Generally, the owner(s) must file the “articles of incorporation” or “certificate of formation” with the state government in which their business is located, along with other paperwork that varies from state to state, and the payment of an appropriate filing fee. Please contact us for assistance in forming your C Corporation.

An S Corporation is a type of corporation that has a special tax status with the IRS. The formation requirements are similar to that of C Corporations, but with the addition of a special form – IRS Form 2553 – that must then be filed in order to have the government recognize your business’s status as an S Corporation. This special tax status eliminates the double-taxation that can occur with a C corporation’s income. As a result, business profits or losses "pass-through" to shareholders and are then reported on their individual tax returns. Any tax due is paid by shareholders at their individual tax rates, and no tax is paid at the corporate level.

Virtually all states require corporations to have a registered agent in the state of incorporation. The registered agent receives important legal and tax documents for the corporation (including important mail sent by the state, such as annual reports or statements, tax documents, and service of process relating to lawsuits), must have a physical address (no P.O. Boxes) in the state of incorporation, and be available during normal business hours. Post office boxes and private rented mailboxes are NOT permissible for this purpose. Registered agents are not only required by most entity types, but they are also very helpful in ensuring that important documents are professionally and discreetly handled. It is for this reason that almost all businesses use a registered agent service. Please contact us for assistance in obtaining a Registered Agent.

Share par value. The par value of a share is its minimum stated value and common par values are $0.01, $1.00 or no par. The actual value of a share is its fair market value, or what someone is willing to pay for it. For public companies, actual value is determined by the price that investors are willing to pay for each share on a national exchange. For private companies, the actual value is typically determined by the overall corporation value or book value.

C Corporations may have more than one type of stock. If a corporation plans to authorize both common and preferred shares of stock, this must be included (along with voting rights information) in the Articles of Incorporation. Preferred shares typically give shareholders preferential payments of dividends or distribution of assets, if the company ends operations. And please remember – it is not possible to define preferred shares verses common shares for S Corporations, since they only have one type of share.

Sometimes referred to as a “certificate of formation”, this document provides the state with necessary information on your business. The information included on this document will become publically available, and can be accessed by anyone. It must include: 1) your desired corporate name; 2) the purpose of your business; 3) the identification of your registered agent; 4) the identification of the incorporator, who is a person or company preparing and filing the articles of organization 5) the number of authorized shares of stock you plan on having; 6) the share par value; 7) whether there are any preferred shares, and if so, voting rights (it is not possible to identify this for S Corporations). The way to satisfy these requirements may vary from state to state – for example, some states require that the purpose of your business be stated in a very general way to indicate that the business is formed to engage in “all lawful business,” while other states require a more specific explanation of the products and/or services your company will provide. Please contact us for assistance in preparing your Articles of Incorporation

Corporate by-laws outline in writing the structure and day-to-day rules of your corporation, and provide comprehensive guidelines for keeping things running smoothly. One important role of the by-laws is to specify the duties and responsibilities of a corporation’s board of directors, executive committee members, and other important individuals. The by-laws also determine how those in charge are nominated or elected, and they help settle any disputes among parties. Since it is such an important document, corporate by-laws they must be formally adopted, and formally amended when there are any changes. It is very important that bylaws be customized to your organization’s needs. Please contact us for assistance in preparing by-laws for your business.

The Articles of Incorporation state the basic outline of the company and generally provide information such as the name of the person organizing the corporation; the number of shares the corporation can issue, if applicable; the names of the corporation's Board of Directors; and the location of the corporation. By-laws go into detail about the corporation’s operations and structure, and covers such topics as how the Board of Directors and/or officers are elected, how meetings are conducted, and the types and duties of officers.

The process is relatively straightforward and inexpensive. To start a sole proprietorship, you do not need to file any papers. Instead, you simply go into business. In other words, if you'll be the only owner of the business you're starting, your business will automatically be a sole proprietorship, unless you incorporate it or organize it as an LLC. However, it is extremely important that you do not neglect any business licenses, permits, and taxes, as these types of business filings are still required!

