Choosing how a business is organized may be one of the most important decisions a business makes. Incorporation may be the wisest decision, but for some, it may be an unnecessary decision, and so each business should carefully assess the benefits (and challenges) of incorporation before moving forward. With that said, the greatest benefits to incorporation can be summarized into the 3Ls: Life, Liquidity, and Liability. Let’s start with Life.
Timing is important. Incorporating too soon may result in paying unnecessary fees/taxes and filing reports which can take up time and money. Incorporating too late may open the door to unlimited liability. Fortunately, certain factors may help in determining when to incorporate.
When separating business from the owner, one thing comes to mind: DBA. If an entrepreneur is planning on doing business using a name other than his or her own personal legal name, then he/she will probably need a DBA. Most states require a DBA prior to conducting business under a name other than the business name or one’s personal name.
Your business’s structure should be chosen based on your particular needs. When creating your business, you have four basic entity types you can choose to use. Each one has its advantages and disadvantages, based on what you sell, your business’s finances, and the number of owners the business will have.
There used to be a time when incorporating was a long and arduous process. Very little was centralized, and it required you to either go sit in an office all day, waiting for paperwork, or pay a lawyer to do all of it for you. However, thanks in large part to the Internet, incorporating your business has never been easier. There is a wealth of information that is just a quick Google-search away, so you no longer have to rely on someone else’s knowledge.
When looking to incorporate, there are three primary options available to you. Two, lawyers and third-party services, have been around for quite a while. These are the two most commonly chosen options for a reason. They are time-tested and true, and will spare you from a lot of hassle. The third option, fostered by the spread of information over the Internet, is to simply do it yourself.
Sadly, there is no simple answer to this question. While some states offer incentives for businesses to incorporate within their borders, extra fees and paperwork could overshadow those benefits. If you have a physical business, as in an office space or building with employees, and your customers primarily come from the community where you are located, then you are probably going to want to simply incorporate in your home state.
We have all been told, from a very young age, that there is nothing certain in this world except for death and taxes. Death we can cover later, but taxes are a constant annoyance for small businesses. Each state has a different policy regarding taxes, and some make it their business to help business; that is, they try to make their tax policy enticing for small businesses to form within that state’s borders. The state gets a job-producing entity, and small businesses get to keep their money. Many see this as a win-win, and certain states have taken steps to turn themselves into “corporate havens.” While this does mean a decrease in immediate tax revenue for the state, the influx of major businesses into the area is believed to offset that decrease. When looking to incorporate, the area in which you choose to do business should not be taken lightly. Two states, Nevada and Delaware, are very business friendly, and should be at the top of your list.
A corporation conducting business in one state when incorporated in another is considered a foreign corporation and must qualify as a foreign corporation to legally do business in that state. For example, a business incorporated in Nevada that wants to do business in California would be considered a foreign corporation in California, and as a result, the Nevada corporation must qualify (or register, depending on the state) as a foreign corporation to do business in California.
A registered agent acts as the state’s means to communicate with a corporation or LLC. On a more technical level, the registered agent fulfills certain legal obligations the state must afford to a corporations or LLC. Because a corporation (and, to a certain extent, an LLC) is considered a separate entity, it retains certain legal rights, with due process among the most important. Due process includes the right to be given notice. For this reason, states require a corporation or LLC to provide an agent to facilitate the state’s duty to give notice to a corporation or LLC.
Unless special circumstances are present, a new corporation or LLC generally registers in the state where the business is located. Certain hassles of incorporating in another state (such as finding a registered agent in that state) outweigh any benefit the corporation or LLC may reap from incorporating in that other state. However, if your corporation or LLC has decided to register in another state, or if your corporation or LLC is ready to expand into another state, then there are a few options for finding a registered agent in that state.
