Corporations
1. What is a Corporation?
2. What is the Structure of a Corporation?
3. What are the Advantages of incorporation?
4. What are the Disadvantages of incorporation?
5. Do I need an Attorney to form a Corporation?
6. In which State should I incorporate my
business?
7. How many Directors are necessary?
8. What is a Registered Agent and is one
needed?
9. What is an S Corporation?
10. What is a Corporate Kit?
11. What is a Federal Employer Identification
Number?
12. How do I begin the process of incorporating
my business?
1.
What is a Corporation?
A corporation is a separate legal
entity that exists independently from its owners. A corporation
is created and comes into existence when articles of incorporation
(charter or certificate of incorporation in certain states)
are filed with the prescribed fees, and accepted by the
proper state authority.
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2.
What is the Structure of a Corporation?
A corporation is owned by stockholders.
While stockholders do not directly manage the corporation,
they influence corporate decisions through indirect actions
such as electing and removing directors, approving or
disapproving amendments to the articles of incorporation
and voting on important corporate decisions.
The members of the Board of Directors
are responsible for managing the affairs of the corporation.
Usually, directors make only major business decisions,
however they supervise and appoint officers who make the
day-to-day business decisions of the corporation.
Officers are responsible for the
everyday management of the corporation. Typically, officers
are appointed directly by the Board of Directors.
A stockholder may serve on the Board
of Directors and also be an officer of the corporation.
In fact, in most states one person is enough to form a
corporation, and that person can be the sole officer,
director and stockholder.
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3.
What are the Advantages of incorporation?
The most important advantage of incorporation
is that it gives its stockholders limited liability. Since
the corporation is a separate legal entity, its stockholders
are protected from the debts and liabilities of the corporation.
Other advantages:
- A corporation has unlimited life.
If an owner dies or sells his interest the corporation
will continue to exist and do business.
- Ability to easily establish insurance
and retirement plans.
- Ownership of corporation is easily
sold or transferred through sale or transfer of stock.
- Capital can be raised through
sale of stock.
- A corporation has centralized
management which may remain in place after sale of business.
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4.
What are the Disadvantages of incorporation?
The primary disadvantage to incorporation
is the possibility of double taxation. The profits of
a corporation are taxed first as income to the corporation,
then second as income to the shareholder. However, all
reasonable business expenses such as salaries and other
operating expenses are deductions against corporate income
which can minimize double taxation. Double taxation can
be eliminated by making an S Corporation election. S Corporations
only pay taxes one time at the tax rate of the shareholder(s).
S Corporations can deduct the same expenses as a C corporation.
- Complexity and expense of forming
a corporation.
- Legal formalities involved with
a corporation.
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5.
Do I need an Attorney to form a corporation?
No, an attorney is not a legal requirement
of forming a corporation. However, certain knowledge is
necessary in order to properly file the
required documentation in the designated state of incorporation.
You can use our guaranteed services
to form your corporation, and save a substantial amount
of money you would otherwise pay an attorney. However,
if you need legal or financial advice as to the type of
entity which would best suit your business needs, consult
your attorney or financial advisor.
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6.
In which State should I incorporate my business?
A corporation is not required to
incorporate in the state in which it operates its business,
however, it is usually best to incorporate in your home
state.
Certain issues are involved when
determining the proper state in which to incorporate your
business. First, you must consider the costs of incorporating
in your home state vs. the costs involved in qualifying
as a foreign corporation in another state being considered.
Second, you must determine the advantages and disadvantages
of each state's corporate laws and tax structure. Generally,
it is considered best to incorporate in the state in which
your business is operating.
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7. How many Directors
are necessary?
Generally, in most states a corporation
is only required to have one director, however you are
permitted to have more. Certain states base the required
number of directors on the number of stockholders. If
the corporation has 3 or more stockholders, then the corporation
must have at least 3 directors. If the corporation has
less than 3 stockholders, then the number of directors
may be equal to or more than the number of stockholders.
