized as a distinct entity apart from its shareholders.
• Certain restrictions apply to the types of businesses Arkansas S corporations can engage in.
• Proper documentation must be maintained, including meeting minutes of stockholders and the board of directors.
• Arkansas S corporations are limited to a maximum of 100 shareholders, with restrictions on shareholder types, including corporations, LLCs, partnerships, specific trusts and non-resident aliens.

Limited liability

• Shareholders of an Arkansas S corporation typically have limited liability, safeguarding their investments.
• They generally aren’t personally responsible for legal judgments against the corporation or its debts.
• The protection of personal assets is a key incentive for Arkansas business owners to opt for incorporation.
• It’s important to note that there are exceptions where shareholders may be held liable despite limited liability protections.

Raising capital

• Arkansas S corporations have the advantage of being able to easily raise capital by issuing and selling stock. However, please note that the sale of stock may be subject to state and federal securities regulations.
• Ownership in these corporations can change hands through the sale of stock.
• Arkansas S corporations are generally restricted to a single class of stock, though voting rights may vary.

Taxation

• Arkansas S corporations typically face fewer audits compared to sole proprietorships and partnerships.
• These corporations benefit from pass-through taxation, preventing double taxation for shareholders.
• While they file informational tax returns, Arkansas S corporations themselves are not subject to income tax.
• Shareholders report their share of income and losses on personal tax returns, enabling them to offset other income with losses.
• Allocation of income and losses is based on ownership percentages.
• Owners are exempt from self-employment taxes on the salaries they receive from the corporation.

Owners & employees

• Major shareholders may face limitations on specific fringe benefits.
• Business owners who actively work within the company can access fringe benefits like group insurance, retirement plans, stock options and bonuses.
• Corporations offering stock options and bonuses can be more appealing to employees.
• Unlike some other business structures, corporations have enduring continuity, persisting beyond the death of a shareholder owner.

Public perception

The public generally perceives corporations as more substantial compared to sole proprietorships and partnerships.

Please note that the information provided above is intended to offer a fundamental overview of Arkansas S corporations and is not a definitive guide. While we make every effort to ensure accuracy, MaxFilings cannot guarantee that all the information is entirely accurate, complete or up-to-date. We strongly recommend independently verifying the details and seeking advice from qualified professionals who are well-versed in your unique circumstances, as well as federal and state laws. This approach ensures you receive the most accurate and tailored guidance for your situation.

How to form a corporation in Arkansas

Forming a corporation in Arkansas involves several steps that must be completed in accordance with the state’s regulations and guidelines. Here are the key steps:

Choose a name for your corporation

• The name must include one of these terms or abbreviations: “Corporation,” “Company,” “Incorporated,” “Limited,” “Corp.,” “Co.,” “Inc.,” or “Ltd.”
• Ensure the name is unique and not already in use. You can check name availability on the Arkansas Secretary of State’s website.

Appoint directors

Appoint at least one director for your corporation. Directors are responsible for overseeing the company’s operations.

File articles of incorporation

• Prepare and file the articles of incorporation with the Arkansas Secretary of State. You can file online, by mail, or in person.
• Include essential information like the corporation’s name, registered agent, registered office address, number of authorized shares, and the names and addresses of incorporators.

Designate a registered agent

Your corporation must have a registered agent in Arkansas who will accept legal documents on behalf of the corporation. The agent can be an individual or a business entity authorized to conduct business in the state.

Create corporate bylaws

Draft corporate bylaws that outline the internal rules and procedures for your corporation. This document is not submitted to the state but is crucial for your corporation’s operation.

Hold an organizational meeting

After filing the articles of incorporation, hold an initial organizational meeting of the board of directors. During this meeting, you can appoint officers, adopt bylaws, and complete other necessary organizational tasks.

Obtain an EIN (Employer Identification Number)

Apply for an EIN from the IRS. This is required for tax purposes, opening a bank account, and hiring employees.

File annual reports

Arkansas requires corporations to file an annual report with the Secretary of State. This report includes updated information about the corporation’s officers, directors and registered agents.

Comply with ongoing requirements

Ensure you meet all ongoing compliance requirements, such as filing annual reports, paying state taxes, and adhering to other state regulations.

File foreign corporation application (if applicable)

If your corporation was formed in another state, but you want to do business in Arkansas, you’ll need to file a Foreign Corporation Application with the Arkansas Secretary of State.

Business licenses and permits

Depending on your corporation’s type and location, you may need to obtain certain permits or business licenses at the city or county level.

Pay state taxes

Register for and pay any state taxes your corporation may be subject to, such as sales or income tax.

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