RESOURCES

 

Incorporations: How to Incorporate my Business?

You may ask yourself why incorporate my business? Well, all businesses can benefit from incorporating and here are some advantages of forming a corporation or limited liability company (LLC):

Protect your personal assets: With corporations and LLCs owners can separate and protect their personal assets. In a well-structured and managed company, owners should have limited liability for business debts and obligations.

Add credibility: Adding a corporate designator after your business name is a legitimacy plus. It is best preferred to do business with a legally incorporated entity.

Protect your business name: Once you incorporate your business, other businesses cannot file with the same corporate name in the same state. Additionally, Corporation and LLCs exist perpetually, which does not occur with sole proprietorships and partnerships.

Flexible taxation: Although earnings and loss commonly pass through an LLC and are reported on personal income tax returns, an LLC can also choose to be taxed as a corporation. In the same manner, double taxation of its earnings and dividends can be avoided by a corporation by choosing Subchapter S tax status.

Deduct expenses: Corporation and LLCs can deduct usual business expenses before allocation income to their owners.

In order to incorporate your business the first thing you would need to know is where to incorporate. Business formation usually takes place in the state where the corporation or LLC will conduct its operations. This is the best option because it usually costs less, not only because you will need to file less paperwork, but also because you can avoid additional franchise taxes and annual report fees.

In case you are outside the U.S., OLEN’s specialists can also assist you with information on foreign entities and subsidiaries and the best options of where and how to incorporate your business.

The next step is to choose the business structure that best suits you.  We will discuss the most popular options, Corporations and LLCs.

A Corporation has some legal benefits to consider, such as:

• Protection of personal assets. Safeguarding personal assets against the claims of creditors and lawsuits. Sole proprietors and general partners in a partnership are personally and jointly responsible for all the liabilities of a business such as loans, accounts payable, and legal judgments. In a corporation, however, stockholders, directors and officers typically are not liable for their company's debts and obligations. They are limited in liability to the amount they have invested in the corporation (eg: If $100 in stock was purchased, no more than $100 can be lost). Corporations may also hold personal assets like houses, cars or boats. If one is personally involved in a lawsuit or bankruptcy, these assets may be protected. A creditor of the owner of a corporation cannot seize the assets of the company; however, they can seize their ownership shares in the corporation, as that is considered a personal asset.

• Transferable ownership. Ownership in a corporation  is easily transferable to others, either in whole or in part. Some states' laws are particularly attractive to this end. 

• Retirement funds. Retirement funds and qualified retirement plans may be set up more easily with a corporation. Corporations can also fully deduct the cost of paying its owner's health insurance.

• Taxation. In the United States, corporations are taxed at a lower rate than individuals. Also, they can own shares in other corporations and receive corporate dividends 80% tax-free. There are no limits on the amount of losses a corporation may carry forward to subsequent tax years. A sole proprietorship, on the other hand, cannot claim a capital loss greater than $3,000 unless the owner has offsetting capital gains.

• Raising funds through sale of stock. Capital from investors can be raised for corporations easily through the sale of stock.

• Durability. A corporation is capable of continuing indefinitely. Its existence is not affected by the death of shareholders, directors, or officers of the corporation.

• Credit rating. Regardless of an owner's personal credit scores, corporations acquire their own credit rating, and build a separate credit history by applying for and using corporate credit.

An LLC however is often a more flexible form of ownership, especially suitable for smaller companies with a limited number of owners. Unlike a regular corporation, however, a limited liability company with one member may be treated as a disregarded entity, so the member is often singled-out as a person performing the actions of the LLC. A limited liability company with multiple members is typically treated as a partnership for tax purposes, thereby avoiding double taxation. An LLC can elect to be either "member managed" or "manager managed."

Choosing to operate as member management creates a flat member or partnership structure. Choosing manager management creates a two-tiered management structure potentially convertible into a corporation, with the attendant tax consequences. LLCs use IRS Form 1065 and Schedule SE (Self-Employment Tax). It is often incorrectly called a "limited liability corporation" (instead of company). LLCs are organized with a document called the "articles of organization", or "the rules of organization" specified publicly by the state; additionally, it is common to have an "operating agreement" privately specified by the members.

Operating as an LLC form of partnership does not mean that appropriate federal partnership tax forms are not necessary, or not complex. As a partnership, the entity's income and deductions attributed to each member are reported on that owner's tax return.

