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Frequently Asked Questions - Form a Business
 
1. What are the advantages of forming a Corporation / Limited Liability Company?
2. What is a Corporation?
3. What is a C-Corporation?
4. What is an S-Corporation?
5. What is a (LLC) Limited Liability Company?
6. Which is best for me: Corporation or LLC?
7. Limited Liability Company (LLC) compared to Corporation
8. How shall I select the name of my Corporation or LLC?
9. How do I select the directors/officers of my Corporation?
10. How do I select Members or Managers for my LLC?
11. What state should I form my Corporation/LLC?
12. What is a Registered Agent and do I need one?
13. What is an EIN and do I need one?
14. How long will it take to form my Corporation/LLC?
15. How do I determine how many shares of stock my company needs?
16. My Corporation/LLC has been formed, now what
17. How much will it cost me to set up and maintain my Corporation/LLC?
 
 
 
1. What are the advantages of forming a Corporation / Limited Liability Company?
  The primary benefit is the limit of liability from your personal assets such as your house, car, and bank accounts. For example, John is running a taxi service as a sole-proprietor and runs over a pedestrian. The pedestrian sues John and wins, getting a certified judgment for damages. John’s personal assets may be used to satisfy the judgment. If John had incorporated his taxi service under name ‘John’s Taxi Service’, his personal assets would not be used to satisfy the debts or liabilities of the company. Additionally, Corporations and LLC’s are durable entities – the death of one officer or shareholder does not require the company to stop conducting business. Corporations and Limited Liability Companies are taxed less than individuals. If you wish to grow a company, you may sell stock or membership interest to raise capital.
 
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2. What is a Corporation?
  A corporation is a legal entity created by one or more people for the sake of conducting business. A corporation has separate rights and liabilities from the individuals invested in it. Corporations allow for flexibility of tax structure. Owners choose to be taxed as a C-Corporation or and S-Corporation, depending on company size, officer salaries, and amount of stock issued. Formal meetings of officers are required to discuss and vote on decisions of the company. In order for a corporation to be valid and maintain limited liability, it must file certain paperwork with the state of incorporation. (CreateLegalDocs.com can prepare and file these requirements).
 
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3. What is a C-Corporation?
  All Corporations are C-Corporations by default. There is no restriction of how many shares or class of stock a company can issue. One of the drawbacks of a C-Corporation is the chance for ‘double taxation’. Profits are taxed (1) at the corporate level and (2) at the individual level if the C-Corp issues dividends to shareholders. This is a common entity for larger corporations wishing to take full advantages of tax options.
 
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4. What is an S-Corporation?
  This is a popular type of corporate entity for small businesses. A newly formed Corporation is, by default, a C-Corporation. To be designated as an S-Corporation, an ‘IRS Form 2553’ must be filed with the Internal Revenue Service. The great thing about the S-Corporation is that it avoids ‘double taxation’: (1) the tax at corporate level and (2) the tax at individual level. Shareholders enjoy ‘pass-thru taxation’ where they show company loss or profit on their personal tax returns. However, shareholders must be U.S. citizens, and the total number of shareholders of the company cannot exceed 75. This is popular with small businesses having a handful of employees and not many shareholders.
 
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5. What is a (LLC) Limited Liability Company?
  This is a business entity which enjoys the same limited liability benefit of corporations, but with a few differences: (1) there are no stock shares issued to its members. Instead, there can be unlimited ‘members’ who hold certain percentages of interest in the company. (2) There is no requirement to hold formal meetings and maintain tedious paperwork. (3) A limited liability company has the flexibility to be taxed as a C-Corporation, S-Corporation, or a Partnership. (4) Members may choose to elect managers to run the business ‘manager-managed’ or the members may manage the business themselves ‘member-managed’. This type of business entity is common for sole-proprietors.
 
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6. Which is best for me: Corporation or LLC?
  Consider the size of your company and what tax implications are most important to your needs. If you are going to be the only employee of your company and want to minimize operational paperwork, you may want to consider a LLC. You enjoy the tax benefits of a Corporation, without the hassle of meetings, minutes, and announcements. An S-Corporation may be ideal for a small business with a handful of employees. Our site provides you with some of the common advantages and disadvantages of both Corporations and Limited Liability Companies. However, you may wish to consult with your accountant or financial specialist before making your choice. Whatever you decide, we look forward to setting up your new company!
 
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7. Limited Liability Company (LLC) compared to Corporation:
  There are no formal meeting requirements and less paperwork to file compared with corporations. There are tax benefits, as gains or losses of the company get ‘passed thru’ and are realized on personal income taxes (same as with S-Corporations). This prevents ‘double taxation’ as with C-Corporations. There are no restrictions to the number of members (owners), whereby S-Corporations have rules for stock shares and limit to 75 shareholders. You do not need to be a U.S citizen to have ownership in a LLC or a C-Corporation, only the S-Corporation has this restriction
 
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8. How shall I select the name of my Corporation or LLC?
  Select a name that coincides with the type of services and products offered by your business. It is possible that the name you select will not be available in your state. This is why we ask you to list two alternate names in our questionnaire. If you do not have or cannot think of an alternate name, simply call us and a specialist will work with you. Your corporate name cannot match or be too similar to the name of an existing company already registered. The name must usually end with a valid corporate indicator for your formation state. For Corporations, most states will accept the suffixes: “Incorporated, Inc., Corporation, or Corp.” For Limited Liability Companies, suffixes are usually: “Limited Liability Company, L.L.C, or LLC.”
 
