There's also a chance you could miss some small but important detail in your state's law. You may also choose to use an incorporation service company to prepare and file the documents with the state. One of the first steps you must take in the incorporation process is to prepare a certificate or articles of incorporation.
Some states will provide you with a printed form for this, which either you or your attorney can complete. The information requested includes the proposed name of the corporation, the purpose of the corporation, the names and addresses of the parties incorporating, and the location of the principal office of the corporation. The corporation will also need a set of bylaws that describe in greater detail than the articles how the corporation will run, including the responsibilities of the shareholders, directors and officers; when stockholder meetings will be held; and other details important to running the company.
Once your articles of incorporation are accepted, the secretary of state's office will send you a certificate of incorporation. Where to Incorporate One major decision to make when incorporating involves selecting the proper state of incorporation.
You're not required to incorporate in the state where your business operates; you can choose from any one of the 50 states or the District of Columbia. A corporation is referred to as a foreign corporation in all states except for the state where it is incorporated. If a corporation is transacting business in a state other than where it was incorporated, it may be required to register for a certificate of authority to transact business also called foreign qualification in the other state.
If a corporation is transacting business and fails to register as a foreign corporation, it may lose access to that state's courts and face tax fines and penalties. A foreign corporation that registers for a certificate of authority in another state must pay state filing fees for the qualification filing; these fees are typically more expensive than the cost of filing for a domestic corporation.
Also, foreign qualified corporations are subject to taxes and annual report fees from both the state of incorporation and the qualifying state. Thus, the actual advantage of incorporating in a state with very low initial filing fees and low corporate income tax is not as great as it appears if your business must still qualify to do business in its state of operations.
The definition of "transacting business" depends on the state and the situation. Consult your attorney to determine how the law applies to your situation. In general, though, some factors that a state considers when determining whether a corporation is transacting business in a state include:. Note that simply transacting business via mail order or the Internet typically does not equal transacting business; however, the determination is made on a case-by-case basis.
Again, consult your attorney for specifics, as this list is not intended to be comprehensive. How Incorporating Affects Funding If you plan to seek investment, the preferred entity of most investors and VCs is the C corporation, which is the standard corporation formed by incorporating.
There are other eligibility requirements that must be met, so please follow the link for a more comprehensive explanation. More S Corporation Information. A Professional Corporation is an incorporated business structure formed by individuals or groups of individuals that would other wise be exclude from corporate formation eligibility. These professionals include doctors, lawyers, accountants, engineers, etc.
The group must be organized with the intent of providing professional services, and must consist of professionals licensed to practice their particular profession. Professional Corporations provide for many of the same liability shields and tax benefits that traditional Corporations do. More Professional Corporation Information.
A Nonprofit Corporation is an incorporated entity designed to perform activities and enter transactions without the traditional intent of generating profits. A Non-Profit Corporation provides for many of the same shields from liabilities to its shareholders that a traditional Corporation provides.
Contrary to its title, a Non-Profit Corporation can in fact generate profits, but that must not be its primary intent, and all profits must be used in furtherance of the non-business goals of the Non-Profit Corporation.
There are no capital distributions or dividends paid to shareholders in a Non-Profit Corporation. More Nonprofit Information. Your information remains confidential Privacy Policy. Business Types Business start-up and personal asset protection services. Get Incorporated. Consumers, vendors, and partners may prefer to do business with an incorporated company. Nationwide availability. Name protection. In most states, other businesses may not file your exact corporate or LLC name in the same state.
Perpetual existence. Corporations and LLCs exist perpetually, even if their ownership or management changes. Sole proprietorships and partnerships end if an owner dies or leaves the business.
Tax flexibility. Though profit and loss typically pass through an LLC and get reported on the personal income tax returns of owners, an LLC can also elect to be taxed as a corporation. Likewise, a corporation can avoid double taxation of corporate profits and dividends by electing Subchapter S tax status.
Deductible expenses. Both corporations and LLCs may deduct normal business expenses—such as salaries—before they allocate income to owners. Importance of incorporating to protect your assets Corporations and LLCs offer greater asset protection than sole proprietorships and general partnerships, which is a strong reason for incorporating a business. Where to incorporate Most businesses incorporate or form an LLC in the state in which they primarily operate, for several reasons: Choosing your home state is typically the least complicated option It usually costs less than incorporating in a different state, but there are exceptions You can avoid paying franchise taxes and filing annual reports in more than one state Many companies conduct business throughout the United States and abroad.
Should you incorporate or form an LLC? Incorporating and taxes When you incorporate a company, tax regulations depend on the type of business you select. The IRS taxes company profits at corporate tax rates and dividends paid to shareholders at individual tax rates.
For this reason, you may hear tax professionals refer to "double taxation" of a C corp. Corporations can elect "pass-through" taxation by applying to the IRS for status as a Subchapter S corporation S corp.
The S corp provides the same protection from personal liability. However, owners can report their share of company profit and loss on their individual tax returns. The S corp cannot have more than shareholders. Like a sole proprietorship or partnership, an LLC enjoys pass-through taxation.
This means that owners also known as "members" report their share of company profits or losses on their individual tax returns. The IRS does not assess taxes on the company itself. This avoids the "double taxation" that general, or C corps, experience. Once you've collected this basic information, you're ready to get started on forming your corporation.
In addition to the articles of incorporation, you'll need bylaws that will guide the way your corporation operates. Contents 3 min read. Jane Haskins is a freelance writer who practiced law for 20 years.
Jane has litigated a wide variety of business dispute… Read more. Starting a Business. LLCs and S corporations are different aspects of business operations, but are not mutually exclusive.
Use this guide to learn more about the difference between an LLC vs. As a business owner, you have many options for paying yourself, but each comes with tax implications. Each business structure has its advantages and disadvantages. Find out what they are. Deciding which of these is best for your business depends on several important factors, including your short- and long-term objectives. Thinking about running your LLC from home?
There are advantages and disadvantages to bringing the office home with you. It is important as a business owner to understand the general costs of incorporating before beginning the process. Find out more about how you can incorporate. If an LLC, or Limited Liability Company, seems like the ideal vehicle for your side business, you may be wondering if you can form an LLC while employed at another job. Business names often have abbreviations after them, including LLC and Inc.
Find out what these abbreviations mean and how an LLC is different from a corporation. Don't let your enthusiasm prevent you from taking the time to plan your business strategy and protect yourself legally or financially.
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