How to Incorporate Your Business or Form a Limited Liability Company (LLC) Quickly and Easily

Transcription

1 How to Incorporate Your Business or Form a Limited Liability Company (LLC) Quickly and Easily

2 TABLE OF CONTENTS With help from the Company Corporation, incorporating your business or forming an LLC is quick, easy and affordable! Table of Contents TO INC. OR NOT TO INC...4 CORPORATION TYPES and LLC...5 STATE OF INCORPORATION...7 NAME THAT CORPORATION OR LLC...10 EXPEDITED SERVICE...11 ISSUING STOCK...12 NAMING DIRECTORS, MEMBERS OR MANAGERS...13 REGISTERED AGENT SERVICE

3 INTRODUCTION How this workbook can help you. At The Company Corporation, we have been helping people like you incorporate for more than 100 years. In that time, we have learned the important questions most business owners and entrepreneurs will ask when they consider incorporating their businesses. This workbook is the result of those years of experience. It is filled with the answers to common incorporation questions and is designed to guide you step-by-step through some of the most important decisions you will make about your business. When you have finished, you will be well on your way to deciding: Whether you should incorporate Whether to form a corporation or limited liability company The state where you will incorporate How to incorporate over the phone or online Why The Company Corporation is the best way to incorporate. To get the most out of this workbook, you will need: A name for your company (even if you opt to change it later) A phone or online access A credit card or other form of payment 10 minutes The entire workbook should take 10 to 15 minutes to complete. A convenient order form is also enclosed. It gives you a quick reference for state-specific fees. The Company Corporation is an incorporation service company and does not offer legal or financial advice. The information in this workbook should not be used as a substitute for professional advice. 3

4 To Inc. or not to Inc.- that is the question! People choose to incorporate their businesses for many different reasons. To decide if incorporating is the right move for you, ask yourself the following questions. YES NO 1. Do you have or plan to have employees? 2. Do you have partners or investors? 3. Is it important for the business to continue to operate after your or a partner s death? 4. Would you like to protect your personal assets against any liabilities that your company may incur? 5. Are you entering into business with family members? 6. Would you like the option to raise capital through the sale of stock? Yes means Yes If you answered yes to any of these questions, incorporating your company could be the best choice for you. Good news it s easy and affordable! This workbook will take you step by step through the process. In about 10 minutes, you will be ready to incorporate online or over the phone. What is a corporation? Although there are different types of corporations, all may be defined as legal business entities that are separate and apart from their owners. This distinction may offer several key advantages over sole proprietorships and partnerships, including: Corporate stockholders (owners) are typically protected from liability for the corporation s debts Corporations endure even after the death of an owner or a partner leaves Corporations can raise capital through the sale of stock Corporations may provide tax savings on health and retirement benefits Incorporating Your Business For Dummies Trust our experience to incorporate your business quickly and easily. We even wrote the book on incorporating, Incorporating Your Business For Dummies. Turn to Incorporating Your Business For Dummies for answers to frequently asked questions such as the advantages of incorporating, selecting the state of incorporation, choosing a company name, preparing bylaws, and much more. You ll find information about managing your corporate activities including raising capital, hosting a shareholders meeting, and qualifying to do business in other states. To order your copy of Incorporating Your Business For Dummies and save $20 toward the cost of a corporation visit 4