Of course! Many people who start their business as a sole proprietorship do so because it is very straightforward and uncomplicated. However, in the event your business has more than one owner, or in the event your business has become well established, you should strongly consider migrating to another entity type, such as an LLC or a Corporation. Please contact us for assistance in converting your sole proprietorship to another business type.

The most common type of nonprofit business is referred to as a 501(c)(3). A 501(c)(3) is a public charity or private foundation that is established for the purpose of providing religious, educational, scientific, literary, or other charitable services.

C Corporations offer a great deal of flexibility in terms of the number and types of owners. It is for this reason that majority of the big companies you’ve heard of are C Corporations. C Corporations also offer flexibility in terms of classes of stock, making them attractive for potential investors, or as an incentive to potential employees relating to stock options. Also, C Corporations allow shareholders to avoid “double taxation” associated with other business types. There are many other benefits as well, as you can read in our other FAQs and Tutorials.

S Corporations have certain features that may make them unfavorable in certain situations. For example, S Corporations can only have one class of stock. As a result of this limitation, there cannot be different classes of investors entitled to different types of rights or different dividend amounts, which is something that may be important if you are trying to get investors for your business (people who invest first, or invest a lot of money, often would like to receive higher dividend rates, or greater rights, in exchange for investing first). Additionally, S Corporations cannot have more than 100 shareholders. Also ownership (i.e., foreign ownership) is prohibited. So while avoiding double taxation is great, an S Corporation might not be right for you.

S Corporations have more formalities in terms of their day-to-day operating requirements. For example, S Corporations must adopt bylaws, issue stock, hold initial and annual director and shareholder meetings, and keep meeting minutes with corporate records. Alternatively, LLCs have “recommended” formalities for their day-to-day operating requirements, such as adopting an operating agreement, issuing membership shares, holding and documenting annual member meetings and documenting all major company decisions. In short, LLC’s don’t need to do anywhere near as much as S Corporations.

Additionally, LLC’s have a choice as far as how the business is managed. If managed by members (i.e., owners), then the LLC operates much like a partnership. If run by managers, then the LLC more closely resembles a corporation, and members will not be involved in the daily business decisions. On the other hand, S Corporations have directors and officers. The directors oversee corporate affairs and handle major decisions, but do not get involved in daily operations. Instead, directors elect officers who manage daily business affairs.

Another difference relates to the existence of the business. S corporations can exist forever. However, for LLC’s, some states require the LLC to list a dissolution date (i.e., end date) of the business in the formation documents. Also, for LLC’s, some events, such as the death or withdrawal of a member, can cause the LLC to dissolve.

Also, in terms of ownership transfers, the stock of an S Corporation is freely transferable, as long as certain IRS ownership restrictions are met. So there is a great amount of flexibility in terms of who can be an owner of an S Corporation. However, LLC members cannot freely transfer their ownership stake in the business without obtaining approval first in most cases. Thus, LLC’s are much more restrictive in terms of ownership changes.

These are but a few of the many differences between an S Corporation and an LLC. If you need further clarification on what type of business might be right for you, we are happy to help any way we can; however, we strongly encourage you to reach out to an accountant or legal professional. If this applies to you, please contact us, and we would be happy to help you connect with someone.

Companies that are incorporated in one state but doing business in another state(s) must register to transact business as a foreign entity in those state(s).

In order to determine which state will be the best state for your business, you should research that state’s laws and tax requirements related to Corporations, LLCs, and other types of businesses. For example, if foreign qualification will be necessary, you may want to consider whether a state imposes an income tax on corporations and LLCs, as well as whether there is a minimum tax or a franchise tax. This is important to consider because the added costs of fulfilling the ongoing filing and taxation requirements imposed by the state of incorporation and state(s) of foreign qualification often outweigh the perceived benefits of incorporating outside the home state. You may also want to consider calculating your company's projected revenue for its first few years of existence and then evaluate states in terms of the true amount of taxes required, to see if there may be an advantage. These are often complicated considerations that require the assistance of a tax professional or attorney.