What Does Status of Incorporation Mean?

A corporation's status can refer to its standing in the state where it was incorporated, or to the tax classification it elects with the Internal Revenue Service. Generally, states broadly categorize businesses incorporated under their laws as active or inactive. The IRS also categories the statuses of corporations as either C corporations or S corporations for tax purposes.

State Standing

1. State laws require that corporations complete scheduled filings to maintain legally active statuses. For example, generally, a corporation must file annual reports with its state of incorporation. A corporation can be reclassified to inactive status if it fails to comply with its state filing laws. Inactive status can also result if a corporation completes a significant change, such as changing its name or merging with another business.

Tax Status

1. Corporations automatically have C status with the Internal Revenue Service when they are created, regardless of the state of incorporation. Corporate shareholders can elect S status by filing form 2553 with the IRS and meeting other IRS requirements. The S status allows corporate profits to be claimed once on shareholders' personal tax returns, which avoids the double taxation of personal and corporate tax on profits. Individual states may or may not recognize S corp status for state taxing purposes.

• State of Michigan: Department of Licensing and Regulatory Affairs: File Your Annual Report or Statements
• Kentucky.gov: Business Services: Frequently Asked Questions
• Max Filings: Frequently Asked Questions
• Internal Revenue Services: S Corporations

Maggie Lourdes is a full-time attorney in southeast Michigan. She teaches law at Cleary University in Ann Arbor and online for National University in San Diego. Her writing has been featured in "Realtor Magazine," the N.Y. State Bar's "Health Law Journal," "Oakland County Legal News," "Michigan Probate & Estate Planning Journal," "Eye Spy Magazine" and "Surplus Today" magazine.