5 Do you prefer a corporation or an LLC? Ο CORP. Ο LLC Corporation vs. Limited Liability Company Similarities: Both are legal entities created by a state filing. Both help protect your personal assets from your business liabilities. Both have very few ownership restrictions and may be owned by non-us residents, business entities or individuals, except corporations with SubChapter S status As the needs of your company changes, The Company Corporation can amend the existing business structure or form a new business structure for you, easily and affordably. Differences: Ownership: Corporations issue stock while LLCs do not. Corporations are owned via shares of stock while LLCs are owned via membership interest. Shares of stock are more easily transferred. Formalities: Corporations are required to hold annual meetings of shareholders and directors and to keep written minutes of each meeting. LLCs are not required to hold annual meetings. Taxation: A corporation is a separately taxable entity where profits and losses are taxed directly within the corporation at the corporate tax rate, except corporations with SubChapter S status. This can lead to double taxation when corporate profits are paid out to owners as dividends. An LLC is a pass-through tax entity, and like corporations with SubChapter S status, the profit or loss generated by the business is reflected on the personal income tax return of the owners. Limited Liability Company (LLC) - The LLC combines many of the advantages of a corporation, such as limited personal liability, with the tax advantages of a partnership. An LLC offers personal liability protection to all of its owners (termed "Members" or "Managers"). It may be treated like a partnership or S Corporation for tax purposes, allowing income or losses to be reported on the Members individual tax returns, thereby avoiding double taxation. Both business entities and individuals can be owners of an LLC. Summary of LLC Benefits: Protection of personal assets from business debt Profits/losses may be passed through to personal income tax returns of the owners Flexibility in management and organization of the business LLCs do not have the ownership restrictions of S Corporations, making them ideal business structures for foreign investors Q: From a tax perspective, which is better, an S Corporation or LLC? A: Both S Corporations and Limited Liability Companies (LLCs) are great tax planning tools, but they may require professional guidance. We suggest that you discuss the tax considerations and management structure with your professional advisor. If you decide that an S Corporation is right for your company, The Company Corporation can assist you by providing a SubChapter S Corporation application. If you decide an LLC is right for you, The Company Corporation will assist you by filing your LLC in any state you choose. 5

6 If a corporation, then which type? General Corporation - This entity, also referred to as a "C" Corporation, is considered to be the most common business structure. It is also most appropriate for those companies planning to have more than 30 stockholders or large public stock offerings. General corporations may choose to elect SubChapter S status. Close Corporation - Often well-suited to the individual starting a company alone or with a small group of people. The Close corporation limits stockholders to a maximum of 30, but one person can hold all the stock. Not all states recognize Close corporations. Close corporations may choose to elect SubChapter S status. Non-stock/Non-profitCorporation - This type of corporation is an option for individuals or groups who are seeking "non-profit," taxexempt status. Professional Corporation (PC) - This entity is reserved for businesses that require professional licensure, such as doctors, dentists, attorneys, architects, and engineers. Most states require proof of a professional license, a statement of purpose and additional fees beyond that of a general corporation. PCs generally take longer to form. SubChapter S Corporation (sometimes referred to as an S Corporation) is a tax status with the IRS. It avoids "Double Taxation" by allowing the owners of the corporation to treat income or losses as though they were "partners". This income or loss passes through the corporation and is reported on the owners personal returns, thus avoiding the "double taxation" of regular corporations once as dividends, for example, and again as personal income. Before qualifying for S Corporation status, a general or Close corporation must be formed first. All shareholders must be citizens or permanent residents of the United States. You may choose to consult your professional advisor about forming an S Corporation. Compliance Watch sm keeps you on track. There is more to maintaining a corporation or Limited Liability Company in good standing than adding Inc. or LLC to your company name. To protect your assets, you are required to comply with details and deadlines. The importance of doing so cannot be overstated. Fortunately, The Company Corporation has a simple solution: Compliance Watch sm a unique, specific-to-your-state, online reminder service designed to help you maintain and protect your corporate status. Compliance Watch sm is designed to be used in conjunction with your corporate kit. 6

7 Will I do business outside my home state? Ο YES Ο NO If you answered "yes": Some professional advisors recommend forming a Delaware corporation in all cases, regardless of your home state. Delaware corporations have enjoyed significant tax and other advantages and Nevada has followed Delaware s lead by enacting laws that are increasingly friendly to corporations. You may also choose to form a corporation in the state where you plan to conduct business. The example shown illustrates this point. If you answered "no": Your best plan may be to form a corporation in the state where you plan to do business. This straightforward approach may make more sense in the long run. While Delaware and Nevada may offer significant tax advantages, forming a corporation in the state where you operate may require less paperwork, be easier to maintain, and be less costly. Refer to the example for details. Example: Let s say you operate a consulting business in New York, but you choose to form a Delaware corporation. This costs approximately $350, including the corporate kit. As a Delaware corporation, the state of New York considers your company a "foreign corporation" and requires that it "qualify" to do business in New York. The fee to qualify is about $400. Your total cost is about $750. Compare this with the cost of simply forming a New York corporation, which is about $445 including the corporate kit. Also, keep in mind that by incorporating in one state and qualifying in another, you may pay annual franchise taxes in two states instead of one. The Company Corporation can help you incorporate and/or qualify to do business in all 50 states and the District of Columbia, quickly and easily. Visit to incorporate 24 hours a day, or call , Monday through Thursday, 8 a.m. to 8 p.m., Friday, 8 a.m. to 6 p.m. (Eastern time). 7

