WHAT IS THE DIFFERENCE BETWEEN AN LLC AND A CORPORATION?
In a general business corporation, the corporation is taxed at the federal level and then profits are distributed to the shareholders. These profits are then taxed as income in the owners' individual taxes. LLCs have pass-through taxation and any business income or loss is passed through to the personal taxes of the owners. Thus, in an LLC there is only taxation at one level, rather than two. LLC members can use losses from one business to offset income from other employment. The LLC also require less record-keeping than corporations. Furthermore, the Articles of Organization for LLCs are very simple and the members write and can modify at anytime the company's Operating Agreement, which determines the policies of the company.
WHAT IS THE DIFFERENCE BETWEEN AN LLC AND AN S CORPORATION?
Both entities offer limited liability and pass-through taxation, but the LLC is a much more flexible structure. In an S corporation, you are taxed exactly according to the percentage of the business that you own. LLC owners can divide income and tax liability however they wish, regardless of percentage of ownership. Also, S corporations require US citizenship for ownership and limit the number of shareholders to 35, neither of which restrictions apply to the LLC.
WHAT IS A REGISTERED AGENT?
The law requires that every corporation or LLC maintain a Registered Agent and a Registered Office in its state of incorporation and in every state in which it does business. The Agent is registered with the state government and is the authorized recipient of all notifications for the business, including tax notices, state reports and suit papers. Corporate Extensions can serve as your Registered Agent wherever you incorporate, insuring prompt delivery to your corporation of all notices and providing constant coverage, protecting you from gaps in service due to illness or vacation. However, it is possible for you to serve as your own Registered Agent, a money-saving option that many young corporations might wish to consider.
IF I INCORPORATE IN ONE STATE, CAN I DO BUSINESS IN OTHERS?
Yes! No matter what the state of your incorporation, you can formally qualify to do business in others. Many of our clients choose to incorporate in a state with tax advantages, such as Delaware or Nevada, but conduct all of their business in another state. In order to qualify in a state, your corporation must file an Application for Certificate of Authority to Conduct Business in that state and submit the proper filing fees. Corporate Extensions will prepare and file your application for any state and handle any other paperwork required to qualify your corporation to do business in that state.
ARE THERE GENUINE ADVANTAGES TO INCORPORATING IN DELAWARE AND NEVADA?
While Delaware and Nevada may offer some tax advantages, if you are not doing business in those states, you may find that you are spending more money despite the tax breaks. For instance, if you live in New Jersey and want to conduct business there, but you incorporate in Delaware, you must pay the Delaware $71 filing fee, plus $100 annually for a Delaware Registered Agent, and another $100 annually for Delaware filing fees. In addition, you must obtain a Certificate of Authority to Conduct Business in New Jersey and pay an initial and annual $100 filing fee to New Jersey. For small and beginning businesses, you can see how fees and paperwork can greatly outweigh the tax advantages that certain states might offer. Often the least expensive move is simply to incorporate in the state in which you will do business. Many incorporation services promote Delaware because they are located there, making it easier and more profitable for them to file your Articles of Incorporation and serve as your Registered Agent, even though it may not be the most cost-effective option for your particular business.
WHAT DO I DO AFTER I INCORPORATE?
After your Articles of Incorporation are filed with the Secretary of State, you will be able to have your first Board of Directors meeting. At this meeting, you issue the stock to the shareholders. If you have a corporate kit, you will be able to issue the actual stock certificates. Then the Board of Directors will appoint the officers of the corporation: the president, vice president, treasurer and secretary, who manage the daily operations of the corporation. Depending on the state, it may be possible for one person to be all of the stockholders, directors and officers. Call Corporate Extensions for the requirements for your particular state.
WHAT IS A FEDERAL TAX ID NUMBER? DO I NEED ONE? HOW DO I GET ONE?
Most corporations and LLCs must obtain a Federal Tax ID Number or Employer Identification Number (EIN). This is necessary if the corporation or LLC plans to pay wages to one or more employees, but it is also needed for many other documents and tax returns and will require it in order to open a corporate account. In order to obtain an EIN, your business must file Form SS-4 with the IRS. Corporate Extensions provides this filing service and we can make sure that you get your ID Number from the IRS in about a week.
WHAT TYPE OF STOCK SHOULD MY CORPORATION ISSUE?
Common Stock or Preferred Stock
The vast majority of corporations issue only common stock. Common stock carries voting rights in the corporation-one vote per share. In contrast, preferred stock customarily does not carry with it voting rights, but preferred stockholders are entitled to receive dividends before common stockholders.
Par Stock or No Par Stock
All stocks, preferred or common, can have a par value or can be issued with no par. A par is a set value under which the stock should not be sold. If a stock has no par, then it can be sold for any price. This gives more flexibility to the corporation when it is trying to raise capital, making no par stock the preferred issue of most corporations.
