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Who Should Incorporate; Where, What (Corporation, LLC) And How

What is a corporation? Is an attorney necessary?
The organizational structure of a corporation. Where to incorporate.
What is an S Corporation? Naming your corporation.
The advantages of forming a corporation. Number of directors needed.
The disadvantages of forming a corporation. Why do I need a resident agent?
Paper work involved. Getting started with the incorporation process. 

What is a corporation?

A corporation is a legal entity, existing separately from its owners. A corporation is created when proper articles of incorporation (or the equivalent under the laws of a particular state) are filed with the proper state authority, and all fees are paid. State laws typically impose additional pre or post-creation requirements as well.

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The organizational structure of a corporation.

A corporation is owned by its stockholders, although they do not directly manage the corporation. They elect (and can remove) the board of directors.

The board of directors is responsible for managing the affairs of the corporation, and the directors normally make the major business decisions and supervise and appoint the officers, who make the day-to-day decisions of the corporation and are responsible for everyday management.

In most states, one person can be the sole stockholder, the sole director, and the only officer.

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What is an S corporation?

An S corporation is a corporation which has elected a special tax status with the IRS, which allows the corporation's income to be treated like the income of a partnership or sole proprietorship, with the income "passed-through" to the stockholders, whose individual tax returns report the income or loss generated by the S corporation. 

To be an S corporation, a corporation must timely file Form 2553 with the IRS, generally within 75 days of incorporating.

To be an S Corporation, a corporation must (at this time) have only one class of stock and less than 35 stockholders, who must be individuals, estates or certain qualified trusts, and consent in writing to the S corporation election. 

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The advantages of forming a corporation.

The primary advantage of incorporating is limiting the liability of stockholders, directors and officers. Unless they personally guarantee them, such persons are not liable for the debts and obligations of the corporation. In a partnership or sole proprietorship, creditors may seize personal assets of the participants to pay debts of the business. 

Additionally, (1) a corporation normally has perpetual existence, so that if a stockholder dies or wishes to sell out, the corporation continues to exist and do business and (2) capital is generally easier to raise. 

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The disadvantages of forming a corporation.

The primary disadvantages are (1) the work involved in, and the expense of, forming a corporation and (2) after-incorporation record keeping requirements.

Other disadvantages include the possibility of double taxation if the S Corporation election is not made and if care is not taken to assure that there is no net profit after the deduction of reasonable business expenses, including salaries. In this regard, it should be noted that if a regular corporation (as opposed to an S Corporation) has a net profit after all expenses are deducted, there may be a tax at the corporate level on that net profit, and an additional tax when that net profit is paid out to the stockholders as dividends. 

Additionally, when a corporation does sufficient business in another state (such as opening an office in that state), state laws generally require the corporation to qualify to do business in the new state. 

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Paper work involved.

First, articles of incorporation in accordance with state law must be prepared and filed with the proper state authorities and filing fees, initial franchise taxes, and other initial fees must be paid. Second, bylaws and organization minutes of the corporation must be prepared.

If you incorporate through us, you have two choices: (1) "bare-bones" incorporation (like most non-lawyer services) where we take care of the first item above and you deal with the second, or (2) complete service, where we take care of both the first and second items, do stock certificates and investment letters for you and provide you with a Right Of First Refusal Agreement and check lists for immediate and future use. For the difference in price, see fees

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Is an attorney necessary?

No, but if you are going to pay as much for non-lawyer assistance, why not have the benefit of competent professional help? There is a reason all the big guys use lawyers. 

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Where to incorporate.

You should probably incorporate in your home state.

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Naming your corporation.

The name you select must not be the same or deceptively similar to an existing corporation in your state. For example, if a corporation named Hyperlinks Corp exists in your state, you very likely would not be allowed to name your business Hyperlinks Corporation, and you probably couldn't call it Hyperlinx Corp either. Since it is possible that the name you select will not be distinguishable, we ask for a second choice on the incorporation order form

Additionally, the name you choose must show your business is incorporated. Most states require that the corporation name be followed by Corporation, Incorporation or an abbreviation (Corp., Inc.). Many states also allow Limited or Company or an abbreviation of those words.

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Number of directors needed.

Most states only require one director, but you can always have more. Some state laws provide that if the number of stockholders is three or more, then the corporation must have three directors, but if the corporation has less than three stockholders, then the number of directors may equal the number of stockholders. 

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Getting Started

After you have dealt with the questions above, articles of incorporation must be filed with the state government and initial fees must be paid. We'll take care of that for you, professionally and promptly. 

After your Articles are filed, your corporation must hold an organizational meeting where bylaws are adopted and the incorporation process is completed. Stock certificates should be distributed to stockholders and records kept of such distributions. 

Non-lawyer incorporation services typically sell you a book with sample bylaws, sample organization minutes and sample stock certificates. With them, it's your job to comply with state law requirements by doing the actual bylaws, the actual organizational minutes and the actual stock certificates. Moreover, you are left on your own as to subsequent record keeping.

In most states, neither an expensive book nor a seal is required. For $125 instead of the $60-$100 you pay for these normally unnecessary items, we will do the actual bylaws, do the actual organization minutes, do the actual stock certificates, provide you with checklists to assist you in subsequent record keeping and provide you with a Right Of First Refusal Agreement and the forms and instructions you need to make your S Corporation election (if desired) yourself. 

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