8 Are you interested specifically in the advantages of a Delaware or Nevada Corporation or LLC? Ο YES If you answered "yes": There are many reasons why people prefer a "Delaware" corporation. The advantages of a Delaware corporation may outweigh the complexities associated with incorporating in one state and doing business in another. Anyone may form a corporation in Delaware without ever having to visit the state. Delaware has kept its fees low and is one of the friendliest states to corporations. See more reasons below. Nevada has also enacted laws that are friendly to corporations. Nevada corporations enjoy a high level of privacy and liability protection. Numerous companies form their business entities in Nevada to take advantage of the tax benefits. Here are some of the reasons Delaware is known as "the incorporation state": Names and addresses of initial directors need not be listed in public records The cost to form a Delaware corporation is among the lowest in the nation Delaware maintains a separate court system for business, called the "Court of Chancery." If legal matters arise involving a trial in Delaware, there is an established record of business decisions. No minimum capital is required to organize the corporation and there is no need to have a bank account in Delaware Just one person can hold all of the offices of the corporation There is no state corporate income tax on Delaware corporations that do not operate within the state Shares of stock owned by persons outside of Delaware are not subject to Delaware personal income tax Q: Can my Delaware corporation do business in my home state and other states outside of Delaware? A: YES, nearly half of the corporations listed on the New York Stock Exchange are Delaware corporations. Many conduct business throughout the U.S. and abroad. The Company Corporation can assist you in qualifying your business in any state. 8

9 ... Delaware or Nevada advantages, continued. Ο NO Nevada is winning the attention of businesses with: No state corporate tax on profits No state annual franchise tax Stockholders are not public record, which permits complete anonymity Just one person can hold all the offices of the corporation Stockholders, directors and officers need not be residents of Nevada If you answered no go to the next question Q: If I incorporate in one state, such as Nevada, but the business operates in another, must the corporation also have a physical address in the state of incorporation? A: YES. Most states require that corporations maintain a designated person or entity to be responsible for receiving vital legal and tax documents on behalf of the corporation. Typically, this is referred to as a "Registered Agent". The Company Corporation provides convenient Registered Agent Service in all 50 states and District of Columbia. For more information visit 9

10 Have you selected a name for your corporation or LLC? Ο YES Ο NO. If you answered "yes": You might also like to select an alternate name in case the preferred name is not available. If you have selected a name for your corporation but are not ready to incorporate just yet, The Company Corporation can reserve your name FREE for 30 days in Delaware. Check Corporate Name Availability First! Before you order company stationery or print business cards, check the availability of the name you have selected. The Company Corporation automatically does this for you as part of our incorporation service. Availability in Delaware can be determined in just seconds while you are on the phone. Checks in other states can take 24 hours or more. It is a good idea to submit an alternative name as well. With thousands of corporations formed daily nationwide, there is always a chance your preferred name is already registered. If you answered "no": The rule of thumb is that it should help identify the types of products or services the business provides. Sometimes the name(s) of the founder or founding members are used. It is really up to you. That said, there are a few requirements to be met. The name must be available in other words, no other entity in the state where you are filing has registered using the same or a similar name. Also, your company s name must include one of the following endings: Company, Incorporated, Corporation, Limited, or Limited Liability Company. One of the following abbreviations is also acceptable in most states: Co., Inc., Ltd., Corp., or LLC. You may not use the words "Bank," "Trust" or "Education" without approval from the appropriate state regulatory agency. State requirements as well as availability of name endings may vary. 10

11 Are you on a tight schedule and need to form your corporation or LLC ASAP? Ο YES Ο NO If you answered "yes"; If there are pressing circumstances that require you to expedite the formation of your corporation, The Company Corporation can help with its Expedited Service. Within 24 of receiving documentation from your state of incorporation, the filed Articles of Incorporation will be sent to you via overnight delivery. The Corporate Kit will soon follow. With Expedited Service, you will be able to quickly meet your new corporate deadlines whether they include opening your business bank account or negotiating leases and contracts. Please note, the 24-hour turnaround applies only to services provided in the United States. Don t hesitate to ask The Company Corporation for Expedited Service and we ll match your needs to the most cost effective package. If you answered "no" go to the next question. Expediting saves time but adds cost Utilizing Expedited Service can be a lifesaver when you are up against tight deadlines. However, it is important to keep in mind that there may be added fees and service charges associated with the quick turnaround. Many states charge expediting fees in addition to routine incorporation costs. 11

