Previous
Page Getting
Started… Also see: FAQ Introduction Is a Corporation
or LLC right for my business? What is a Corporation? Structuring
Your Business What type of
entity should I form?
Introduction… Business start up –
types of incorporation and company formation. When you start
a business you need an experienced firm who can assist you
properly with your company formation. Discover the advantage
of corporations and which type of incorporation is right for
your business start up. Starting a business puts you
in the driver's seat. There is no greater reward in life than
being your own boss. Starting a business requires focus and
careful planning. You must follow many steps of company formation
before you can incorporate a business and begin opening the
doors. Before you start a business,
you must learn the advantage of a corporation and decide which
of the types of incorporation and business structure are most
suitable for your company formation. The law requires several
company formation formalities before it will recognize and
incorporate your business. Further, these business start up
formalities change depending on the type of company formation
you are considering, as well as the jurisdiction you are considering
filing in. A Professional and Experienced
Incorporation Firm is a necessity to incorporate a business
correctly from the beginning. Only an experienced firm can
ensure that your business structure is tailored to your needs
of business formation. National Business Incorporators, Inc.,
is an experienced incorporation firm available to incorporate
your business and set you on the road to success. We have
the expertise to help anyone start and incorporate a business.
For business start up, types
of incorporation and company formation, you need an experienced
firm who can assist you with proper company formation to incorporate
your business start up. Discover the advantage of a corporation
and which type of incorporation is right for your business
formation.
Is a Corporation or LLC
right for my business? There are many types of business entities,
the simplest being sole proprietorship and general partnerships.
While these may be easiest to form, they offer no personal
liability protection and no significant tax advantages for
their owners. Forming a Corporation or Limited Liability Company
will protect your personal assets (homes, cars, investments,
etc.) from any possible creditors; liabilities or lawsuits
brought against the business. Incorporating will make your
business more credible and attractive to customers and investors.
In addition, these types of entities offer numerous tax advantages
for owners and shareholders. We do suggest that the selection
of a business entity be done with the assistance of a professional,
such as your tax or legal advisor, as they may be more familiar
with your specific needs.
What is a Corporation? A corporation is a legal entity created
through the laws of its state of incorporation. Individual
states have the power to promulgate laws relating to the creation,
organization and dissolution of corporations. Many states
follow the Model Business Corporation Act. State corporation
laws require articles of incorporation to document the corporation's
creation and to provide provisions regarding the management
of internal affairs. Most state corporation statutes also
operate under the assumption that each corporation will adopt
bylaws to define the rights and obligations of officers, persons
and groups within its structure. States also have registration
laws requiring corporations that incorporate in other states
to request permission to do instate business. There has also been a significant component
of Federal corporations law since Congress passed the Securities
Act of 1933, which regulates how corporate securities are
issued and sold. Federal securities law also governs requirements
of fiduciary conduct such as requiring corporations to make
full disclosures to shareholders and investors. The law treats a corporation as a legal
"person" that has standing to sue and be sued, distinct
from its stockholders. The legal independence of a corporation
prevents shareholders from being personally liable for corporate
debts. It also allows stockholders to sue the corporation
through a derivative suit and makes ownership in the company
(shares) easily transferable. The legal "person"
status of corporations gives the business perpetual life;
deaths of officials or stockholders do not alter the corporation's
structure. Corporations are taxable entities that
fall under a different scheme from individuals. Although corporations
have a "double tax" problem --both corporate profits
and shareholder dividends are taxed -- corporate profits are
taxed at a lower rate than rates for individuals.
C Corporation type is the most common structure
in the business world. Click Here
to file your C Corporation or Contact
Us directly to discuss specific needs.
