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DECISION MAKERS GUIDE TO INCORPORATING

1. Should you incorporate in Delaware, incorporate in Florida, incorporate in Nevada, form a California Corporation or incorporate in the state where you do business?

2. Should you form an LLC or incorporate and elect an S Corporation?

3. Do you need an EIN for your new incorporation or LLC?

4. How can you structure an LLC to achieve the best tax shelter?

5. What is a Registered Agent and DO YOU NEED ONE when you incorporate or form an LLC?

6. Do you need an attorney to incorporate or form an LLC?

7. How do you begin to incorporate or form an LLC?

1. Should you incorporate in Delaware, incorporate in Florida, incorporate in Nevada, form a California Corporation or incorporate in the state where you do business?

You can incorporate in any one of the 50 states or the District of Columbia rather than the state where your business is doing business. 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.

Three major issues are involved when determining the proper state in which to incorporate your business.

  1. The location of your corporation's facilities.
  2. The cost of incorporating in that state versus the additional cost of incorporating in another state and then qualifying that corporation to do business in the state of operations – double incorporation costs.
  3. The advantage and disadvantages of the tax impositions of one state versus or in addition to the other.
  4. Corporation related laws and judicial system.

For larger entities the choice may be between the state of operations, Delaware and Nevada or Florida. If it is a smaller corporation that primarily works in one state, it is usually best to incorporate in the state of operations. If for no other reason - The cost of local filing is less than filing in another state and then registering as a foreign corporation in the state of operation.

An out-of-state incorporation that qualifies to do business in the local state may also be subject to taxes, annual fees and even corporate laws in the state of incorporation AND the operating state. Thus, the actual advantage of incorporating in a state with very low or no corporate income tax is not as great as it appears, if your business must still qualify to do business in its state of operations.

We cannot provide legal direction about where to incorporate. We can only point out some basic considerations. You should consult your attorney if you are in need of legal input about whether, where and in what form to incorporate. We can only provide the administrative tools to perform the actual incorporation or LLC formation.

 

2. Should you form an LLC or incorporate and elect an S Corporation?

An S Corporation eliminates 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 35 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.

You can use our guaranteed services to form a corporation or form an LLC, and save a substantial amount of money you would otherwise pay an attorney. However, if you need legal or financial advice as to the type of corporation or LLC that would best suit your business needs, consult your attorney or financial advisor.

 

3. Do you need an EIN for your new incorporation or LLC?

Once the LLC or 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 LLC or 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 LLC or Corporation can receive an EIN by completing and submitting IRS Form SS-4. However, you can have FORM A CORP save you this tedious paperwork by having Form-a-Corp complete and submit the necessary EIN form on your behalf.

 

4. How can you structure an LLC to achieve the best tax shelter?

If an LLC wants to take advantage of pass-through taxation, it must meet certain pre-established requirements. To have pass-through taxation an LLC may not have more than two of the following characteristics of a corporation:

  1. Limited Liability
  2. Unlimited Life
  3. Free Transferability of Interest
  4. Centralized Management

The LLC can have limited liability, and (if the LLC is managed by managers), the LLC will have centralized management-thus only two of the above attributes.

 

5. What is a Registered Agent and DO YOU NEED ONE when you incorporate or form an 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 or 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 tax and report forms
  • Accepting and forwarding service of process

More information on Incorporation and Online Incorporation Services

 
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