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9. How do I select the directors/officers of my Corporation?
  A Corporation must have the following appointment of officers: (1) President, (2) Secretary, and (3) Treasurer. A Corporation also requires a Director to run the company. These designations are selected by the Board of Directors. It is common for a company with one owner to designate him or herself as ‘President/Secretary/Treasurer/Director’.
 
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10. How do I select Managers or Members of my LLC?
  A Limited Liability Company can choose to be run by members ‘Member-Managed’ or managers ‘Manager-Managed’. Similar to a Director of a Corporation, a Manager can be designated to run a LLC. Companies may select a manger to run their company if there are many different investors involved or in silent partner situations. A member is an owner of the LLC similar to a stockholder of a corporation. A manager can also be a member. In the case of a single member LLC, the owner may designate him or herself as Manager, Member, or both.
 
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11. What state should I form my Corporation or LLC?
  Most small businesses register their LLC or Corporation in the state which they do business. This is typically the most cost effective way to operate your company. You may have heard mention of filing your Corporation or LLC in states like Delaware or Nevada to save money. There are some tax advantages to filing your company out of state, but there are some requirements. For example, you are doing business in New York and are looking to avoid state taxes by forming your Corporation or LLC in Nevada. The tax and corporate laws in your state will require you to register your out-of- state Corporation or LLC in the states where your business operates. Those same laws will require you to pay state income taxes in the states where you earn your income. You will have to pay local and foreign state filing fees to run your business. Large companies like to file their business entity in Delaware due to its sophisticated chancellery court, which is a separate court only for corporate cases. This advantage applies more to very large businesses that will litigate in Delaware. Nevada does offer corporations a no-income-tax haven-but you are required to set up a physical business there, with employees and property. Consult with you taxing specialist before making your final decision.
 
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12. What is a Registered Agent and do I need one?
  A registered agent is required by all Corporations and Limited Liability Companies. They are the party responsible for accepting important documents such as ‘service of process’. A registered agent must have a physical address in the state where your Corporation or LLC is formed (no P.O. Boxes accepted). You may choose to be your own registered agent if you wish, but keep in mind that you may receive mailings from marketing companies and have less anonymity. If you decide to switch registered agents or the registered agent’s address changes, it must be updated with the secretary of state.
 
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13. What is an EIN, and do I need one?
  The EIN is known as the Employer Identification Number. It is issued by the Internal Revenue Service and identifies business entities, just as social security numbers identify people. An EIN is required when a new business is started up, whether it be a corporation or limited liability company. If a company is planning on hiring employees or opening bank accounts, an EIN will be necessary. CreateLegalDocs.com can file the necessary paperwork with the IRS to get your EIN assigned.
 
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14. How long will it take to form my Corporation/LLC?
  Depending on the workload of the secretary of state’s office, you should be able to have your business up and running within 10-25 days. (CreateLegalDocs.com offers a rush priority service which can cut the time to 7 days or less).
 
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15. How do I determine the number of Corporate stock shares and ‘par value’?
  You must determine how many shares your corporation will have at the time of incorporation. If you are a small company with no need to sell stock to raise capital, a lower number of shares (1000-2000) will suffice. Large public companies are constantly raising capital and designate millions of stock shares. In either case, you will also need to set a ‘par value’ for your stock. Many corporations set a very low par value ($0.01) for a couple of reasons: (1) You can never sell a stock for less than its par value – this could deter investment in your company (2) Some state’s annual fees are based on the par value of stock and number of shares – Delaware Corporations must pay a ‘franchise tax’ based on the number of authorized shares of stock.
 
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16. My Corporation/LLC has been formed, now what?
  A Corporation requires an initial meeting to determine the directors of the company, establish ‘Corporate Bylaws’, and to issue of stock. They require the ongoing record keeping of all meetings and the annual meeting of shareholders. CreateLegalDocs.com provides you all of the necessary documents to successfully run you company, including sample Corporate Bylaws, Notices of Meetings, and Minute Books. A limited liability company (LLC) requires less formality than a Corporation. Usually an initial meeting is held by members/managers to adopt the rules for the company. CreateLegalDocs.com provides you all of the necessary documents to run your company. Similar to Corporate Bylaws, a LLC’s governing document is the ‘Operating Agreement’. This agreement spells out actions such as: (1) opening of bank accounts, leasing office space, power of managers, salaries, death of members, dissolution of company, etc. Below is a bullet list of some important ‘to do’s’:
   
 
Open a bank account(s) for your business.
Obtain city and/or county business licenses or permits.
Check with the state department of consumer affairs to obtain any required business licenses or permits
Obtain business insurance required in your field.
Find out about workers' compensation if you will have employees.
Consult your accountant for record-keeping requirements, IRS filing requirements, information on hiring independent contractors, and tax estimations.
Remember to update changes to officers, registered agents, or business address with the state of filing.
Get a logo design, business cards, website, and marketing media.
File your ‘Annual Report’ with the state every year.
   
 
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17. How much will it cost me to set up and maintain my Corporation/LLC?
  Fees for filing vary state by state, but generally range between $80 and $500+. Additional costs may be incurred for certified copies of the filing, which may be needed to open corporate bank accounts. Every year subsequent to the creation of your company, an ‘Annual Report’ must be filed with the Secretary of State. These fees generally range from $125-$800. Depending on the state of formation, other taxes may be due, as with Delaware ‘franchise taxes’.
 
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