The states which have this rule are: CA, CO, CT, HI, LA,
ME, MD, MA, MO, NY, OH, VT and UT.
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8.
What is a Registered Agent and is one needed?
In all states, an individual or service
company must be responsible for receiving important legal
and tax documents. This service is provided by an "agent"
of the corporation who is "registered" with
the state of incorporation. Thus, the term "Registered
Agent." The registered agent must have a valid street
address within the state of incorporation, and be available
during normal business hours to receive documents.
The services performed by a registered agent may include:
- Receiving and forwarding legal
documents.
- Receiving and forwarding franchise
tax and annual report forms.
- Accepting and forwarding service
of process.
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9.
What is an S Corporation?
An S Corporation is merely a corporation
which has elected a special tax status. This tax treatment
permits the income of the corporation to be treated like
the income of a partnership or sole proprietorship in
that the income is "passed through" to the shareholders.
Thus, shareholders report the income or loss which is
generated by an S Corporation on their individual tax
returns. Under these circumstances the "double taxation"
potential is avoided.
In order to be considered an S Corporation,
the stockholders of a properly filed corporation must
elect such status within 75 days of formation for the
current tax year, or at any time during the preceding
tax year. This election is made by filing Form 2553 with
the IRS.
To qualify for S Corporation status:
- Must be a domestic corporation.
- Only one class of stock.
- Not more than 35 stockholders.
- Stockholders must be individuals,
estates or certain trusts.
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10.
What is a Corporate Kit?
Once a corporation has been legally
formed and is ready to complete its organization, it will
require a "Corporate Kit" to maintain certain
of its required records and facilitate stock distribution.
The corporate kit will include:
- Corporate Seal.
- Stock Certificates.
- Stock Transfer Ledger.
- Sample Minutes and By-Laws.
- Minute Book/Binder.
- Miscellaneous Forms.
A Corporate Seal is a small press
into which a document is placed to be embossed. The imprint
made by the seal indicates the corporation's name, state
of incorporation and date of incorporation. Corporate
seals were at one time required by all states, but are
presently optional in some states. However, an impression
made by a corporate seal helps to conveys the mark of
authority upon business documents.
A Stock Certificate is a printed
document used to indicate ownership of shares of the corporation.
The corporate kit supplied by Form-A-Corp contains 20
custom-printed stock certificates which may be issued
at the discretion of the corporation.
The Stock Transfer Ledger contains
a record of the number of shares which have been issued
by the corporation, as well as the dates of issuance,
stock certificate number and the person or entity to whom
the shares were issued.
Most kits contain sample Minutes
and By-Laws to be used as a guide or reference for proper
record keeping. Minutes are written records of meetings
of the Board of Directors or stockholders which document
what has transpired during such meetings. It is extremely
important for the corporation to maintain these records
in order to prove the existence and validity of the corporate
entity.
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11.
What is a Federal Employer Identification Number?
Once the corporation has been formed
and is ready to do business, it is the time to apply for
a federal employer identification number (EIN). Generally,
any corporation doing business within the U.S. is required
to have an EIN. In fact, the EIN is necessary when filing
tax returns and for establishing bank accounts.
A corporation can receive an EIN
by completing and submitting IRS Form SS-4. However, you
can have Form-A-Corp save you this tedious and time consuming
paperwork by completing and submitting the necessary EIN
form on your behalf.
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12.
How do I begin the process of incorporating my business?
Once you have decided the type of
business entity which is best for your business, articles
of incorporation must be filed with the proper state agency
together with certain fees.
Form-A-Corp will provide all necessary
services to ensure that the administrative processes are
completed in the shortest period of time, with the highest
degree of skill and efficiency.
After the articles of incorporation
are filed and accepted by the designated state, your corporation
must hold an organizational meeting at which acts taken
and resolutions adopted by the incorporation director
are approved and recorded, corporate seal is approved,
shares of stock are distributed and officers elected.
The necessary record keeping material, corporate seal
and stock certificates are all included in Form-A-Corp's
corporate kit.
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