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What are the advantages and disadvantages of incorporating my business?
Incorporation can help give your business credibility and prestige, as well as
protecting its owners and directors from personal liability. Additionally, the business
can raise capital through the sale of shares of stock. Corporations can also be used to
own property such as real estate, aircraft, and yachts for certain tax advantages and
for the protection of personal assets from liability. Below is a specific list of some of
the advantages and disadvantages of incorporating.
Advantages of incorporating:
Personal liability of the founders is limited to the amount of money invested in
the corporation (with the exception of liability for unpaid taxes)
Sale of stock for the purposes of raising capital is often more attractive to
investors than other forms of equity A corporation can continue to exist after the death of its founders
Stock may be transferred so that owners can distribute their interest in the
corporation without the corporation dissolving A corporation is a legal entity separate from its owners, so it can enter into
contracts and sue Shares of a corporation can easily be distributed to family members
Corporations have many tax options available, including setting up pension,
profit sharing, and stock option plans
Disadvantages of incorporating:
Corporate income is taxed at both the corporate level and the individual level.
In other words, the corporation must pay taxes on its income and an individual
must pay taxes on the dividends they receive. Thus, corporate income is subject to what is known as "double taxation."
Maintaining corporate records must be done diligently to afford the owners
with the limited liability benefits of a corporation. Debt financing obtained by
the corporation may require a personal guarantee by the owners, thus eliminating the limited liability of the owners for the
amount of the loan.
Access Incorporation Services urges you to consider the corporation as the form of
choice for your business. However, if you have any legal questions or are uncertain
as to which form is best for you, we urge you to consult with your attorney before
making a final decision.
What is a registered agent and why does my corporation need one?
A registered agent, such as Access Incorporation Services, acts as a representative of
the corporation in the state of incorporation. Primarily, the registered agent provides a
registered address for the receipt of service of legal papers and as a local contact for
the Secretary of State and other government agencies. The registered agent receives
notice of any suits, tax notices, etc. and then forwards them to the corporation.
All states require that a corporation incorporated in their territory have a registered
agent (New York is an exception, but an address for contact must still be supplied). If
your corporation is to be located in the state in which its officers reside, one of the
officers of the business can act as its registered agent. However, corporations often
use a professional registered agent to keep the crucial documents sent from the state
separate from other corporate mail. Access Incorporation Services can provide
registered agent services in all 50 states.
Do I need an attorney to incorporate?
No, you do not legally need an attorney to incorporate. You can prepare and file the
extensive paperwork to incorporate yourself, or you can choose to use the
professional services an incorporation firm such as Access Incorporation Services. If
you choose to incorporate through Access Incorporation Services, all you need to do
is fill in the order form and file your articles of incorporation. We’ll do the rest. The
price you pay includes all filing fees.
Where should I incorporate?
A corporation is not required to incorporate in the state of its offices, and can
incorporate in any of the 50 states. Often the best choice for a corporation is to
incorporate in its home state. There are several considerations involved in deciding
where to incorporate, including the cost of incorporation, tax laws, and general laws
governing the actions and liabilities of the corporation. Typically, if a corporation is
closely held and does not plan to do business outside the state in which it is located,
it is desirable to incorporate in its home state. Although incorporating a business in
its home state may be more costly than incorporating in another state, it will prevent
the corporation having to defend itself in a foreign state, should it be sued.
Additionally, by incorporating in its home state, a business will not have to pay the
fees required to do business as a foreign corporation, which may be more expensive
than the cost of incorporating in the first place.
We advise you to consult an attorney if you have specific questions regarding where
to incorporate. Once you have made your decision, Access Incorporation Services
will quickly and easily incorporate your business in the state of your choice.
What are the advantages of incorporating my business in Delaware?
Delaware is the most widely chosen state for incorporation. Some of the reasons for
this are listed below:
- There is no minimum capital requirement – Because no minimum capital is required, a Delaware corporation can be organized very inexpensively. Many states require a corporation to have at least $1,000 in capital.
- Delaware has no sales tax, no personal property tax, and no intangible property tax. Additionally, Delaware state income tax is not levied on corporations not doing business in Delaware.