LLCs can lose their tax advantage without the partnership structure. The possible label "disregarded entity" for income tax purposes singles out the one-member owner of an LLC as actually earning income and deductions directly. It is the owner, then, who reports as a business proprietor, rather than as an LLC operating an active trade or business. An LLC passively investing in real estate and owned by a single member would have its income and deductions reported directly on the owner's individual tax return on a Schedule E tax form. And an LLC owned by a corporation--in other words, an LLC with a single corporate member--would be treated as an incorporated branch and have its income and deductions reported on the corporate tax return, creating double taxation.

The final step with OLEN is to place your order online and our business specialists will quickly and easily assist you. You can request your incorporation online at www.oleninc.com, by phone at 855-653-6462 and by email at info@oleninc.com.

After you submit your order, we will take care of the filing process and reach out in case any additional information is needed. We process the Certificate of Incorporation for Corporations or Articles of Organization for LLCs on your behalf with the Department of State. Once filed you will receive the formation documents by email or mail.

The next steps to consider after incorporating is applying for an EIN (Employer Identification Number) and ordering a corporate kit, which includes a corporate binder with stock certificates or membership certificate, Minutes and by-laws or Operating Agreement, embossing seal and useful IRS forms. OLEN will assist you with both.

 

Is my Corporate Name Available?
We will check the name in the state that you want to form the company. Once the company has been filed and accepted by the state you can then use the name. We cannot guarantee whether or not your corporate name infringes on the rights of someone else.

What is a Registered Agent?
It is a requirement to have a Registered Agent. Usually someone from the company will act as the Registered Agent provided that they have a street address in the state of incorporation. However if you do not have a street address in the state of Incorporation we can appoint a Registered Agent.

What is a Shareholder?
The shareholders are the owners of the corporation. The owners can be individuals or other entities (such as Corporation, LLC or other entities).

What is a Director?
The Directors of the Corporation are appointed by the shareholder to represent the shareholders’ interests and to approve major corporate decisions.

What are the Officers?
The Officers of the Corporation are the President or CEO, Vice President, Secretary and Treasurer. The Officers are appointed by the Directors. The job of the Officers is to run the company and manage the day to day operations. In most states one person can hold all of the Officer Positions.

Can One Person be the Shareholder (Owner), Director and Officer?
Yes in most states one person can hold all of the above positions and it is not uncommon with small closely held corporations.

What is a Member?
The members are the owners of the LLC. The owners can be individuals or other entities (such as Corporation, LLC or other entities).

What is a Managing Member?
A Managing Member is an owner of the Limited Liability Company who is also managing the company.

What are the Managers?
The Managers of the LLC are appointed by the Members in the event the LLC will not be managed by the members.

What is a Federal Employer Identification Number?
The Federal Employer Identification Number is also known as the Fed ID, Tax ID, Federal ID Number and or Employer ID. The Federal ID Number is a 9 Digit number similar to a Social Security Number. The Fed Id is issued for businesses so that they can file Tax Returns and open Business Bank Account.

Does the corporation have to authorize (have) and issue stock (shares)?
Yes and Yes, the corporation must authorize shares in the Articles of Incorporation and issue the stock (shares) of the corporation to the owners.

What is an LLC Operating Agreement?
The Operating Agreement is an agreement between the owners (members) specifying who owns what percentage of the company, who the company will be managed, who will contribute what to the business and many other provisions. Olen provides a sample Operating Agreement automatically when you form an LLC with us.

How will the LLC be taxed?

Typically when there is only one individual owner of the LLC, the company is taxed like a sole proprietorship. The individual owner of the LLC file a Schedule C Profit and Loss on their personal tax return.

If there are 2 more owners, the LLC is normally taxed as a Partnership and files IRS Tax Return Form 1065.

One of the nice features of the LLC is that it can be converted for tax purpose to Corporation or S Corporation by first filing IRS Form 8832 to classify the entity as Corporation and then by filing IRS Form 2553 for the S-Corp Election.

What is an S-Corporation?

An S-Corporation (Sub-Chapter S) is corporation that files IRS FORM 2553 listing the Individual owners and number of shares owned. The S-Corp Election allows the owners of the corporation to avoid DOUBLE TAXATION of the companies’ profits. The profit of the company is passed through to the owners of the corporation with the profits being taxed at the Corporate Level. The owners of the corporation receive a K-1 Profit or Loss statement and the profit is then reflected on their personal return and taxed on the personal return.
There are limitations to the S-Corporation such as, not having more than 75 owners. Owners typically need to be individuals who are US Citizens or US Resident Aliens and usually cannot be another entity such as another Corporation. The S-Corporation can also only issue one class of shares.