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What
are the advantages and disadvantages of incorporating my business?
Incorporation can help give your business
credibility and prestige, as well as protecting its owners
and directors from personal liability. Additionally, the business
can raise capital through the sale of shares of stock. Corporations
can also be used to own property such as real estate, aircraft,
and yachts for certain tax advantages and for the protection
of personal assets from liability. Below is a specific list
of some of the advantages and disadvantages of incorporating.
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Advantages of incorporating:
Personal liability of the founders
is limited to the amount of money invested in the corporation
(with the exception of liability for unpaid taxes) Sale
of stock for the purposes of raising capital is often
more attractive to investors than other forms of equity
A corporation can continue to exist after the death
of its founders Stock may be transferred so that owners
can distribute their interest in the corporation without
the corporation dissolving A corporation is a legal
entity separate from its owners, so it can enter into
contracts and sue Shares of a corporation can easily
be distributed to family members Corporations have many
tax options available, including setting up pension,
profit sharing, and stock option plans
Disadvantages of incorporating:
Corporate income is taxed at both
the corporate level and the individual level. In other
words, the corporation must pay taxes on its income
and an individual must pay taxes on the dividends they
receive. Thus, corporate income is subject to what is
known as "double taxation." Maintaining corporate
records must be done diligently to afford the owners
with the limited liability benefits of a corporation.
Debt financing obtained by the corporation may require
a personal guarantee by the owners, thus eliminating
the limited liability of the owners for the
amount of the loan. |
What is a registered agent and why does
my corporation need one?
A registered agent, such as LegalFilings,
acts as a representative of the corporation in the state of
incorporation. Primarily, the registered agent provides a
registered address for the receipt of service of legal papers
and as a local contact for the Secretary of State and other
government agencies. The registered agent receives notice
of any suits, tax notices, etc. and then forwards them to
the corporation.
All states require that a corporation incorporated
in their territory have a registered agent (New York is an
exception, but an address for contact must still be supplied).
If your corporation is to be located in the state in which
its officers reside, one of the
officers of the business can act as its registered agent.
However, corporations often use a professional registered
agent to keep the crucial documents sent from the state separate
from other corporate mail. LegalFilings can provide registered
agent services in all 50 states.
Do I need an attorney to incorporate?
No, you do not legally need an attorney
to incorporate. You can prepare and file the extensive paperwork
to incorporate yourself, or you can choose to use the professional
services an incorporation firm such as LegalFilings. If you
choose to incorporate through LegalFilings, all you need to
do is fill in the order form and file your articles of incorporation.
We?ll do the rest. The price you pay includes all filing fees.
Where should I incorporate?
A corporation is not required to incorporate
in the state of its offices, and can incorporate in any of
the 50 states. Often the best choice for a corporation is
to incorporate in its home state. There are several considerations
involved in deciding where to incorporate, including the cost
of incorporation, tax laws, and general laws governing the
actions and liabilities of the corporation. Typically, if
a corporation is closely held and does not plan to do business
outside the state in which it is located, it is desirable
to incorporate in its home state. Although incorporating a
business in its home state may be more costly than incorporating
in another state, it will prevent the corporation having to
defend itself in a foreign state, should it be sued. Additionally,
by incorporating in its home state, a business will not have
to pay the fees required to do business as a foreign corporation,
which may be more expensive than the cost of incorporating
in the first place.
We advise you to consult an attorney if
you have specific questions regarding where to incorporate.
Once you have made your decision, LegalFilings will quickly
and easily incorporate your business in the state of your
choice.
What are the advantages of incorporating
my business in Delaware?
Delaware is the most widely chosen state
for incorporation. Some of the reasons for this are listed
below:
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There is no minimum capital requirement
? Because no minimum capital is required, a Delaware corporation
can be organized very inexpensively. Many states require
a corporation to have at least $1,000 in capital.
Delaware has no sales tax, no personal property tax, and
no intangible property tax. Additionally, Delaware state
income tax is not levied on corporations not doing business
in Delaware.
One person can be the only Officer, Director, and Shareholder.
