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Do I need an attorney to incorporate
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While you are not legally required to hire an attorney to incorporate, it is a very good idea to consult with a lawyer who is
familiar with the corporate laws in the state in which you plan to incorporate.
After you've figured out where you want to incorporate and what kind of corporation that you want to form, the lawyer can file
the formation documents with the state or you may choose a filing service such as PCF to file the documents.
Filing services are usually a much less expensive alternative to lawyer-filing.
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PCF has helped over 10,000 new businesses through the formation process.
With our Expedited Processing option we will file all required documents in any state by the next business day.
We will also monitor the progress of your application as it makes its way through the state process.
We know who to contact and what it takes to get the job done as quickly as possible.
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What are the types of Corporations
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| C Corporation |
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Most of the large companies that you are familiar with are C Corporations.
(The "C" is for subsection C of the IRS code.)
If you plan to issue a lot of stock to attract investors then a C Corporation may be the best solution.
C Corporations may grow and expand more than the other types of Corporations.
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After-tax profits may be retained in a C Corporation or they may be distributed to its shareholders in the form of dividends.
C Corporations take on a distinctly separate business and tax identity from that of the owners and are subject to corporate income taxes
that are completely separate from their owners.
This means that besides paying corporate income taxes, any dividends to shareholders are taxed again at the applicable personal tax rate.
This is sometimes referred to as "double taxation".
Tax reporting requirements are usually more complex for C Corporations than for the other types of Corporations but corporate
tax rates are usually lower than personal income tax rates.
The owners are removed from personal liability for debt incurred by the corporation.
Should the business go bankrupt, or be faced with a lawsuit, the owner's personal assets are protected.
Shareholders are the owners of a C Corporation.
Owners who work in the business are treated and taxed as employees of the Corporation.
There is no limit to the number of C Corporation shareholders and shareholders need not be US citizens or permanent residents.
C Corporations may have more than one class of stock and shareholders may be other Corporations.
This is different for the other types of corporation.
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| S Corporation |
S Corporations are not treated as separate taxable entities like C Corporations.
The "S" is for Chapter S of the IRS code.
No corporate income tax is paid to the IRS for S Corporations.
For tax purposes net income is "passed through" the S Corporation to the personal income tax of the shareholders.
With an S-Corporation double taxation (paying both corporate and personal taxes) can be avoided while retaining all the legal
protections of a C Corporation.
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In addition, federal law alows a nontaxable Employee Stock Ownership Plan to hold stock in an S Corporation.
This gives shareholders a way to defer some of their taxes.
No tax is paid on these stocks until they are withdrawn from the Plan.
All corporations start out as C Corporations.
In order to be treated as an S Corporation a form must be filed with the Federal government within 90 days of incorporation of the C Corporation.
Eligibility requirements include:
- Less than 75 shareholders
- All shareholders must be either US citizens or resident aliens, certain trusts, estates or organizations
- Business entities and non-resident aliens may not be shareholders
- Only common (not preferred) stock may be issued
- The end of the fiscal year must be Dec. 31
S Corporations are required to hold corporate and shareholder meetings just like C Corporations.
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| Limited Liability Company (LLC) |
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A Limited Liability Company is not a partnership or a corporation but includes features of both.
LLCs are structured like a partnership or a sole proprietorship but with limited liability protection similar to a
corporation.
Because an LLC is considered a separate entity from its owners, the owners cannot be held personally liable for debts and obligations of the LLC.
This is the principal advantage of an LLC.
LLC's provide all the liability protection of a C Corporation but with far less formalities.
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For example, bankruptcy can have serious personel consequences for a sole proprietorship or general partnership.
However, if an LLC declares bankruptcy the owner's assets are considered separate from the assets of the LLC and are
thus protected from bankruptcy.
Each state has different rules governing LLCs.
There are usually special rules for foreign LLCs.
LLCs do not issue corporate stock.
LLC owners are called \"members\" not partners or shareholders.
The formation documents for LLCs are called Articles of Organization and must be filed with a state agency - usually the Secretary of State.
PCF can help you draft the Articles of Organization.
The IRS does not recognize an LLC as a classification for federal tax purposes.
LLC members can elect for the IRS to tax the LLC as a sole proprietorship, partnership, C Corporation, or S Corporation.
This decision may be made within 12 months after the LLC is created.
If a single member LLC does not declare a tax classification within the alloted time it is taxed the same as a sole proprietorship.
A multiple member LLC that does not declare a tax classification is taxed as a general partnership.
There is more information at the IRS web site.
LLCs may be governed by an Operating Agreement.
Operating Agreements may include requirements for profit sharing, ownership responsibilities and almost anything else that involves the management and
operation of the LLC.
Although Operating Agreements are not required in some states, it is highly advisable to have one.
PCF can help you draft an initial Operating Agreement.
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What's the difference between a Corporation and a Limited Liability Company (LLC)
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Some features that make LLCs fifferent from S and C Corporations
- LLCs are not required to to hold director and shareholder meetings
- A board of directors is not required
- The owners and managers may make all management and operation decisions
- Generally have more flexibility in the way that profits are distributed
- Require no corporate minutes or resolutions
- Owners do not have to be residents or citizens of the USA
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How long will it take to incorporate
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Incorporation times vary from state to state.
A list of states along with processing times and state fees is included below.
Click on any state to see more details.
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How much does it cost to incorporate
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Incorporation fees vary from state to state.
The total cost depends on the type of corporation that you want to form as well as any extra options or licenses that may need.
A list of states along with processing times and state fees is included below. Click on any state to see more details.
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What do I need to do after I incorporate
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| Meetings |
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C Corporations and S Corporations must hold corporate and shareholder meetings, at least annually, and must keep minutes of each meeting on file.
A copy of the minutes is evidence that the meetings took place.
The minutes of each meetings must be open for inspection by any shareholder or director.
This meeting requirement is often overlooked and comes into play when the corporation is challenged for any reason.
Keeping proper meeting minutes and documenting resolutions made and approved by the directors is a formality that could save the
corporation a lot of potential trouble.
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| Reporting Requirements |
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Corporate reporting requirements vary by state but usually require an annual or biennial update of some basic corporate information.
Some states require that shareholder reports be sent to all shareholdres each year and some states require a separate franchise tax report each year.
You can refer to the list below to see more specific reporting requirements for each state.
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| Taxes |
All corporations must file an annual income tax return with the IRS.
Corporations must also pay quarterly estimated federal tax payments.
Most states also have a Corporate Income Tax.
Some states have a variable rate and some have a fixed rate.
All income taxes are based on corporate profits.
If the corporation has employees, it must pay employment taxes.
These taxes include federal income tax withholding, Social Security and Medicare taxes, and federal unemployment tax.
If the corporation sells retail products, and the state imposes sales tax on those products,
the corporation is normally responsible for collecting, paying and reporting that tax.
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Failure to perform any of these tasks could result in the default of the Corporation.
A suspended Corporation cannot legally conduct business and may not sue or defend a law suit.
Contracts made by a suspended organization can be voided at the option of the other party.
Most importantly, it may be a criminal act to attempt to exercise any of these functions if your Corporation is in default.
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