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What is a corporation?
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 Business Filings
Incorporated, all you need to do is complete the
online order form, and Business Filings prepares
and files your articles of incorporation.
Additionally, the price you pay includes all
filing fees. It’s simple, just fill out the order
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:
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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.
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Retirement funds and qualified retirement plans
(like 401k) may be set up more easily with a
corporation.
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Ownership of a corporation is easily
transferable.
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Capital can be raised more easily through the
sale of stock.
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A
corporation possesses centralized management.
What are the
disadvantages of 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:
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There is more complexity and expense with
forming a corporation.
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There are more extensive record keeping
requirements.
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Operating a corporation across state lines often
requires the corporation to qualify to do
business in the other state.
What is an S
corporation?
Standard business corporations or C corporations
are required to pay income tax on taxable income
generated by the corporation. Making a subchapter
S election by completing and filing federal Form
2553 with the IRS is a way to avoid having your
corporation treated as a separately taxable
entity.
An
S corporation is a standard business corporation
that has elected a special tax status with the
IRS. This tax treatment allows the corporation not
to be a separately taxable entity. Instead, the
income of the corporation is treated like the
income of a partnership or sole proprietorship;
the income is "passed-through" to the
shareholders. Thus, shareholder's individual tax
returns report the income or loss generated by an
S corporation.
To
be classified as an S corporation, a corporation
must make a timely filing of Form 2553 to the IRS.
This election must be made by March 15 if the
corporation is a calendar year taxpayer, in order
for the election to take effect for the current
tax year. A corporation may later decide to elect
S corporation status, but this decision would not
take effect until the following year.
In
order to qualify for S corporation status, the S
corporation can have no more than 75 shareholders
and must make the election to be an S corporation
. The shareholders cannot be non-resident aliens.
Also, an S corporation cannot issue preferred
shares of stock with special liquidation,
dividend, or conversion rights. To compare the S
corporation to the C corporation and limited
liability company, view our
comparison page.
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
or 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, Business Filings can
assist with this process. To learn about Business
Filings' foreign qualification service,
click here.
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 Business Filings 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. Business Filings 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.
Business Filings'
corporate kit includes all of the information
and paperwork needed to make this process easier.
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