Business Incorporation
Steps required for incorporation in the U.S.
•The Articles of Incorporation (also called a Charter, Certificate of Incorporation or Letters Patent) are filed with appropriate state office, listing the purpose of the corporation, its principal place of business and the number and type of shares of stock.[1] A registration fee is due which will usually be between $25 and $1,000, depending on the state.
•A corporate name is generally made up of 3 parts: “Distinctive element,” “Descriptive element,” and a legal ending. All corporations must have a distinctive element and (in most filing jurisdictions) a legal ending to their names. Some corporations choose not to have a descriptive element. In the name “Tiger Computers Inc.” the word “Tiger” is the distinctive element; the word “Computers” is the descriptive element; and the “Inc.” is the legal ending. The legal ending indicates that it is in fact a legal corporation and not just a business registration or partnership. Incorporated, Limited and Corporation, or their respective abbreviations (Inc., Ltd., Corp.) are the possibilities for this legal ending in the U.S.
Usually there are also Corporate Bylaws which must be filed with the state. These will outline a number of important corporate housekeeping details such as when annual shareholder meetings will be held, who can vote and the manner in which shareholders will be notified if there is need for an additional “special” meeting.
Reporting & Taxation
Taxation
Corporations can only deduct net operating losses going back two years and forward 20 years.
Reporting after incorporation
Assuming a corporation has not sold stock to the public, conducting corporate business is remarkably straightforward and uncomplicated. Often it amounts to little more than recording key corporate decisions (for example, borrowing money or buying real estate) and holding an annual meeting. Even these formalities can often be done by written agreement and do not usually necessitate a face-to-face meeting.
INCORPORATION vs. LLC
Which is Right for Your Business? Both the limited liability company and the corporation offer their owners similar protections and advantages. Both provide owners with protection from liability. Many view the limited liability company as a more flexible business structure while others view the structured nature of a corporation as a benefit. Below is a brief description of some possible benefits of each structure.
Limited Liability Company A limited liability company (called an “LLC”) is a legal entity that, in the eyes of the law, exists separate and apart from its owners. The owners of the LLC are called "members" (as compared to a corporation, where the owners are referred to as “shareholders”). An LLC is formed by filing with the proper state governmental authority (usually the Secretary of State) articles of organization (or the equivalent under the laws of a particular state) and all filing fees are paid. Some state laws may impose additional pre or post-creation requirements as well.There are three primary areas of an LLC that are attractive business owners:
• The LLC, like a partnership, is given a pass through tax treatment, i.e. profits and losses are reported on each owner/member’s individual tax return;
•The LLC, like a corporation, provides liability protection for the members (assuming that potential debts and obligations are incurred in the name of the LLC and not the members individually), which means that creditors can assert their claims only against LLC and not directly against the members (again, assuming that the LLC is properly operated and the members do not personally guarantee any obligation of the LLC); and
•The LLC provides flexibility in management (as compared to the relatively rigid corporate structure) and other issues while preserving the 2 advantages listed above.
Corporations
A for-profit corporation is a business structure formed by filing articles or incorporation (or similarly named documents) with the appropriate state agency (again, usually the secretary of state). A corporation is recognized as being separate and apart from its owners. (The owners are called "shareholders".) As a separate entity, it has its own rights, privileges, and liabilities apart from the individuals who form it. The shareholders of a corporation are generally not personally liable or responsible for the debts or obligations of the corporation. A stockholder's personal liability is usually limited to the amount of his, her or its investment in the corporation and no more. A corporation continues to exist after the death of or transfer of shares by one or more of the shareholders. A corporation pays taxes on its profits, and its shareholders pay taxes on dividends, unless "S" tax status is elected - then the profits and losses of the corporation "pass through" to the shareholders.
Advantages of Corporation
• With the shield against personal liability, the shareholders of a corporation have only the money that they have invested into the company at risk - shareholders are generally not required to pay their own money to satisfy any debt of or judgment against the company.
•Many view the corporate structure as being permanent, adding “instant” credibility and stature to a business.
•A corporation can be the most enduring legal business structure. If a sole proprietor or partner dies, the business ends or it may become involved in various legal entanglements. A corporation's existence may continue on regardless of what may happen to its individual officers, directors or shareholders. Also, ownership of the business may be transferred, without disrupting operations, through the sale of stock.
•Capital can be more easily raised with a corporation. This may be accomplished through the sale of stock or other equity interests.
•Corporations can offer anonymity to its owners. The corporate name is used in the operation of the business, generally not that of the shareholders.
• Tax Advantages - Deductible Employee Benefits. Corporations may offer the advantage of providing tax-deductible benefits such as the cost of health and life insurance, travel and entertainment as well as providing an increased tax shelter for retirement plans.
Legal benefits
•Protection of personal assets. Safeguarding personal assets against the claims of creditors and lawsuits. Sole proprietors and general partners in a partnership are personally and jointly responsible for all the liabilities of a business such as loans, accounts payable, and legal judgements. In a corporation, however, stockholders, directors and officers typically are not liable for their company's debts and obligations. They are limited in liability to the amount they have invested in the corporation (eg: If $100 in stock was purchased, no more than $100 can be lost). Corporations and Limited Liability Companies (LLCs) may hold personal assets like real estate, cars or boats. If one is personally involved in a lawsuit or bankruptcy, these assets may be protected. A creditor of the owner of a corporation or LLC cannot seize the assets of the company; however, they can seize their ownership shares in the corporation, as that is considered a personal asset.
•Transferable ownership. Ownership in a corporation or LLC is easily transferable to others, either in whole or in part. Some states' laws are particularly attractive to this end. For example, with a Delaware Corporation, the transfer of ownership in a corporation is not required to be filed or recorded.
•Retirement funds. Retirement funds and qualified retirements plans, such as a 401(k), may be established more easily.
•Taxation. In the United States, corporations are taxed at a lower rate than individuals. Also, they can own shares in other corporations and receive corporate dividends 80% tax-free. There are no limits on the amount of losses a corporation may carry forward to subsequent tax years. A sole proprietorship, on the other hand, cannot claim a capital loss greater than $3,000 unless the owner has offsetting capital gains.
•Raising funds through sale of stock. Capital from investors can be raised for corporations easily through the sale of stock.
•Durability. A corporation is capable of continuing indefinitely. Its existence is not affected by the death of shareholders, directors, or officers of the corporation.
Credit rating. Regardless of an owner's personal credit scores, corporations acquire their own credit rating, and build a separate credit history by applying for and using corporate credit.
