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INCORPORATING FAQ's
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INCORPORATING FAQ's
What Is a Corporation?
A Corporation is a legal entity that exists separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation (called a charter or certificate of incorporation in some states) are filed with the proper state authority, and all fees are paid.
The organizational structure of a corporation relies on three basic groups: shareholders, directors and officers.
A Corporation is owned by shareholders; however, they do not directly manage the corporation. Instead, they influence corporate decisions through indirect methods such as electing and removing directors, approving or disapproving amendments to the articles of incorporation and voting on major corporate issues.
The board of directors are responsible for managing the affairs of the corporation. Usually, directors make only the major business decisions and supervise and appoint the 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.
It is important to note that a shareholder may serve on the board of directors and as an officer. In fact, in most states one person is enough to form a corporation.
A primary advantage of incorporation is the limited liability the corporate entity affords its shareholders. Typically, shareholders are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder to pay debts of the corporation. In a partnership or sole proprietorship the owner’s personal assets may be used to pay debts of the business.
Other advantages:
- A Corporation’s life is not dependent upon its members. A Corporation possesses the feature of unlimited life. If an owner dies or wishes to sell their interest the corporation will continue to exist and do business.
- Retirement funds, qualified retirement plans (like 401k) may be set up more easily with a corporation.
- Ownership of a corporation is easily transferable.
- Capital can be raised more easily through the sale of stock.
- A Corporation possesses centralized management.
The primary disadvantage to a corporation is double taxation. Profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. They are taxed first as income to the corporation, then as income to the shareholder. All reasonable business expenses such as salaries are deductions against corporate income and can minimize the double tax. Further, making an S Corporation election can eliminate the double tax.
Other disadvantages:
- Complexity and expense of forming a corporation.
- Extensive record keeping requirements.
- Operating a corporation across state lines requires the corporation to qualify to do business in the other state.
An S corporation is simply a corporation that has elected a special tax status with the IRS. This tax treatment allows the corporation’s income to be treated like the income of a partnership or sole proprietorship; the income is "passed-through" to the shareholders. Thus, shareholder’s individual tax returns report the income or loss generated by an S corporation.
To be classified as an S corporation, a corporation must make a timely filing of Form 2553 to the IRS. This election must be made within 75 days of incorporating. A Corporation may later decide to elect S Corporation status, but this decision may not be made until the next year. Total Tax Solutions will file the proper form with the IRS if you chose to elect S Corporation status.
In order to qualify for S Corporation status, the corporation must be a U.S. corporation with only one class of stock and the shareholders must number fewer than 75. These shareholders must be individuals, estates or certain qualified trusts, who consent in writing to the S Corporation election.
Articles of incorporation conforming to 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.
An attorney is not a legal requirement to incorporate. You can prepare and file the articles of incorporation yourself; however, you need to be thoroughly versed in the laws of your state.
You can use our service to incorporate and save money on attorney fees.
If you incorporate through Total Tax Solutions and save money on attorney fees. Complete the form at end of this section and we will prepare and file your articles of incorporation. Additionally, the price you pay includes all filing fees. Just fill out the form and we do the rest.
Choose the name of your corporation carefully. It is very important that you portray the image you want for your new corporation. Legally, the name you select must not be deceptively similar to any existing corporation in your state. For example, if a corporation named West Corp. exists in your state, you probably would not be allowed to name your business West Corporation. It is possible that the name you select will not be distinguishable; therefore, 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 "Corporation", "Incorporation", or an abbreviation such as "Inc." or "Corp." follow the corporate name. Also, many states allow Limited or Company or an abbreviation of these words to be used as well.
Only one director is required in most states although you are allowed to have more. Some states use the number of shareholders in the corporation to determine the minimum number of directors. For example, If the number of shareholders is three or more, then the corporation must have three directors. States which have this rule: California, Colorado, Connecticut, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Missouri, New York, Ohio, Vermont, Utah.
State laws require corporations and LLCs to maintain a Registered Agent in the state that you form your business. The agent’s name and office address are included in the articles of incorporation to give public notice of where to send important documents to your corporation.
The registered agent is responsible for receiving important legal and tax documents including service of process, franchise tax forms, and annual report forms.
If you incorporate in the state where your business is located, an officer, director, or employee can act as your corporation’s registered agent.
After making the difficult decision concerning what business entity is best for your business, Articles of Incorporation must be filed with the state government and initial fees must be paid. Total Tax Solutions will complete these administrative tasks quickly and effectively.
After your Articles are filed, your corporation must hold an organizational meeting where bylaws are adopted and the incorporation process is completed. Share certificates should be distributed to shareholders and these transactions should be recorded on the corporation’s stock ledger. All of this information should be kept in a corporate record book.
Additional organizational steps that may be necessary after the articles are filed include:
- Obtaining a Federal Tax Identification number;
- Corporate bank account opened;
- Accounting records started (accounting books);
- If the Corporation will be conducting business under a name other than the name shown on the Articles of Incorporation, a Fictitious Business Name Statement (also known as D.B.A.– or Doing Business As) may need to be filed.
- If the shareholders want to elect for S Corporation status, the proper forms filed with the State and IRS.
- Once the initial corporate paperwork and filings have been completed the corporate book will have to be updated annually.
Total Tax Solutions can file all the necessary forms, set up the accounting books and maintain the annual corporate minutes to make the incorporating process smooth.
Call (818) 352-0384 for more information.Incorporating Request Form | Limited Liability Companies
Secretary of State Incorporating Information
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Email: info@totaltaxsolutions.com
Voice: (818) 352-0384 Fax: (818) 352-8684
Post Office Box 10865 Glendale, CA 91209-3865
