What is a Corporation?
A corporation is a distinct and independent entity that is separate from its owner. It is legally endowed with rights and responsibilities and has a life of its own independent of the owners (shareholders). It has been defined by the United States Supreme Court as “an artificial being, invisible, intangible and existing only in contemplation of the law.” In essence, a corporation can do almost anything an individual can. Own property, open a bank account, establish credit, obtain a social security number (called a tax identification number),“have children” by setting up subsidiaries, and even “get married” by merging with other corporations and taking their name. The owners of the corporation are called stock or share holders. Unlike a sole proprietorship, the owners are not liable for the corporation’s debts. If a corporation files for bankruptcy protection, its creditors cannot force the shareholders to pay back the corporation’s debts.
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What are the advantages of forming a corporation?
Limited Liability - the owners are not personally liable for debts and obligations of the corporation. They can personally lose only to the extent of their investment in the corporation from purchasing stock.
Capital can be raised more easily than under other forms of business entities through the sale of stock.
Ownership in a corporation is more easily transferable than other business entities. Under most circumstances, shares of stock can be sold without restriction to a third party without having to obtain consent from the corporation itself.
Unlike a sole proprietorship, partnership, or limited liability company, the corporation continues to exist even if an owner (shareholder) dies or sells his shares of the business. Since the corporation is an independent legal entity, it has a continuous existence. It does not cease simply because one of the owners dies or retires.
Corporations are the most well known and widely recognized type of entity.
Corporations often have an easier time setting up insurance, retirement funds, defined - contribution plans, money-purchase plans, and other profit-sharing, pension and stock option plans than other business entities.
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Are there any disadvantages?
Corporations are the most expensive form of business to organize. Record-keeping and filing requirements can be more extensive with a Corporation than any other business entity.
There is double taxation; since both the corporate entity and the individual owners have to file tax returns. (This may be avoided with a “Sub chapter S” corporation.)
Dissolving the corporate existence or changing the structure of the organization, can be more complicated and
expensive than for partnerships, limited liability companies and sole proprietorships.
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How do I decide if I should form a C “general stock” or Sub chapter S corporation?
Generally most people form C corporations that plan on publicly trading the corporation’s stock and intend to have 76 shareholders or more. A C corporation can have multiple classes of stock such as preferred and common shares. A C corporation will be double taxed since both the corporate entity and the individual owners have to file tax returns. For this reason alone, many will find S corporations desirable. However, an S corporation can only be owned by individuals that are U.S. citizens or registered aliens, issue only one type of stock, and is limited to no more then 75 shareholders.
An S corporation eliminates double taxation as the corporation general does not file a tax return. On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of non-separately stated income or loss.
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Where should I form my corporation?
It often makes the most financial sense to incorporate in the state you are doing business in. Some states offer lower incorporation fees or have flexible laws that are favorable to business like Delaware. Keep in mind that if you Incorporate in a state other than the one you are doing business in, you will be required qualify to do business in your home state. In a nut shell, this means that you will have to pay two initial filing fees, pay two Registered Agent fees, file two annual reports, and in some states pay two state tax fees.
There are some instances when it may be beneficial to incorporate in another state instead of in your home state. If you have the hope that your corporation will some day become a publicly traded company, it is often recommended that you incorporate in Delaware first and then qualify to do business in your home state.
If you have decided to conduct business in more than one state, you will be required to qualify “register” to do business in each state. Sun Corporate Filings, LLC can assist you by incorporating your business in the state of your choice and then qualify your corporation to do business in your home state. Please contact us for further information and pricing.
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What titles are allowed for Officers in a corporation?
Every corporation must have three officers:
• President
• Treasurer/CFO
• Secretary (or clerk)
One person may generally serve in all three capacities, although the person’s responsibility and authority necessarily changes through the different offices the person assumes. In addition to these statutory offices, there may be vice presidents and/or assistant secretaries or clerks.
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How many directors are needed?
In most states, only one director is required. In some states, the amount of directors a corporation is required to have is determined by the number of shareholders.
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What does a director do?
A director sits on the Board of Directors. The Board of Directors is the overall management body for the corporation. The board is responsible for establishing all business policies and for approving major contracts and undertakings. The board may also elect the president. Ordinary business practices of the corporation are carried out by the officers—and employees—under the directives and supervision of the directors.
