In Louisiana, entrepreneurs face a complex tax environment. The state implements a graduated individual income tax, with rates spanning from 1.85 to 4.25 percent. On the corporate side, businesses encounter a tax range of 3.50 to 7.50 percent. Additionally, the sales tax structure in Louisiana comprises a 4.45 percent state rate, potentially augmented by local rates up to 7.00 percent, leading to an average combined tax rate of 9.55 percent. 

As you consider your incorporation options, the S corp framework emerges as a good choice. Incorporating online with MaxFilings can simplify this process, providing an efficient path to harness the opportunities within Louisiana’s established tax framework.

Louisiana S corp taxation

In Louisiana, an S corporation distinguishes itself from a C corporation because it doesn’t pay income taxes directly. While multi-shareholder S corporations do submit tax returns, the responsibility of reporting their share of the corporation’s profit or loss falls on individual shareholders. This process mirrors the tax reporting mechanisms in sole proprietorships, partnerships, and Limited Liability Companies (LLCs).

To attain S corporation status in Louisiana, one must submit the IRS Form 2553 to the Internal Revenue Service. Interestingly, only a handful of states mandate an additional state-level filing to be recognized as an S corporation, with Arkansas, New Jersey, New York, Ohio, and Wisconsin being the exceptions.

If you’re looking to streamline this process, MaxFilings is at your service. We can assist in preparing the IRS Form 2553, guiding you with clear instructions for its finalization and submission to the IRS.

Important points to consider when forming a Louisiana S corp

• To establish a Louisiana corporation, you must submit official documentation to the state and cover any associated state filing fees.
• Special tax status is achieved by filing Form 2553 with the IRS.
• Legally, a Louisiana S corporation is recognized as a distinct entity, separate from its shareholders.
• Restrictions may apply to the type of operations permissible for Louisiana S corporations.
• Maintaining minutes that record both stockholders’ and board of directors meetings is mandatory.
• Louisiana S corporations have a shareholder cap of 100. Moreover, these shareholders cannot be other corporations, LLCs, partnerships, specific trusts, or non-resident aliens.

Limited liability

• Shareholders of Louisiana S Corporations typically benefit from limited liability, with losses restricted to their investment in the corporation.
• Generally, Louisiana S Corporation shareholders aren’t accountable for the corporation’s legal judgments, debts, or obligations.
• One primary motivation for State business owners to incorporate is safeguarding Louisiana S Corporation shareholders’ personal assets.
• Certain exceptions exist where the limited liability of shareholders might be compromised, making them potentially liable.

Raising capital

• Louisiana S corporations often have an advantage in raising additional capital as they can issue and trade stock, along with other financial instruments, indicating interest in the corporation.
• Trading of stock can occasionally fall under state and federal securities regulations.
• Transferring ownership in Louisiana S corporations is achievable by selling its stock.
• Although voting privileges may vary, Louisiana S corporations are limited to having a single class of stock.

Taxation

• Louisiana S corporations typically undergo audits less often than sole proprietorships and partnerships.
• Benefitting from pass-through taxation, shareholders of Louisiana S corporations sidestep the pitfalls of “double taxation.”
• While Louisiana S corporations submit informational tax returns, the corporation doesn’t bear income tax.
• Shareholders of Louisiana S corporations detail their income and losses on personal tax returns, enabling them to counterbalance losses against other incomes.
• Allocation of income and losses should align with ownership proportions.
• Self-employment taxes for owners don’t pertain to the salaries disbursed by the corporation.

Owners & employees

• Major shareholders might face restrictions on specific fringe benefits.
• Owners involved in the business are deemed employees and thus qualify for benefits, including group insurance, retirement, profit-sharing schemes, advantageous stock options, and bonus plans.
• Many employees are drawn to corporations offering stock options and stock bonuses.
• Unlike other business models, a corporation essentially possesses longevity, as its existence isn’t terminated upon a shareholder’s death.

Public perception

• The general public often perceives corporations as more established than sole proprietorships and partnerships.

How to form a Louisiana S corp

If you’re looking to establish an S corporation (S corp) in Louisiana, there are specific steps you need to follow. An S corp is a taxation status, not a business entity, so you must first create a formal business structure before electing an S corp tax status. In Louisiana, you have two primary options:

1. Form an LLC and elect S corp taxation designation: Forming an LLC is generally easier and more cost-effective than creating a corporation. It is recommended to start with an LLC and then choose S corp tax status.
2. Form a corporation and elect S corp designation: Alternatively, you can create a corporation and elect S corp tax status.

Here’s a step-by-step roadmap for forming an S corp in Louisiana by creating an LLC and then electing an S corp taxation designation.

Step 1: Name your Louisiana LLC

Selecting an appropriate name for your Louisiana LLC is crucial. Follow these steps to ensure your business name is compliant:

1. Brainstorm a name: Choose a name that effectively represents your brand and the nature of your business. You can use a business name generator tool if you’re unsure where to start.
2. Adhere to Louisiana LLC naming guidelines:
   • Your business name must include “limited liability company” or one of its abbreviations (LLC or LC).
   • Avoid using words that could confuse with government agencies (e.g., FBI, Treasury, State Department).
   • Certain restricted words (e.g., Bank, Attorney, University) may require additional documentation and the involvement of licensed professionals within your LLC.
3. Check name availability: Verify the availability of your desired LLC name in Louisiana by using the Louisiana Secretary of State’s business filings search.
4. Secure a domain: Consider reserving a web domain for your business, even if you don’t plan to create a website immediately. This ensures the availability of your chosen domain.

Step 2: Choose a registered agent

Every Louisiana LLC must have a registered agent responsible for receiving legal documents and tax forms on behalf of the business. While you can serve as your registered agent, using a professional service like Northwest for simplicity and compliance is often beneficial.

Step 3: File the Louisiana LLC articles of organization

To officially register your Louisiana LLC, you must file the articles of organization with the Secretary of State and pay the associated filing fee, currently $100.

The articles of organization will require information such as:

You can file these documents online or by submitting a hard copy of Form 365 to the Louisiana Secretary of State. The processing time typically takes two to three business days.

Step 4: Create an operating agreement

While not legally required, creating an operating agreement for your LLC is advisable. This document outlines your company’s management and ownership structure and can be vital in a legal dispute.

Step 5: File form 2553 to elect Louisiana S corp tax designation

Before you can elect S corp taxation status for your LLC, you’ll need an Employer Identification Number (EIN) from the IRS. The EIN is a nine-digit tax identification that can be obtained for free on the IRS website.

Once you have your EIN, file Form 2553 to officially elect the S corp taxation designation for your LLC, and pay close attention to the due dates for Form 2553, which depend on your desired tax year.