The difference between an LLC and a corporation can be complicated when looking at the fine details of both legal entities. These fine details can sometimes be the deciding factor in choosing to become an LLC or a corporation and so depending upon the specific circumstances of your business, you may want to seek the advice of a competent lawyer or accountant (but be warned, not all lawyers and accountants will be up to date with all LLC laws) to help you decide what business entity would best suit your needs.
A simple search of “governance documents” on Google will result in various corporations with multitudes of different documents (e.g., “Certification of Incorporation,” “Code of Ethics,” “Audit Committee Charter”). For a young entrepreneur looking to form a corporation, these documents may seem overwhelming and may discourage a potential business from incorporating.
The Limited Liability Company (LLC) designation is a relatively young business entity in the United States (first enacted in Wyoming in 1977). Compared to corporations, whose history stretches beyond the birth of the United States (and whose laws evolved over centuries), LLCs remain new and a bit nebulous.
In most situations, a business is not required to have a corporate seal or official stock certificates. Although both a corporate seal and official stock certificates were once required for corporations, like spurs on a boot, these remnants of the past are no longer functional or relevant. States still generally recognize the legal power of a corporate seal and official stock certificates, however, modern technology and practicality has diminished these powers and ultimately, the corporate seal and official stock certificates may end up becoming merely symbolic gestures by a corporation.
Shareholders’ Meetings
Every state requires a corporation to have an annual (or regular) shareholders’ meeting. This meeting is necessary to elect the Board of Directors and to conduct other regular business (such as annual reports). Generally, the bylaws specify the timing and location of the annual meetings.
Do you know what the difference is between protecting your business name with the Secretary of State and getting a federal trademark? To give a brief answer, the business name is simply that: a name, a way to identify a business, entity, or individual. The requirements for a business name are uncomplicated.
Generally, businesses need a Federal Tax ID number or an Employer Identification Number (EIN) to legally conduct business. Whether a sole proprietor or a corporation, an EIN is necessary. This number is used to identify a business entity for tax purposes and is fairly simple to obtain. The IRS supplies multiple ways to apply for an EIN.
Most states do not require an LLC to have an Operating Agreement. In fact, many states do not require an Operating Agreement to be in writing at all. As a result, the law is pretty silent on what is required within an operating agreement. Whether or not your business is located in a state that requires an operating agreement, it is always wise to have a written operating agreement for any LLC.
Creating a business names is always an interesting step in the founding of your company. Sometimes, it is as simple a last name followed by a product. John Jones? Sell plastic? Jones Plastics. It can be that simple, not needing too much work. Other times, though, names are more important, especially if the name of your company came to you fairly early. It is bit of creativity that you can insert into the process;
The incorporation process in Canada is quite similar to the United States. However, two differences are apparent. First, Canada has a federal corporations statute that allows businesses to be incorporated as a Canadian corporation (as opposed to a provincial or state corporation).
Second, provincial corporation laws are generally similar to one another (except Quebec), and so, unlike the United States where states tend to compete for businesses, a business looking to incorporate in Canada does not need an extensive assessment
Almost every business requires a permit or license. Whether your business is conducted within an industrial construction zone or within your personal home, some permit, license, or registration is needed. Permits and licenses vary depending upon the jurisdiction and so it is important to contact your local government regarding what permits or licenses are required.
If you’re looking to form a non-profit corporation, there are several important steps for you to follow. Incorporating a non-profit corporation is often similar to a for-profit corporation, but there are some differences to be aware of. Here are some general guidelines for incorporating a non-profit.
Depending upon the jurisdiction, you will have to file your “fictitious name” or “DBA” (“doing business as”) or “assumed name” or “trade name” (check your state to see what term it uses) with the Secretary of State or county clerk. The process is generally simple. After performing a search through the agency’s database to ensure that the name is not being used by another, you submit a simple form with its applicable fee (generally nominal). A minority of states require you to publish a notice of your name with a local newspaper. One important thing to remember: your registered name has an expiration date (different length depending on jurisdiction), so be sure to renew your name or else face losing the rights to the name.
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