Home: Learn: Incorporation FAQ's
Incorporating your business will add to the credibility and prestige of your business, as well as to protect its directors and owners from any personal liability. Also, businesses that have incorporated are free to raise capital by selling shares of stock, own property (such as aircraft, yachts and real estate) in which they are able to benefit from particular tax advantages and keep them protected from liability. Below is a particular list of some of the disadvantages and advantages of incorporating.
What are the disadvantages of incorporating?
The income from corporations is taxed at both the individual level and the corporate level. This means that corporations must pay taxes on the income of the individual’s dividends as well as on the total income of the corporation itself. This procedure of taxation on corporations is known as “double taxation.” It is imperative, therefore, to diligently maintain corporate records in order to offer the business’s owners with the limited liability benefits of a corporation. The corporation’s debt financing may require a personal guarantee by the owners, thus omitting the limited liability of the owners for the loan amount.
What are the advantages of incorporating?
The LLC or corporate founder’s personal liability is limited to the sum of money that has been invested in the corporation (omitting liability for unpaid taxes)
The selling of stock in order to raise capital attracts investors more than other forms of equity
A corporation can continue to exist even in the event of the founder’s death
Stock is transferable within the corporation, allowing the owners to distribute their interest in the corporation without the corporation having to dissolve
Being a legal entity that is separate from its owners, corporations have the right to enter into contracts for the purpose of a lawsuit
The shares belonging to a corporation can easily be distributed among the its family members
Corporations enjoy the benefits of various tax options, such as stock option plans, profit sharing and setting up pensions
What is a registered agent and does my corporation need one?
The registered agent primarily provides an address that is registered in order to act as a local contact for the Secretary of States and other government agencies, as well as in receiving the service of legal papers and documents. The registered agent is the person in charge of receiving all tax notices, notices of law suits on your company, etc. and will forward them on to the corporation.
It is a requirement by all states for corporations that are incorporated in their territory to have a registered agent. One state, which is the state of New York, is an exception to this rule, though all corporations still must supply a physical address for contact. If your corporation exists in the same state that your officers reside in, it is permissible that one of these officers may act as the corporation’s registered agent. However, many corporations often use a professional registered agent in order to keep separate from other corporate mail crucial documents from the state.
Is it necessary to acquire the services of a lawyer in order to incorporate?
It is not necessary to hire a lawyer in order to incorporate. You may prepare and file the extensive paperwork yourself to incorporate, or you may select the professional services of an incorporation firm, such as ours. By selecting CCA to handle your all of your incorporating requirements, you will just need to fill in the order form and file your articles of incorporation. Our experienced staff will take care of all the rest of the details. All the filing fees required are included in the cost for this service.
Is it important where I incorporate?
A corporation is allowed to incorporate in any state it chooses, even if that state is not the state of the business’s particular office location. However, it is best for businesses to incorporate in its home state. Several considerations are involved in choosing the location of incorporations, such as tax laws, the cost of incorporation and general laws of that state that govern the liabilities and actions of a corporation. In most cases, unless a corporation chooses to do business outside of the state of its location and if it is closely held, it is most beneficial for the business to be incorporated within its home state. Incorporating a business within its home state may be more expensive than incorporating in another state, but in the case of a lawsuit, it will keep the corporation from having to defend itself in a foreign state. Also, a business that chooses to incorporate within its home state won’t face any foreign corporation fees, which are likely more costly than that incorporating.
For specific questions regarding the location of incorporating, you may wish to consult an attorney. Thereafter, our company will be happy to help you with all the details of incorporating if you choose to do so. CCA is able to easily and swiftly get your business incorporated in the state that you select.
What is a C corporation?
The most common corporate structure is the C corporation. This corporation is a legal entity that may include an unlimited number of shareholders and is separate from its owners. A distinct advantage of filing as a corporation is that personal liability of the owners for claims against the corporation is limited. The limit of this liability is based on the total sum of money that is invested in the corporation. Also, a corporation existing as a separate entity has a life that is unlimited and can extend well past the life of its owners. The C corporation is an entity with shares of stock representing ownership; therefore, financing a corporation by selling stock is more convenient than selling interests in other ownership forms such as a partnership.
Taxation is the singular disadvantage of a C corporation. Federal taxes on a corporation’s income are paid twice: Once on the corporate level and again as income tax on the corporation’s dividends, the form of income that the corporation passes on to its shareholders. This method of taxation is called “double-taxation."
What is an S Corporation?
When incorporating, you can choose the S corporation which is a taxation election. This form of entity is not completely separate. The popularity of the S corporation taxation status increased because of the Tax Reform Act of 1986. S corporations are often chosen by small business owners because many of the advantages of corporate structures, partnerships and sole proprietorships are combined within this status.
S corporations are similar to the C corporations in its disadvantages and advantages, however, S corporations carry special tax provisions. In a standard C corporation, the federal government taxes profits at the corporate level. Then, as profits are distributed among the shareholders as dividends, the C corporation is again taxed on this income to the individual shareholder. When an S corporation status is selected, this corporation is not responsible for payment of any taxes on its profits; taxes are only paid when dividends are distributed to shareholders as personal income. Therefore, by selecting the S corporation status, business owners can bypass the heavy "double-taxation" of C corporation.
What is a close corporation?
A close corporation which is also defined as a closely held corporation is a corporation in which (1) the stock of the corporation is not to be traded on a public exchange (NYSE, NASDAQ, etc.); (2) the amount of its shareholders must be designated and usually cannot go beyond 30; and (3) particular limitations may be put on the transferring of stock. Small businesses can benefit greatly by being a close corporation. It is important to note that our company, California Corporate Agents does not charge extra fees if you choose to form a close corporation. Simply indicate your choice of a close corporation on our order form.
How many officers and directors must my corporation have?
Most states simply require a corporation to have one director, while other states require a corporation to obtain several officers (usually a President, Vice-President, Treasurer, and Secretary). Based on the state, the number of shareholders a corporation has will dictate the its number of directors. Many states have a minimum requirement of three directors.
What papers or filings are necessary in order to incorporate?
Most states usually require the filing of the company’s Articles of Incorporation, the corporate filing fees and all the initial franchise taxes. California Corporate Agents can assist you in the filing of all the paperwork necessary to incorporate. All you need to do is prepare and file your company’s Articles of Incorporation.