There is no need to bring additional people into a Delaware
corporation to fill offices or director positions. Note
that many other states require at least three people to
fill the officer and director positions. These officers
and directors may be indemnified to that their liability
is limited.
Delaware has a separate Court of Chancery, a business
court system specializing in corporate law. What this
means for Delaware corporations is a well-developed body
of state corporation law, which helps deliver predictable
and consistent legal decisions. Additionally, Delaware
has corporation friendly anti-takeover statutes which
limit the ability of other corporations to institute hostile
takeovers.
Shares of stock in a Delaware corporation owned by non-residents
are not subject to any Delaware taxes.
Low incorporation costs. A Delaware corporation can be
organized without ever even visiting the state. Furthermore,
corporate meetings such as shareholder and director meetings
can be held anywhere with no need for contact with the
state.
Voting provisions for company decisions can be tailored
to require greater-than-majority approval.
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Delaware is a very "corporation friendly"
state. One of the greatest sources of state income for Delaware
is incorporation fees. As a result of the large number of
businesses which choose to incorporate in its territory, Delaware
has developed an excellent filing system and a very "customer
friendly" Corporation Department. Corporations can pay
dividends out of both profits and surplus. Directors may be
given the authority to make and alter bylaws.
The annual Franchise Tax on corporations in Delaware is among
the lowest of all the states.
What is a C corporation?
A C corporation is the most common corporate
structure. It is a legal entity separate from its owners,
and may have an unlimited number of shareholders. A major
advantage of any corporate form is that it limits the personal
liability of the owners for claims against the corporation.
This liability is usually limited to the amount of money invested
in the corporation. Additionally, as a separate entity, a
corporation has unlimited life, extending it beyond the life
of its owners. As an entity with shares of stock representing
ownership, financing a corporation through sale of stock is
often easier than the sale of interests in other ownership
forms such as a partnership. The main disadvantage of a C
corporation is taxation. Taxes on a federal level are paid
twice on the income of a corporation, once at the corporate
level and once again as income tax when the income of the
corporation is passed to the shareholders in the form of dividends.
This concept is known as "double-taxation."
What is an S corporation?
An S corporation is a taxation election
you can choose when you incorporate. It is not a completely
separate form of corporate entity. The Tax Reform Act of 1986
increased the desirability of electing S corporation taxation
status. Many small business owners elect S corporation status
because it combines many of the advantages of sole proprietorships,
partnerships, and corporate structures.
S corporations have the same basic advantages
and disadvantages of C corporations, but they have special
tax provisions. In a standard C corporation, the profits are
taxed at the corporate level by the federal government. When
the profits are distributed to the shareholders as dividends,
they are once again taxed as income to the individual shareholder.
By electing S corporation status, a corporation does not pay
taxes on its profits, and taxes are only paid when dividends
are distributed to shareholders as personal income. Thus,
by choosing to use an S corporation, a business owner can
avoid the often heavy "double-taxation" of a C corporation.
What is a close corporation?
A close corporation, also known as a closely
held corporation, is a corporation in which (1) the stock
of the corporation cannot be traded on a public exchange (NYSE,
NASDAQ, etc.); (2) the number of shareholders must be specified,
and typically cannot exceed 30; and (3) certain limitations
may be placed on the transfer of stock. A close corporation
can be advantageous for small businesses. Note that LegalFilings
does not charge additional fees for electing to form a close
corporation. Simply indicate that you would like a close corporation
on the order form.
How many directors and officers does
my corporation need to have?
Most states only require a corporation to
have one director, however, many states require it to have
several officers (traditionally a President, Vice-President,
Treasurer, and Secretary). Depending on the state, the number
of directors is also dictated by thenumber of shareholders,
with many states requiring a minimum of three.
What filings (papers) are necessary
to incorporate?
Typically, states require the filing of
the Articles of Incorporation, the initial franchise taxes,
and corporate filing fees. LegalFilings can assist you in
the filing of all necessary paperwork. You only need to prepare
and file your Articles of Incorporation.
What are the differences between sole-proprietorships,
partnerships, C corporations, S corporations, and Limited
Liability Companies?
See our chart
for comparison
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