12 Learn about issuing shares of stock for your corporation it s easy! Note: If you are forming an LLC, go on to the next question. LLCs do not issue stock. It is relatively easy to issue shares of stock for your corporation. Basically, stock represents ownership in a corporation. In order for you or someone else to own the corporation, stock must be issued. Your corporation will be authorized to issue up to 1500 shares of No Par Value stock unless fewer shares are required to minimize incorporating fees or annual franchise taxes. Of course, you have the option to request otherwise. For more information about authorized shares of stock and par value, you may with to contact your professional advisor. How do I know what fees and franchise taxes my state of incorporation imposes? You can get more information about specific state fees and taxes by calling The Company Corporation at or your question to info@corporate.com. 12

13 Have you determined who will be the corporation s initial directors, or the LLC s members or managers? Ο YES Ο NO. Continue! If you answered "no": These positions are typically held by the key players. You and, if applicable, your associates will provide the foundation for the business venture. Choosing Your Management Team Naming the directors, members or managers of your corporation or LLC should be straightforward. In most states, only one director is required for a corporation. For LLCs, two managers or members may be required in some states. 13

14 I would like to designate The Company Corporation as my Registered Agent. Ο YES Smart move! Most states require that corporations and Limited Liability Companies (LLCs) maintain a designated person or entity (a resident of the state of incorporation) to be responsible for receiving vital legal and tax documents on behalf of the corporation. The "agent" for your corporation or LLC is officially "registered" with the state. Your Registered Agent is designated to be responsible for receiving and forwarding vital legal and tax documents on behalf of the corporation or LLC. With a nationwide network of offices, The Company Corporation and its affiliates serve as full time Registered Agents with offices in all 50 states and the District of Columbia. You will find The Company Corporation to be the most cost effective and comprehensive resource for your business service needs. Also, when you select The Company Corporation the first full year of Registered Agent Service is automatically included. For more information visit Registered Agent Services Provides a local address for service of process in the state of incorporation Forwards official state and federal mail as well as state franchise tax or annual reports when required. Provides additional buffer between the state and your business allowing you greater privacy. Promptly sends all service of process to you for your immediate attention, together with a summary of the vital information about the documents served. Only The Company Corporation provides the exclusive Compliance Watch sm Service (see page 6 for more information). 14

15 Next step: GO! You are ready to incorporate or form an LLC. Now that you have completed this workbook, you have the answers you need to incorporate or form an LLC. The rest is easy. Call us at One of our knowledgeable Incorporation Specialists can walk you through the process and answer additional questions you may have. Visit to incorporate or form your LLC online. The site takes you through the process step-by-step. With a couple of mouse clicks, you can launch your new corporation or LLC today! Why wait any longer? Make this the first day of your new business! 15

16 The Company Corporation, helping businesses succeed since Choosing The Company Corporation to help you incorporate your business is a wise investment in your company s future. Founded by the original architects of Delaware s corporate laws which are still considered the universal standard of corporate governance The Company Corporation has the expertise you can trust. Last year alone, one out of every seven corporations formed in the United States was the result of the work of The Company Corporation or one of its affiliates. That was more than 125,000! Of course, forming a corporation is just the beginning. At The Company Corporation, we understand this. We provide a wide range of corporate support services such as Compliance Watch sm, Tax-On-Time, Mail Forwarding Service, domain name registration, free trademark search and more. Our goal is to research, develop and provide you with the tools that can make starting and running your business as easy and affordable as possible. Get answers to your questions or access to our services 24-hours a day: Call us toll free at Monday through Friday 8 a.m. to 8 p.m. (Eastern time) Visit our website at or us at info@corporate.com. The Company Corporation is an incorporation service company and does not offer legal or financial advice. The information in this workbook should not be used as a substitute for professional advice. The Company Corporation 2711 Centerville Road Suite 400 Phone: (800) Internet: Wilmington DE U.S.A. (302) Fax: (302) INFO@CORPORATE.COM