DBI 5 Minute Incorporation Tutorial Incorporation vs Sole Proprietorship

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1 Incorporation vs Sole Proprietorship The primary reason business owners choose to incorporate or form an LLC is to limit the liability they would face in the event of a lawsuit or bankruptcy.

2 Incorporation vs Sole Proprietorship So long as the owner does not personally guarantee the debts of the company (or commit fraud) the owner's losses are limited to his or her investment in the company.

3 Incorporation vs Sole Proprietorship So unless you put them up as collateral, your house, personal savings account, personal retirement accounts and other assets would not be seized to pay a debt of the company or a judgment against the company.

4 Incorporation vs Sole Proprietorship The second most common reason to Incorporate or form an LLC is to raise capital by selling shares to investors.

5 Have you been wondering why more than half of the Fortune 500 have chosen to incorporate in Delaware?

6 There are so many reasons to incorporate in Delaware an entire section of our website is devoted to this topic. We'll review just a few.

7 Reasons to Incorporate in Delaware Anonymity Delaware Corporations and LLCs can be formed without naming the initial members, directors or shareholders (owners)

8 Reasons to Incorporate in Delaware Director Shield Law A Delaware director shield law permits Delaware Corporations to shelter their directors from personal liability.

9 Reasons to Incorporate in Delaware Favorable Tax Climate No State Sales Tax

10 Reasons to Incorporate in Delaware Favorable Tax Climate No Delaware Corporate Income Tax for companies operating outside of Delaware

11 Reasons to Incorporate in Delaware Favorable Tax Climate No Delaware Corporate Income Tax on companies whose sole activities in Delaware are related to intangible investments.

12 Reasons to Incorporate in Delaware Pro-Business Legislation Delaware remains unique in the degree of latitude it affords Corporations and Limited Liability Companies in organizing and operating their business.

13 I bet you re wondering, How can I form a Delaware company if I don t have an office in Delaware?

14 Delaware Registered Agent Delaware law only requires you to have a Registered Agent in Delaware to form a Delaware Corporation or LLC. DBI will be your Delaware Registered Agent.

15 Delaware, The US, and Abroad A Delaware Corporation or LLC has the constitutional right to transact Interstate Business. Interstate means involving parties in two or more states.

16 Delaware, The US, and Abroad A Delaware Corporation or LLC can also be used to transact business outside the US, whether or not you have a base of operations inside the US.

17 Delaware, The US, and Abroad Your Delaware Corporation or LLC can also be registered to transact Intrastate Business in additional states; without the need of incorporating in each state.

18 Ok, let's talk about Corporations and Limited Liability Companies. We'll start by comparing the two.

19 LLC or Inc? Similarities Limited Liability Companies and Corporations have much in common. Both provide similar limited liability to the owners/investors.

20 LLC or Inc? Similarities Similar tax treatment options, including the Pass Through option and the C-Corporation option, are available to both Corporations and LLCs.

21 LLC or Inc? Differences Two significant differences between a Delaware Corporation and a Delaware LLC:

22 LLC or Inc? Differences Corporations issue stock certificates which can be traded privately or on a public stock exchange.

23 LLC or Inc? Differences LLC s can raise money from investors by privately selling investment shares, but LLC s cannot be publically traded on a stock exchange.

24 LLC or Inc? Differences Both Delaware Corporations and Delaware LLCs can be formed anonymously, without disclosing the names of the shareholders/owners, directors or officers

25 LLC or Inc? Differences But, Delaware Corporations are required to file an annual report naming one officer and all directors. Note: a Delaware corporation is not required to name owners (shareholders) on the annual report.

26 LLC or Inc? Differences Delaware LLCs are not required to file an Annual Report.

27 LLC or Inc? Entity Tax Delaware Corporations authorizing 5,000 shares or less will pay a minimum Franchise Tax of $125 when they file their annual report.

28 LLC or Inc? Entity Tax Delaware LLCs will pay a flat LLC Tax of $250 each year.

29 Let s Review: LLC or Inc? INC LLC Limits Liability Yes Yes Annual Reports Required Not Required Annual Shareholder Meeting Required Not Required Taxed at corporate income tax rates Possible Possible Taxed at personal income tax rates Possible Possible Raise capital from investors Possible Possible Publicly traded on Stock Exchange Possible Not Possible Totally Anonymous Not Possible Possible Annual Entity Tax $125 (min.) $250 (flat)

30 We're almost done with the tour; I just want to show you what a Corporate Kit is before you go.

31 At a minimum a Corporate Kit or Operating Agreement kit should contain model By-Laws and Minutes or a model Operating Agreement.

32 These are the documents which define the rules for profit distributions, resignation or expulsion of members or directors, shareholder rights and other important matters

33 Matters which could be essential in resolving disputes between principals or defending tax status in an IRS inquiry.

34 The state of Delaware never registers the names of the owners of a Corporation or LLC.

35 Our Corporate kits and Operating Agreement kits include share certificates and transfer ledgers to ensure that your ownership of the company is properly documented.

36 Well, that's the end of the tutorial; thank you for joining me. If you re ready to learn more please visit our Learning Center Or browse our New Company Registration Packages.