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INCORPORATION
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There are many types of legal entities for business; Sole Proprietorship, General Partnership, Corporation, S Corporation, Limited Liability Company and Land of Trust. Each has advantages and disadvantages, and meet different business needs. Sole proprietorship and general partnership may be the simplest, cheapest way to form a company but it has the least tax advantages and protection against liability. Corporation, S corporation, Limited Liability and Land of Trust has the most advantages towards tax and protection from liability. Which legal entity suits your business, you can consult with your accountant, tax advisor or lawyer.
Corporation
Many business owner choose corporation as their business entity for tax and liability purposes. When you own a corporation, your personal assets are separate from your company. If your company gets sued or go bankrupt, people can not go after your personal assets. You are protected from liability. Corporation also has tax advantages. Your corporation is taxed on corporate profits after deducting business expenses. Corporations's director and shareholders has to pay taxes on dividends (personal income tax) they receive. So corporation could result double taxation. Many business owners, however, may avoid double taxation by increasing their own salary and show no profits on corporation. If corporation files sub chapter S election by filing a form with IRS, it can avoid double taxation as well. In addition, corporations are easier to raise funds for your business compared to other entities.
Corporation can be filed in your own state or other states. Some states allow business to incorporate in their states even if your business is physically located and operated out of their states. Each state has different laws and regulations. Popular states to incorporate include Delaware and Nevada. Depending on your business, it may be better to incorporate in your own state. Research and compare for your own business. Here are some reasons why people incorporate in Delaware and Nevada.
Delaware
- Half of fortune 500 companies incorporated in Delaware.
- Business friendly. Has long history with corporations. Has their own court for corporation, Delaware Court of Chancery.
- The cost to incorporate is the lowest in the country.
- No corporate income tax
- No tax on dividens for shareholders in Delaware.
- One man corporation is allowed.
- Corporation doesn't have to be located and hold meetings in Delaware.
- Director, shareholder and officer information don't have to be disclosed in public.
- Modern and flexible corporate law
- No minimum capital requirement
- No sales tax, personal property tax or intangible property tax on corporation
Nevada
- No corporate income tax
- No personal income tax
- No tax on dividens for shareholders
- No franchise tax
- You don't have to share information with IRS.
- Reporting and disclosure requirement is minimal.
- One man corporation is allowed.
- Shareholders doean't have to be public record.
- S corporation election is not recognized since there is no corporate income tax.
- The corporation doesn't have to be located or hold meetings in Nevada.
- Directors and shareholders don't have to be US citizens.
- Corporation should issue 2 newpaper publication within a year in the state.
- Filing fee is $250.
Keep it in mind, though, sometimes incorporating in other state and register as foreign corporation in your home state can be quity costy. Your business have to be authorized to do business in your home state and need to pay filing fees. Depending on your business, you may be responsible for paying franchise fees and other state taxes for doing business in home state. You need to research and compare first for benefit of your business before incorporating in your home state or states above.
In order to incorporate your business, you have to file Articles of Incorporation in your chosen state. Filing fees vary depends on the state. Articles of Incorporation includes corporation name, period of life, type and number of stock, number of shares authorized to be issued, purpose of corporation, players of your corporation, and name and address of incorporator, registered Agent..
Since corporation is separate from its owner, you have to treat corporation as separate entity. It is imporatant to keep corporate formalities. Corporate formalities are records of actions of corporation which include minutes of meeting, resolution, signing documents and contracts, stock ledgers, etc.
Corporation gives many advantages such as privacy, asset protection and tax benefits. You can also own multiple corporations and set up a tax and asset protection strategy to benefit you even more. You should consult with attorney or tax advisor in these matters. Incorporate Online for only $25 plus state fees!
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