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How is a corporation organized and managed?
There are three groups of individuals that are responsible for the organization and management of a corporation; officers, directors, and shareholders.
Ownership – Corporations are owned by its shareholders. Shareholders do not manage or directly make decisions on behalf of the company. Typically, the more stock a shareholder owns the more voting power he/she has. Often shareholders vote on major corporate issues such as considering an amendment to the Articles of Incorporation, Mergers, and electing or removing directors.
Overall management – Directors who are elected by the shareholders, are responsible for making major decisions. They are the ones who propose amendments and mergers. They also decide who the officers of the corporation will be.
Corporate Officers – Officers of the corporation are hired by the Board of Directors. Officers such as the President/CEO, Treasurer/CFO, and Secretary are responsible for managing the day to day operations of the corporation.
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How many people are required to form a corporation? Can I form a corporation by myself?
Yes, in most states you can form a corporation by yourself provided you are over the age of majority (18 in most states). For tax purposes, the IRS as well as most states, recognizes and allows single person for profit corporations.
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Are there any restrictions on how I name my corporation?
Yes there is. Most states require that a corporation end with the words Incorporation, corporation or limited or end with the abbreviation Inc., Corp., or Ltd.
Most states do not allow a corporate name to contain the words: cooperative, bank, trust, trustee, insurance and insurer. However, if your corporation is going to be a cooperative, bank or insurer, many states require that you obtain written permission from the commissioner in charge of the institution that controls and/or regulates that particular industry. Sun Corporate Filings, LLC does not assist in obtaining permission from any state commissioner for the use of a name. We request that our customers obtain written permission for use of their name prior to starting incorporation services with Sun Corporate Filings, LLC.
In addition to the ending, most states will not allow you to register your corporation if the name is exact or "likely to mislead the public or which is the same as, or resembles so closely as to tend to deceive," the name of a domestic or foreign (out-of-state or country) corporation. In addition, the corporate name may not falsely imply governmental affiliation. Sun Corporate Filings, LLC will check the name availability with the State filing agency prior to submitting your documents.
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What is a Registered Agent or Agent for Service of Process and why is it required?
A registered agent is typically an individual, business entity, or in some states - a corporation that has filed additional paperwork with the state filing agency so they can become a registered agent. If your corporation is ever involved in a lawsuit, the plaintiff’s attorney and or the court, will serve your corporation via a process server to inform you of the suit. Even though a corporation is a separate entity, it can not answer the door and physically accept the court document in its hand. Therefore, state filing agencies require that a corporation designates a Registered Agent. The state filing agency requires that the Registered Agent maintains a physical address (no P.O. Boxes or PMB’s) in the state the company is doing business in. The Registered Agent is also required to be available at the physical address Monday through Friday during normal business hours to accept service of process. The name and address of the Registered Agent will become public record that anybody can access. Sun Corporate Filings, LLC can eliminate all of the above concerns. For a small annual fee, Sun Corporate Filings, LLC will appoint a Registered Agent to act on your company’s behalf. The Registered Agent will take on the responsibility of being served and forward all service of process to your company immediately. For more information, please click here.
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Do I need an attorney to form my corporation?
Legally it is not required. Sun Corporate Filings, LLC can draft, sign as Incorporator, and file your documents with the State filing agency. We can also provide your corporation with Registered Agent services, prepare general corporate bylaws, and provide you with a corporate kit to keep and maintain your records. We are able to provide all these services at a fraction of the price an attorney would charge. In fact, many attorneys rely on Sun Corporate Filings, LLC to provide them with formation services for their clients. We have been trusted in the legal community for over five years to competently handle incorporation services for attorneys and accountants.
However, if you have particular questions about how the laws in your state will affect your corporation, we recommend that you speak to a competent attorney to answer your legal questions.
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What is a publication requirement and are there publication requirements for a corporation?
Some states require new corporations or newly qualified corporations to publish in a widely circulated newspaper some information about their business. Currently, the only states that require corporations to publish are Arizona, Georgia, Nebraska and Pennsylvania. Sun Corporate Filings, LLC can help your company meet its filing requirements in all four states for an additional service fee or you can make arrangements on your own. Please contact us for further questions regarding publication.
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How is a corporation taxed?
C-Corporation
At the federal level
In forming a corporation, prospective shareholders transfer money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to compute its taxable income. A corporation can also take special deductions.