Structuring Your Business
The way your business is organized is important
because it affects every aspect of your operation, from what
you pay in taxes to the extent of your liability and your ability
to raise capital. Your options for business organization include
sole proprietorship, incorporation, partnership, limited liability
corporations and partnerships, and special corporations such
as professional and non-profit corporations. There are a lot of opinions about business
structure, so be sure you make a decision only after thorough
research and careful consideration of what is best for your
business. Remember that you can alter your business structure
as your needs and requirements change. You're not locked in
to keeping a specific structure if it no longer serves your
company. This overview is designed to assist you in
making this key decision by giving you information on the basics
of the various business structures. Once you've read it through
and done your research, you might want to contact your attorney
or accountant and seek his/her input and guidance. C Corporation
Closed Corporation
S Corporation Limited Liability Company General Partnership Limited Partnership Professional Corporation Non-Profit
What type of entity should I
form? General
Corporations (C Corporation)
C Corporation, discover the C Corporation definition and advantages
of this business formation. The General or C Corporation is the most
common legal entity and offers the greatest flexibility with
respect to ownership and the free transferability of ownership
interest. Although a C Corporation allows for many advantageous
tax deductions and benefits, small business owners may be
at a disadvantage due to the double taxation associated with
a C Corporation. Income is first taxed at the corporate level
at corporate tax rates. Then when the corporation issues dividends
to its shareholders, the same money is taxed again at shareholder
level. Still, larger businesses may benefit from forming as
a C Corporation.
Advantage of forming a C Corporation:
- Limited liability protection
- Unlimited life
- Easy to raise capital
- Flexibility of ownership
- Allows issuance of classes of stock
- Free transferability of ownership
- Tax benefits allowing for certain health
and life Insurance deductions
Disadvantage of forming a C Corporation:
- Subject to governmental regulations
- Double taxation
- Must maintain corporate formalities
Form a C Corporation with the guidance of
our experienced staff. Click Here
to file your C Corporation or Contact
Us directly to discuss specific needs.
Close Corporations
Closed
Corporation, discover the Closed Corporation definition and
advantages of this business formation. The Close Corporation can be desirable for
small businesses. A Close Corporation is issued stock held
by one person or not to exceed thirty. All stock is subject
to restrictions of transfer and if a shareholder shall elect
to sell, the stock must be offered to the corporation or to
any other shareholder.
Advantage of forming a Closed Corporation:
- Close Corporations can eliminate
the need for a board of Directors, and remove the Authority.
- Close Corporations are allowed to choose
the right to restrict the transfer of stock Shares to its
shareholders.
- The shareholders can authorize the
use of proxies for directors’
Disadvantage of forming a Closed
Corporation: - If the board is removed, a Close Corporation’s
stockholders usually have more responsibilities and duties
- If a Close Corporation would like to elect
the status of S Corporation Later on during life, a Close
Corporation with thirty-five members may not be able to do
so.
- Close Corporation status does not
exist in every state, so trying to qualify in another state
to do business may be a problem if that state does not allow
close corporations.
Form a Closed Corporation with the guidance
of our experienced staff. Click
Here to file your Closed Corporation or Contact
Us directly to discuss specific needs.
Subchapter S Corporations
(S Corporation)
S
Corporation - Discover the disadvantage and advantage of forming
an S Corporation. A Subchapter S Corporation or S Corporation
is similar to the C Corporation and operates in the same manner.
The main advantage associated with the S Corporation is that
the income passes through the shareholders, thus avoiding
the double taxation of a C Corporation. However, the corporation
must meet certain requirements to qualify for the “S”
status under the current IRS rules. It also loses some of
the tax deductions allowed to C Corporations. Starting an S Corporation is ideal for smaller
businesses looking to take advantage of the special tax status
and income flow that S Corporations offer. Discover the disadvantage
and advantage of S Corporation for your business formation.
Advantage of forming an S corporation: - Limited liability protection
- No “double taxation”
- Unlimited life.
- Must maintain corporate formalities
- No more than 75 Shareholders
- Limited ownership (individual, estates
and certain trusts)
- Limited to one class of stock
- S Corporation income flows without the
"double taxation" occurring in C Corporations
- There is a special status providing a tax
advantage for S corporation.