- One person can be the only Officer, Director, and Shareholder. There is no need to bring additional people into a Delaware corporation to fill offices or director positions. Note that many other states require at least three people to fill the officer and director positions. These officers and directors may be indemnified to that their liability is limited.
- Delaware has a separate Court of Chancery, a business court system specializing in corporate law. What this means for Delaware corporations is a well-developed body of state corporation law, which helps deliver predictable and consistent legal decisions. Additionally, Delaware has corporation friendly anti-takeover statutes which limit the ability of other corporations to institute hostile takeovers.
- Shares of stock in a Delaware corporation owned by non-residents are not subject to any
Delaware taxes.
- Low incorporation costs. A Delaware corporation can be organized without ever even visiting the state. Furthermore, corporate meetings such as shareholder and director meetings can be held anywhere with no need for contact with the state.
- Voting provisions for company decisions can be tailored to require greater-than-majority approval.
- Delaware is a very "corporation friendly" state. One of the greatest sources of state income for Delaware is incorporation fees. As a result of the large number of businesses which choose to incorporate in its territory, Delaware has developed an excellent filing system and a very "customer friendly" Corporation Department. Corporations can pay dividends out of both profits and surplus. Directors may be given the authority to make and alter bylaws.
- The annual Franchise Tax on corporations in Delaware is among the lowest of
all the states.
What is a C corporation?
A C corporation is the most common corporate structure. It is a legal entity separate
from its owners, and may have an unlimited number of shareholders. A major
advantage of any corporate form is that it limits the personal liability of the owners for
claims against the corporation. This liability is usually limited to the amount of money
invested in the corporation. Additionally, as a separate entity, a corporation has
unlimited life, extending it beyond the life of its owners. As an entity with shares of
stock representing ownership, financing a corporation through sale of stock is often
easier than the sale of interests in other ownership forms such as a partnership. The
main disadvantage of a C corporation is taxation. Taxes on a federal level are paid
twice on the income of a corporation, once at the corporate level and once again as
income tax when the income of the corporation is passed to the shareholders in the
form of dividends. This concept is known as "double-taxation."
What is an S corporation?
An S corporation is a taxation election you can choose when you incorporate. It is not
a completely separate form of corporate entity. The Tax Reform Act of 1986 increased
the desirability of electing S corporation taxation status. Many small business owners
elect S corporation status because it combines many of the advantages of sole
proprietorships, partnerships, and corporate structures.
S corporations have the same basic advantages and disadvantages of C corporations,
but they have special tax provisions. In a standard C corporation, the profits are taxed
at the corporate level by the federal government. When the profits are distributed to
the shareholders as dividends, they are once again taxed as income to the individual
shareholder. By electing S corporation status, a corporation does not pay taxes on its
profits, and taxes are only paid when dividends are distributed to shareholders as
personal income. Thus, by choosing to use an S corporation, a business owner can
avoid the often heavy "double-taxation" of a C corporation.
What is a close corporation?
A close corporation, also known as a closely held corporation, is a corporation in
which (1) the stock of the corporation cannot be traded on a public exchange (NYSE,
NASDAQ, etc.); (2) the number of shareholders must be specified, and typically
cannot exceed 30; and (3) certain limitations may be placed on the transfer of stock. A
close corporation can be advantageous for small businesses. Note that Access
Incorporation Services does not charge additional fees for electing to form a close
corporation. Simply indicate that you would like a close corporation on the order form.
How many directors and officers does my corporation need to have?
Most states only require a corporation to have one director, however, many states
require it to have several officers (traditionally a President, Vice-President, Treasurer,
and Secretary). Depending on the state, the number of directors is also dictated by thenumber of shareholders, with many states requiring a minimum of three.
What filings (papers) are necessary to incorporate?
Typically, states require the filing of the Articles of Incorporation, the initial franchise
taxes, and corporate filing fees. Access Incorporation Services can assist you in the
filing of all necessary paperwork. You only need to prepare and file your Articles ofIncorporation.
What are the differences between sole-proprietorships, partnerships, C
corporations, S corporations, and Limited Liability Companies?
See our chart for comparison.
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Inc.
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