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Frequently Asked Questions About Incorporating And LLC formation

Do I need an attorney to form a corporation?
No. We do encourage you to consult with an attorney for professional legal advice. However, to form your corporation, you can use our New Business Assistant services to save start up costs on the administrative aspects of the formation of your corporation.

What are the benefits of incorporating?
Limited Liability
The major benefits of incorporating your business are the limits it affords you against business liability as well as personal debts liability. In case of a lawsuit or judgment against your business, no one can seize your personal assets, your home, car, bank accounts, etc. Your exposure to loss is limited to the assets of the corporation. In the reverse case, if an individual has credit problems, the corporation's assets cannot be touched.

Tax Advantages
There are many more tax options available to corporations than proprietorships or partnerships. For example, a corporation may receive greater tax deductions for health insurance. A corporation may also set up several benefit programs for employees, which are considered a business expense, and can lower the taxable income of the corporation. Leasing of vehicles, pension and retirement funds, including the matching of funds put into retirement plans by the corporation are some examples. Through the issuance of stock, there is a greater opportunity to raise capital.

How many officers are required to form a corporation?
In most states, one person can form the corporation. That person can hold all offices - Board of Directors, President, Secretary and Treasurer.

What is meant by Stockholders, Directors and Officers?
The stockholder(s) are the owner(s)of the corporation; they have made an investment (financial, property or maybe some expertise) in exchange for owning some or all the stock of the corporation. In general, since the stockholders elect the persons who serve on the board of directors, the corporation is controlled by the stockholders. Stockholders who own more than 50% of the corporation's common stock will have the ultimate power in the running of the business.

The Directors are the main managers of the corporation. They create the vision and set the course of the corporation. They also elect the officers of the corporation.

The Officers, which are the President, Secretary, and Treasurer, run the day-to-day operations of the corporation. Each have their specific duty in the running of the corporation, depending on the size of the company. Other titles may be created, for example: Vice President. The larger the corporation becomes, the greater the need to delegate responsibilities.

What is a "C" corporation?
The term "C" corporation stands for the way in which your corporation will be taxed by the IRS. There is a corporate income tax on the profits of a "C" corporation. And, in addition, if a dividend is paid to the stockholders from the corporation's retained earnings, the dividend must be included on the stockholders personal tax return. Therefore, the profits of a "C" corporation are subject to possible double taxation. The corporation you form will be taxed as a "C" corporation this year unless you file IRS form 2553 to elect tax status as a "S" corporation.

What is an "S" corporation?
The term "S" corporation stands for the way in which your corporation will be taxed by the IRS. There is no corporate income tax on profits; instead the annual profit of an "S" corporation is included on the personal return of each stockholder. IRS form 2553 must be filed within 75 days of incorporation to be treated as a "S" corporation for tax purposes. Our New Business Assistant program includes filing the IRS form 2553 if you elect to operate under the S Corp. special tax status.

What is a Limited Liability Corporation?
A Limited Liability Company is a cross between a partnership and a corporation. The advantage of a Limited Liability Company is that most states require fewer procedures to be observed in an LLC compared to a corporation.

Does one stock certificate represent one share of stock?
One stock certificate can represent any number of shares up to the amount authorized on the Certificate of Incorporation. If necessary, at a future date the Certificate of Incorporation can be amended to allow the corporation to insure additional shares of stock.

What is the difference between PAR and NO PAR value stock? Par value stock has a stated value on its face. This is the minimum amount contributed by the stockholder. No par value stock has no stated value. The corporation may issue the stock for any amount per share which is determined by the Board of Directors.

Are there annual filings if I incorporate?
Yes. Corporations file an annual tax return (IRS Form 1120 or 1120S) and a simple one page annual state report which updates information such as the address of the corporation and the names of its officers and directors. State tax filings vary from state to state and you should consult with your accountant for requirements.

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