Disadvantage of forming an S Corporation: - Subject to governmental regulations
- Some tax deductions are lost as compared
to the C Corp
- The S Corporation business is limited
to no more than 75 shareholders.
- No S Corporation shareholder may be a
nonresident alien
Form an S Corporation with the guidance of
our experienced staff. Click Here
to file your S Corporation or Contact
Us directly to discuss specific needs.
Limited Liability Company
(LLC)
Limited
Liability Company (LLC) - Discover the disadvantage and advantage
of forming an LLC Limited Liability Company or LLC, are a
relatively new development in the business market. This type
of entity combines the limited liability protection of a corporation
with the simplicity and tax advantages of a partnership and
individually owned businesses. Many feel the LLC is most beneficial
and perfect for businesses with a small number of owners,
who intend to act as or are currently acting as a partnership
with the need for personal liability protection or small business
owners or investors looking to hold real estate or individuals
looking for more control and flexibility in managing their
business than that offered in corporations. Further, limited
liability companies are not restricted from foreign owners
or investors like s-corporations, which means they are perfect
for receiving foreign investment. Increasing numbers of new
businesses are now enjoying the benefits of forming as, or
converting their existing partnership to a Limited Liability
Company.
Advantage of forming an LLC: - Limited liability protection
- No “double taxation”
- Simple structure and operation
- Less record keeping and formalities
- Easy conversion from existing Partnerships
Disadvantage of forming an LLC:
- Relative new entity that lacks uniform
state law treatment
- Usually limited life (not perpetual existence)
- Restrictive transferability of ownership
- Possible dissolution upon death or resignation
of an owner
Form an LLC with the guidance of our experienced
staff. Click Here to file
your LLC or Contact Us
directly to discuss specific needs.
Some advantages of a C Corporation
vs. an LLC: - Profits of a C Corporation are not subject
to social security and Medicare taxes.
- Banks are more willing to loan money to
a C Corporation than an LLC company.
- Form a C Corporation for greater fringe
benefits than an LLC company.
- Although a C Corporation is subject to
double taxation, there is greater tax flexibility.
General Partnership If you have business partners, you have the
option of forming a partnership instead of incorporating. Should
you choose this route, experts highly recommend that you formalize
this relationship by creating a written general partnership
agreement that will protect all parties involved. It is possible
to have a partnership without a formal agreement, in which case
you will be governed by the Uniform Partnership Act, but this
allows for little flexibility or protection in events such as
one partner leaving. A written contract, on the other hand,
will spell out exactly what each partner's rights and responsibilities
are. The chief benefit of a general partnership
is that you have someone with whom to share the business burden.
It will also probably cost less and require less paperwork to
form a partnership than a corporation. In addition to the written
partnership agreement, you may have to file a partnership certificate
registering the company's name, and perhaps obtain a business
license as well. These requirements vary from state to state
and locality to locality, so check with your county clerk's
office to find out the specific requirements for your region.
If you do form a partnership, each year you
have to file a partnership information return that tells the
IRS and state officials how much the partnership earned or lost,
and how those gains and losses are to be divided among the partners.
The partnership itself does not pay income taxes. Instead, the
partners report this information and pay taxes on their shares
on their personal returns, similar to a sole proprietorship.
The downside of partnerships is that you
are personally responsible for your partner's liabilities related
to the business. One partner can take actions - such as signing
a contract - that legally bind the partnership entity, even
if all the partners were not consulted. Each partner is also
personally liable for injuries caused by one partner on company
business. In other words, if one partner causes an accident
while making a delivery with the company van, all partnership
assets, as well as each partner's personal assets, are at risk.
Of course, a partnership can protect itself against such risks
by carrying the proper insurance. Benefits - Provide a way to share the business burden
Simpler paperwork and less cost than incorporation
Disadvantages - All partners personally liable for the
business actions of a single partner
Limited Partnership Limited partnerships are typically used for
real estate investing or in situations where a business is looking
to finance expansion. For most small businesses, forming a general
partnership or an S corporation will meet their needs. In circumstances where they are appropriate,
limited partnerships provide many of the benefits of partnerships
and corporations. They provide a way for small businesses to
raise money without taking in new partners, forming a corporation,
or issuing stock. A limited partnership must have one or more
general partners, who have the same responsibilities and liability
restrictions as they would in a general partnership. In addition,
there are one or more "limited" partners, typically
investors not involved in the day-to-day activities of the company.
