When starting a new business, several key decisions must be made regarding the organization, financing, management, and operation of the business. First, you should do your homework – research your business idea and prepare a business plan. Once you’ve decided to go ahead with your idea, you will need to determine the legal structure of your business (whether a sole proprietorship, partnership, LLC, corporation, non-profit, or a cooperative) and obtain financing for the start-up costs. After your business is formed, it must be registered with your state or local government – typically through filing a fictitious business name, or “Doing Business As,” statement – and obtain any permits and licenses required by your city or county. Certain industries require additional permits, such as a seller’s permit, or a license to sell alcohol. Finally, businesses must register for state and local taxes, typically including obtaining a tax identification number from the IRS. Upon formation of the business, then it is usually recommended the business establish policies and procedures for employment, operations, recordkeeping, and other important matters.
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.
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.
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.
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.
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 services to form your corporation. 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.
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.
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.
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.
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.
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.
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 usually 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 typically 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.
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.
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.
We 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 our corporate kit.
A Limited Liability Company ("LLC") is a separate legal entity that offers an alternative to partnerships and corporations by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation. An LLC is created and comes into existence when articles of organization are filed with the proscribed fees, and accepted by the proper state authority.
An LLC is owned by its members. The members of an LLC are like partners in a partnership or shareholders of a corporation. A member will more closely resemble a shareholder if the LLC utilizes a manager or managers, because under that situation the members will not participate in the management of the LLC. However, if the LLC does not utilize managers, then the members will more closely resemble partners because they will have decision making powers in the LLC.
The member’s ownership in the LLC is represented by their respective "membership interest", in the same manner as a partner has an "interest" in a partnership or a shareholder has stock in corporation.
Pass-Through Taxation LLC’s allow for pass-through taxation, allowing earnings of an LLC to be taxed only once. The earnings from an LLC are treated in a similar manner as earnings from a partnership, sole proprietorship and most S corporation.
Limited Liability: The member’s liability is generally limited to the amount of money which the member invested in the LLC. As a result, the members of an LLC receive the same limited liability protection as do shareholders of a corporation.
Flexible Organizational Structure LLC’s are generally free to establish any organizational structure agreed upon by its members. Thus, profit interests may be separated from voting interests.
No, an attorney is not a legal requirement of forming an LLC. However, certain knowledge is necessary in order to properly file the required documentation in the designated state.
If you need legal or financial advice as to the type of entity which would best suit your business needs, it is wise to consult your attorney or financial advisor.
An LLC is managed by its members or by selected managers.
If the LLC is managed by its members, it operates much like a partnership. Each member shares equally in the decision making process of the LLC.
Alternatively, the members may choose to appoint a manager or managers to act in a capacity similar to a corporation’s board of directors. The managers are in charge of the business affairs of the LLC.
If managers are not designated in the articles of organization, the members will be deemed to direct the business affairs of the LLC.
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 LLC 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 formation, and be available during normal business hours to receive documents.
The services performed by a registered agent may include:
The status of an S Corporation provides the elimination of double taxation. However, the S Corporation does not have the flexibility of an LLC in regard to the allocation of income to its members.
An LLC may have an unlimited number of members. However, ownership in an S Corporation is limited to no more than 75 shareholders. Further, an S Corporation cannot have shareholders who are C Corporations, other S Corporations, certain trusts, LLC’s, partnerships or nonresident aliens.
LLC’s are permitted to own subsidiaries without restriction, while S Corporations are not allowed to own 80% or more of another corporation’s shares.
If an LLC wants to take advantage of pass-through taxation, it must meet certain requirements which have been established. To have pass-through taxation an LLC may not have more than two of the following characteristics of a corporation:
Limited Liability
Unlimited Life
Free Transferability of Interest
Centralized Management
The LLC will have limited liability, and if the LLC is managed by managers, the LLC will have centralized management.
Once an LLC has been legally formed and is ready to complete its organization, it will require an "LLC Kit" to complete its Operating Agreement, maintain certain of its required records, and to facilitate distribution of membership certificates.
The LLC Kit will typically include:
LLC Seal
Operating Agreement
Membership Certificates
Book/Binder
Miscellaneous Forms
A LLC Seal is a small press into which a document is placed to be embossed. The imprint made by the seal indicates the LLC’s name, state of formation and date of formation. An impression made by an LLC seal helps to conveys the mark of authority upon business documents.
A Membership Certificate is a printed document used to indicate ownership interest in an LLC. The LLC Kit usually contains custom-printed membership certificates which may be issued at the discretion of the LLC.
Once the LLC has been formed and is ready to do business, it is the time to apply for a federal employer identification number (EIN). Generally, any LLC 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 LLC can receive an EIN by completing and submitting IRS Form SS-4.
Once you have decided the type of business entity which is best for your business, articles of organization must be filed with the proper state agency together with certain fees. There is also a publishing requirement.
We 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, and at the lowest cost.
After the articles of organization are filed and accepted by the designated state, your LLC must hold an organizational meeting and adopt a proper Operating Agreement. The necessary Operating Agreement recording material, LLC seal and membership certificates are all included in an LLC Kit.
The Green Law Group, PLLC
329 Hempstead Turnpike W. Hempstead, NY 11552 Tel: (800) 284-0144 Fax: (631) 824-9384 Info@Bankattorney.us We are a debt relief agency serving individuals and businesses located in New York’s Kings (Brooklyn), Queens, Staten Island, Bronx, Westchester, Nassau and Suffolk Counties (Long Island). We assist people and businesses to file for relief under the Bankruptcy Code.
