What is a Corporation?
A corporation is a separate legal entity that exists
independently from its owners. A corporation is created and comes
into existence when articles of incorporation (charter or
certificate of incorporation in certain states) are filed with the
prescribed fees, and accepted by the proper state authority.
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What is the Structure of a Corporation?
A corporation is owned by stockholders. While stockholders do not
directly manage the corporation, they influence corporate decisions
through indirect actions such as electing and removing directors,
approving or disapproving amendments to the articles of
incorporation and voting on important corporate decisions.
The members of the Board of Directors are responsible for
managing the affairs of the corporation. Usually, directors make
only major business decisions, however they supervise and appoint
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.
A stockholder may serve on the Board of Directors and also be an
officer of the corporation. In fact, in most states one person is
enough to form a corporation, and that person can be the sole
officer, director and stockholder.
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What are the Advantages of incorporation?
The most important advantage of incorporation is that it gives
its stockholders limited liability. Since the corporation is a
separate legal entity, its stockholders are protected from the debts
and liabilities of the corporation.
Other advantages:
- A corporation has unlimited life. If an owner dies or sells
his interest the corporation will continue to exist and do
business.
- Ability to easily establish insurance and retirement plans.
- Ownership of corporation is easily sold or transferred through
sale or transfer of stock.
- Capital can be raised through sale of stock.
- A corporation has centralized management which may remain in
place after sale of business.
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What are the Disadvantages of
incorporation?
The primary disadvantage to incorporation is the possibility of
double taxation. The profits of a corporation are taxed first as
income to the corporation, then second as income to the shareholder.
However, all reasonable business expenses such as salaries and other
operating expenses are deductions against corporate income which can
minimize double taxation. Double taxation can be eliminated by
making an S Corporation election. S Corporations only pay taxes one
time at the tax rate of the shareholder(s). S Corporations can
deduct the same expenses as a C corporation.
- Complexity and expense of forming a corporation.
- Legal formalities involved with a corporation.
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Do I need an Attorney to form a
corporation?
No, an attorney is not a legal requirement of forming a
corporation. However, certain knowledge is necessary in order to
properly file the
required documentation in the designated state
of incorporation.
You can use our guaranteed services to form your corporation, and
save a substantial amount of money you would otherwise pay an
attorney. However, if you need legal or financial advice as to the
type of entity which would best suit your business needs, consult
your attorney or financial advisor.
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In which State should I incorporate my
business?
A corporation is not required to incorporate in the state in
which it operates its business, however, it is usually best to
incorporate in your home state in which the business is located.
Certain issues are involved when determining the proper state in
which to incorporate your business. First, you must consider the
costs of incorporating in your home state vs. the costs involved in
qualifying as a foreign corporation in another state being
considered. Second, you must determine the advantages and
disadvantages of each state's corporate laws and tax structure.
Generally, it is considered best to incorporate in the state in
which your business is operating.
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How many Directors are necessary?
Generally, in most states a corporation is only required to have
one director, however you are permitted to have more. Certain states
base the required number of directors on the number of stockholders.
If the corporation has 3 or more stockholders, then the corporation
must have at least 3 directors. If the corporation has less than 3
stockholders, then the number of directors may be equal to or more
than the number of stockholders. The states which have this rule
are: CA, CO, CT, HI, LA, ME, MD, MA, MO, NY, OH, VT and UT.
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What is a Registered Agent and is one
needed?
In all states, an individual or service company must be
responsible for receiving important legal and tax documents. This
service is provided by an "agent" of the corporation who is
"registered" with the state of incorporation. Thus, the term
"Registered Agent." The registered agent must have a valid street
address within the state of incorporation, and be available during
normal business hours to receive documents.
The services
performed by a registered agent may include:
- Receiving and forwarding legal documents.
- Receiving and forwarding franchise tax and annual report
forms.
- Accepting and forwarding service of process.
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What is an S Corporation?
An S Corporation is merely a corporation which has elected a
special tax status. This tax treatment permits the income of the
corporation to be treated like the income of a partnership or sole
proprietorship in that the income is "passed through" to the
shareholders. Thus, shareholders report the income or loss which is
generated by an S Corporation on their individual tax returns. Under
these circumstances the "double taxation" potential is avoided.
In order to be considered an S Corporation, the stockholders of a
properly filed corporation must elect such status within 75 days of
formation for the current tax year, or at any time during the
preceding tax year. This election is made by filing Form 2553 with
the IRS.
To qualify for S Corporation status:
- Must be a domestic corporation.
- Only one class of stock.
- Not more than 35 stockholders.
- Stockholders must be individuals, estates or certain trusts.
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What is a Corporate Kit?
Once a corporation has been legally formed and is ready to
complete its organization, it will require a "Corporate Kit" to
maintain certain of its required records and facilitate stock
distribution.
The corporate kit will include:
- Corporate Seal.
- Stock Certificates.
- Stock Transfer Ledger.
- Sample Minutes and By-Laws.
- Minute Book/Binder.
- Miscellaneous Forms.
A Corporate Seal is a small press into which a document is
placed to be embossed. The imprint made by the seal indicates the
corporation's name, state of incorporation and date of
incorporation. Corporate seals were at one time required by all
states, but are presently optional in some states. However, an
impression made by a corporate seal helps to conveys the mark of
authority upon business documents.
A Stock Certificate is a printed document used to indicate
ownership of shares of the corporation. The corporate kit supplied
by CCFS contains 20 custom-printed stock certificates which
may be issued at the discretion of the corporation.
The Stock Transfer Ledger contains a record of the number
of shares which have been issued by the corporation, as well as the
dates of issuance, stock certificate number and the person or entity
to whom the shares were issued.
Most kits contain sample Minutes and By-laws to be used as a
guide or reference for proper record keeping. Minutes are written
records of meetings of the Board of Directors or stockholders which
document what has transpired during such meetings. It is extremely
important for the corporation to maintain these records in order to
prove the existence and validity of the corporate entity.
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What is a Federal Employer Identification
Number?
Once the corporation has been formed and is ready to do business,
it is the time to apply for a federal employer identification number
(EIN). Generally, any corporation doing business within the U.S. is
required to have an EIN. In fact, the EIN is necessary when filing
tax returns and for establishing bank accounts.
A corporation can receive an EIN by completing and submitting IRS
Form SS-4. However, you can have Form-A-Corp save you this tedious
and time consuming paperwork by completing and submitting the
necessary EIN form on your behalf.
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How do I begin the process of incorporating
my business?
Once you have decided the type of business entity which is best
for your business, articles of incorporation must be filed with the
proper state agency together with certain fees.
CCFS will provide all necessary services to ensure that
the administrative processes are completed in the shortest period of
time, with the highest degree of skill and efficiency.
After the articles of incorporation are filed and accepted by the
designated state, your corporation must hold an organizational
meeting at which acts taken and resolutions adopted by the
incorporation director are approved and recorded, corporate seal is
approved, shares of stock are distributed and officers elected. The
necessary record keeping material, corporate seal and stock
certificates are all included in CCFS corporate kit.