These limited partners are not personally
liable for debts of the partnership, and they get the same tax
advantages as a general partner. However, they do have significant
restrictions. They cannot, for instance, be involved in the
management of the company (with few exceptions). If they are,
they may become personally liable for the partnership's debts.
Creating a limited partnership can be as
complex and costly as forming a corporation. It is advisable
to hire an attorney to assist you in conforming to the various
filing requirements in your state. Benefits - Ability for partnerships to raise money
without involving outside investors in day-to-day business
decisions
- Limited partners get limited personal
liability and greater tax advantages
Disadvantages - Complex and costly filing procedures
- General partners still have personal liability
for company's debts and actions
Professional Corporation
Groups of certain professionals can form corporations
knows as professional corporations or professional service corporations.
The list of professionals covered by professional corporation
status differs from state to state; it typically covers accountants,
engineers, physicians and other health care professionals, lawyers,
psychologists, social workers, and veterinarians. Typically,
these professionals must be organized for the sole purpose of
providing a professional service - for example, a law corporation
must be made up of licensed attorneys. In certain states, this is the only incorporation
option available for certain professionals, whereas in others,
they are given the choice of being either a professional corporation
or S or C corporation. Contact your states filing office to
see what options are available in your state. According to tax and legal experts, there
is no longer a significant tax benefit to professional corporation
status over sole proprietorship or partnership. The IRS treats
most professional corporations as "personal service corporations",
taxing corporate income at a flat rate of 35%. Professional corporations can shield owners
from liability. While it can't protect a professional from his/her
own malpractice liability, it can protect against liability
from negligence of an associate. Malpractice insurance is still
the way to go for most professionals, however. Still, you might
want to consider this corporate status as a back-up against
rising rates or inadequate coverage. Benefit - Owners not liable for negligence of other
owners
Disadvantages - Higher cost and more paperwork than a
sole proprietorship or partnership
- Ownership restricted to members
of a certain profession
Non-Profit Corporation The primary benefit of being a non-profit
(or not-for-profit) corporation is that you are exempt from
paying income taxes. You must qualify for tax-exempt status
under the Internal Revenue Code Section 501(c)(3). Should you
attain this status, not only is your corporation exempt from
paying taxes, but people, corporations, or other organizations
that contribute to your corporation can take a tax deduction
for those contributions. There are other benefits, too. For example,
if you do a lot of mailings, you can qualify for the lower "non-profit"
postal rate. Plus, there is the positive image a non-profit
connotes: it tells people that you're in business not for the
money but for a higher purpose. Typically, tax-exempt status is reserved
for corporations formed for religious, charitable, literary,
scientific, or educational purposes. This could include: child
care centers, museums, research institutes, dance or music groups,
places of worship, schools, community groups, and others. Of course, you don't make money from a non-profit
company; once you put assets in, they become property of that
corporation and must be dedicated to specific non-profit purposes.
And you can't sell the business to get your money back. A non-profit
company goes on; if it is sold, liquidated, or otherwise ends,
the assets must be passed to another non-profit corporation.
There are other responsibilities and restrictions
to running a non-profit business, too numerous to list here.
If you are seriously considering forming a non-profit corporation,
you might want to get in touch with legal and/or tax counsel
that specializes in this area. Benefits - Tax-exempt status
- Contributions are tax deductible
- Helps project an altruistic image for
company
Disadvantage - Tax advantages limited to companies formed
for religious, charitable, literary, scientific or educational
purposes.
National Business
Incorporators, Inc.
Phone: (760) 774.2340
Fax: (760) 406.9331
E-mail: National
Business Incorporators, Inc.
We look forward to serving
you!
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