F.A.Q.
Corporation vs. LLC
What is a corporation?
A corporation is a legal entity that exists separately from its owners.
Creation of a corporation occurs when properly completed articles of incorporation are filed with the correct state authority, and all fees are paid.
What is the difference between an "S" corporation and a "C" corporation?
All corporations start as "C" corporations and are required to pay income tax on taxable income generated by the corporation. A C corporation becomes a S corporation by completing and filing federal form 2553 with the IRS. An S corporation's net income or loss is "passed-through" to the shareholders and are included in their personal tax returns. Because income is NOT taxed at the corporate level, there is no double taxation as with C corporations.
Subchapter S corporations, as they are also called, are restricted to having fewer than 100 shareholders, who must be individuals (S Corps cannot be owned by other corps) who are not nonresident aliens.
Do I need an attorney to incorporate?
No! Having an attorney is not a legal requirement to incorporate.
Once you have decided, we can form your corporation and save you money.
How do I know if my name is available?
We will request your two top name choices. We will check these as part of your order. If neither of these is available, we will contact you for other name choices.
How do I name my corporation?
First, we recommend that you spend some time coming up with a name for your corporation. Although each state has different rules concerning the naming of your corporation, the most common rule is that it must not be deceptively similar to another already formed company. The corporate name must include a suffix. Some examples are "Incorporated", "Inc.", "Company", and "Corp."
What are the benefits of incorporating?
The primary advantage of incorporating is to limit your liability to the assets of the corporation only. Usually, shareholders are not liable for the debts or obligations of the corporation. So if your corporation defaults on a loan, unless you have personally signed for it, your personal assets won't be in jeopardy. This is not the case with a sole proprietorship or partnership. Corporations also offer many tax advantages that are not available to sole proprietors.
Some other advantages include:
- A corporation's life is unlimited and is not dependent upon its members. If an owner dies or wishes to sell their interest, the corporation will continue to exist and do business.
- Retirement funds and qualified retirement plans (like 401(k)) may be set up more easily with a corporation.
- Ownership of a corporation is easily transferable.
- Capital can be raised more easily through the sale of stock.
- A corporation possesses centralized management.
What is a Registered Agent?
Most every state requires that a corporation have a registered agent. That agent must have a physical location in the formation state. The registered agent can typically be any person (usually a resident of the state) or any properly registered company who is available during normal business hours to receive official state documents or service of process (lawsuit).
What is a Federal Tax Identification Number or EIN?
Your corporation is required to have an Employer Identification Number (EIN) also known as your Federal Tax Identification Number so that the IRS can track payroll and income taxes paid by the corporation. But, like a social security number, an EIN is used for most everything the business does. Your bank will require an EIN to open your corporate bank account.
How do I get started?
Once you have decided on a name, we can begin the incorporation process as your registered agent. Please contact us directly so that we can properly advise you, based on your specific circumstances.
Combining the best aspects of Partnerships and Corporations.
A Limited Liability Company, or LLC, is not a corporation, although it offers many of the same advantages. An LLC is best described as a combination of a corporation and a partnership. LLCs offer the limited liability of a corporation, while allowing more flexibility in managing the business and organization.
An LLC does not pay any income tax itself. It's a "flow through" entity that allows profits and losses to flow through to the tax returns of the individual members, avoiding the double taxation of C-Corporations.
While setting up an LLC can be more difficult than creating a partnership (or sole proprietorship), running one is significantly easier than running a corporation. Here are the main features of an LLC:
· Limited Personal Liability
Like shareholders of a corporation, all LLC owners are protected from personal liability for business debts and claims. This means that if the business itself can't pay a creditor -- such as a supplier, a lender, or a landlord -- the creditor cannot legally come after any LLC member's house, car, or other personal possessions.
· LLC Taxes.
Unlike a corporation, an LLC is not considered separate from its owners for tax purposes. Instead, it is what the IRS calls a "pass-through entity," like a partnership or sole proprietorship. This means that business income passes through the business to the LLC members, who report their share of profits -- or losses -- on their individual income tax returns. Each LLC member must make quarterly estimated tax payments to the IRS.
· LLC Management.
The owners of most small LLCs participate equally in the management of their business. This arrangement is called "member management."
Who should form an LLC?
You should consider forming an LLC (limited liability company) if you are concerned about personal exposure to lawsuits arising from your business. For example, if you decide to open a store-front business that deals directly with the public, you may worry that your commercial liability insurance won't fully protect your personal assets from potential slip-and-fall lawsuits or claims by your suppliers for unpaid bills. Running your business as an LLC may help you sleep better, because it instantly gives you personal protection against these and other potential claims against your business.
Any number of individuals or entities may own interests in an LLC. However, ownership interest in an S corporation is limited to no more than 100 shareholders. Also, S corporations cannot be owned by C corporations, other S corporations, many trusts, LLCs, partnerships, or nonresident aliens. Also, LLCs are allowed to have subsidiaries without restriction.
Should I choose an LLC or an S corporation?
An LLC may offer several classes of membership interests while an S corporation may only have one class of stock.
Not all businesses can operate as LLCs. However, businesses in the banking, trust and insurance industry, for example, are typically prohibited from forming LLCs.
While the S corporation's special tax status eliminates double taxation, it lacks the flexibility of an LLC in allocating income to the owners.
