When it comes to choosing the right structure for our business, we often leave stones unturned which weigh heavy on us later. Although corporations are the most familiar, they are not always the best entity choice for our business. Below is a compiled list of questions and answers that should be helpful in deciding if the choice of a corporation is the best and if so, which type of corporation is more suitable for the longevity of our business..
• What paper work is required to incorporate?
• Do I need an attorney to incorporate?
• What should I name my corporation?
• What are the advantages of incorporation?
• What are the disadvantages of incorporation?
• What is the organizational structure of a corporation?
• How many directors do I need?
• Where should I incorporate my business?
• What is a publication requirement?
• How do I get started with the incorporation process?
A corporation is a legal entity that can exist separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation (called a charter or certificate of incorporation in some states) are filed with the proper state authority, and all fees are paid.
What paperwork is required to incorporate?
Articles of incorporation conforming to state law must be prepared and filed with the proper state authorities and filing fees, initial franchise taxes, and other initial fees must be paid. If you incorporate through CORPorLLC.com LLC, all you need to do is complete the online order form, and CORPorLLC.com LLC prepares and files your articles of incorporation. Additionally, the price you pay includes all filing fees. It's simple; just fill out the request information form to get started.
Do I need an attorney to incorporate?
No, an attorney is not a legal requirement to incorporate. You can prepare and file the articles of incorporation yourself; however, you should understand the requirements of your intended state of formation. You can use our service to incorporate and save money on attorney fees. However, if you are unsure if incorporation will benefit your business, consult an attorney or accountant.
What should I name my corporation?
Choose the name of your corporation carefully. It is very important that you portray the image you want for your new corporation. Legally, the name you select must not be "deceptively similar" to any existing corporation or must be "distinguishable on the record" of your state. For example, if a corporation named Flower Corp. exists in your state, you probably would not be allowed to name your business Flour, Inc. It is possible that the name you select will not be available; therefore, we ask for a second choice on the incorporation order form. Additionally, the name you choose must show your business is incorporated. Most states require that the corporate name be followed by some type of indicator, such as Corporation, Incorporated, or an abbreviation.
What are the advantages of incorporation?
One of the primary advantages of incorporation is the limited liability the corporate entity affords its shareholders. Typically, shareholders and directors are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder or director to pay debts of the corporation. In a partnership or sole proprietorship the owner's personal assets may be used to pay debts of the business.
Maintaining the limited liability of a corporation requires that the shareholders and directors follow all the rules of governance, including holding annual meetings and maintaining meeting minutes, which is why we offer corporate forms disks and corporate kits as part of our complete incorporation package. Other advantages:
A corporation's life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business.
Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.
Ownership of a corporation is easily transferable.
Capital can be raised more easily through the sale of stock.
A corporation possesses centralized management.
What are the disadvantages to Incorporation?
The primary disadvantage to a corporation is double taxation. Profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. They are taxed first as income to the corporation, then as income to the shareholder. All reasonable business expenses such as salaries are deductions against corporate income and can minimize the double tax. Further, the double tax can be eliminated by making an S corporation election. Other disadvantages:
There is more complexity and expense with forming a corporation.
There are more extensive record keeping requirements.
Operating a corporation across state lines often requires the corporation to qualify to do business in the other state.
What is the organizational structure of a corporation?
The organizational structure of a corporation relies on three basic groups: shareholders, directors, and officers. A corporation is owned by shareholders; however, they do not directly manage the corporation. Instead, they influence corporate decisions through indirect methods such as electing and removing directors, approving or disapproving amendments to the articles of incorporation and voting on major corporate issues. The directors, who comprise the "board of directors," are responsible for managing the affairs of the corporation. Usually, directors make only the major business decisions and supervise and appoint the officers who make the day-to-day business decisions of the corporation. Officers are responsible for the everyday management of the corporation. Typically, officers are appointed directly by the board of directors. It is important to note that a shareholder may serve on the board of directors and as an officer. In fact, in most states one person is enough to form a corporation.
How many directors do I need to form a corporation?
Only one director is required in most states although you can elect to have more. Some states use the number of shareholders in the corporation to determine the minimum number of directors. If the number of shareholders is three or more, then the corporation must have three directors. If the corporation has less than three shareholders, then the number of directors may equal the number of shareholders.
Where should I incorporate my business?
One of the first decisions a business must make after deciding to incorporate involves selecting the proper state of incorporation. A corporation is not required to incorporate in the state of its operations; however, often the best decision may be to incorporate in your home state. Two issues must be weighed to determine the proper state: (1) a dollars and cents analysis comparing the costs of incorporating in the state of operation versus qualifying to do business as a foreign corporation in the state under consideration and (2) determining the advantages and disadvantages of each state's corporate laws and tax structure. The decision usually falls between the state in which the business is located and Delaware. If the corporation is a closely held corporation and does business primarily within a single state, local incorporation is often preferable. The cost of local incorporation will usually be less than incorporating in another state and qualifying to do business as a foreign corporation in the state. A foreign corporation that qualifies to do business in another state is subject to taxes and annual report fees from both the state of incorporation and the qualifying state. Another disadvantage of incorporating outside of your home state is the possibility of having to defend a law suit in another state. For advice regarding which state is optimal for your particular business situation, consult an attorney or an accountant. During the life of your business, if you find that your company needs to foreign qualify to transact business in another state, CORPorLLC.com LLC can assist with this process.
What is a publication requirement?
A few states require notice to be published in a newspaper that a corporation or LLC has been formed. States with this requirement include: Pennsylvania (corps only), Georgia (corps only), Arizona (corps and LLCs), Nebraska (corps and LLCs), and New York (LLCs only). The filing performed by CORPorLLC.com LLC completes the publication requirement for each of the states except for New York LLCs.
How do I get started with the incorporation process?
If you choose to incorporate, articles of incorporation must be filed with that state and initial fees must be paid. CORPorLLC.com LLC will complete these administrative tasks quickly and effectively. After your articles are filed, your corporation must hold an organizational meeting where bylaws are adopted and the incorporation process is completed. Share certificates should be distributed to shareholders and these transactions should be recorded on the corporation's stock ledger. All of this information should be kept in a corporate record book. CORPorLLC.com LLC' corporate kit includes all of the information and paperwork needed to make this process easier.