The profit of a corporation is taxed to both the corporation and to the shareholders when the profit is distributed as dividends. However, shareholders cannot deduct any loss of the corporation.
At the state level
Depending upon the state, your corporation may be required to pay an annual tax or franchise tax. In California, the Franchise Tax Board imposes an $800.00 minimum tax that is due in the beginning of the fourth month of the second year. In addition, the corporation will be required to pay the minimum tax every year for the life of the corporation. Since each state is different, we recommend that you speak to your accountant or tax preparer for specific tax questions.
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S-Corporation
At the federal level
An eligible domestic corporation can avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S corporation. Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of non-separately stated income or loss.
At the state level
Depending upon the state, most S corporations have to pay the same annual tax or franchise tax as C Corporations. Since each state is different, we recommend that you speak to your accountant or tax preparer for specific tax questions.
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How do I start the incorporation process? How long will it take SCF to process my order? What is the procedure? I want to get started right away!
1) Go to our order page and click on Requirements to find out exactly the type of information you will need in order to proceed.
2) Choose a service package depending upon your needs. Click on each package to see what is included. Feel free to ask questions about our packages.
3) View the additional Products and click for more information.
4) Place your order on line. All transactions are secure.
When SCF receives your order during the business week, it will be processed within 24 business hours or less.
1) We verify that you have provided all the information that we requested. We will contact you if anything is missing or incorrect. Please make sure you give us an e-mail address that is checked often or a phone number that you can be reached. If we cannot reach you, your order will be slowed.
2) We check name availability with the state filing agency (available in most states).
3) We draft your document, prepare all required copies and checks.
4) If you have chosen the Standard Package, we will send your document directly to the state for filing. If you have purchased the Federal Express option to and from the state filing agency, your document will be sent via Federal Express. Otherwise, it will be send via first class mail.
5) If you have chosen the Standard Express Package, we will either utilize an expedited service that the state agency provides or if unavailable, we will send your document to a courier service. They will hand walk your document to the state filing agency for filing. You will have the option to buy an expedited package. You will notice the state turnaround times next to each package. For example, the Delaware Secretary of State takes an average of 40 business days to process non rush orders. If you purchase the Standard Expedite package, the Delaware Secretary of State takes an average of 7 business days to process a rush order. This time frame does not include the first 24 hours of order processing, mail time (to and from the Secretary of State), or any additional services you have ordered. The turnaround times mentioned ONLY apply to how long the Secretary of State will take to process your document. Please contact us with any questions you may have regarding turnaround times.
6) Once your document has been filed and it has been received back in our office, we will scan a copy of the document for you to view on line. Simply go to check order status.
7) We will begin processing any additional items you have purchased. For example: if you have ordered the EIN form preparation, we begin processing the document within 24 business hours. Once completed, we will scan the document on line for you to view under check order status. Then we will return all your documentation back to you using the method you have chosen.
8) If you have ordered a Corporate Kit, due to custom work, you will receive your customized kit under separate cover in 3-5 business days.
9) All documents will be returned via Federal Express, 2nd day air. You will have the option to upgrade up to Priority overnight for an additional fee.
FAQ: Why am I required to pay for Federal Express? Other incorporation service companies send the final package using First Class mail and it is free. Please explain.
Answer:
1) Federal Express guarantees delivery on the 2nd business day. We want to make sure you receive your document fast so you can start your business.
2) After spending your money on our services and state fees, it would be a tragedy if we sent your final package via First class mail and it was lost by the postal service.
3) FedEx generates a tracking number that would allow you to track the package. You could verify when we sent the package to you and you can make sure you are available for delivery. If we used First class mail, we could not prove that we sent your document to you.
4) FedEx provides proof of delivery that ensures us that you received your document. If we used First class mail, there is no proof of delivery and if you did not receive the package, you could not prove that it never arrived.
5) Although rare, if FedEx lost your package, it would be insured up to $100.00. First Class mail offers no insurance.
6) Our Merchant Services Provider requires that we provide proof of delivery for any services purchased using your credit card.
In a nutshell, FedEx protects you as the consumer and Sun Corporate Filings, LLC. Feel free to contact us with any questions.
Click here to order.
Sun Corporate Filings, LLC always suggests that you seek the advice of a competent attorney or accountant to answer any legal or tax questions you may have.
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