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Frequently Asked Questions (FAQ)
What
is incorporation?
What
is Corporate Formation?
Do
I need a lawyer to incorporate?
What
do I need to know before I incorporate?
What
state should I incorporate in?
What
is a Corporation?
What
is an LLC?
How
does an S-Corporation differ from the traditional C-Corporation?
What
is Double-tax and how do I avoid paying it?
What
is a Resident Agent and do I need one to incorporate?
Can
a Corporation or LLC have only one owner?
Aside
from incorporation, are there other legal requirements that
I need to be aware of before my company transacts business?
I’m
ready to incorporate but I’m not completely certain at
this time who will and who will not become owners of the company.
Do
I need to incorporate my business?
After
I incorporate can I change the form of my business at some
later date?
What
is an EIN and do I need one to incorporate?
What
company name should I choose?
What
if my company does not yet have an address?
What
is a Board of Directors?
What
are Corporate Shareholders?
What
are LLC Members?
Do the
Board of Directors and the Shareholders have to be different people?
Does
an LLC have a Board of Directors? /
What is the difference between a member-managed and manager-managed LLC?
Do
the Managers of an LLC have to be different people from the Members
(owners)?
What
are Articles of Incorporation?
What
are Articles of Organization?
What
are corporate formalities?
What
is an organizational meeting?
What
is a Corporate Seal?
What
are Meeting Minutes?
What
are Meeting Resolutions?
How
can I obtain stock or membership certificates to act
as official evidence of ownership in my corporation or
LLC?
What
are authorized shares?
What
are issued shares?
How
do I know how many shares I should authorize?
What
is par value?
What
is the difference between an At-Will LLC and Perpetual-Existence
LLC?
What
are Corporate Bylaws?
Does
an LLC have Bylaws?/What is an Operating Agreement?
Can
I delay the start of my business?
How Long
will it take me to fill out the online incorporation form?
How long
before my company is officially incorporated with the states?
(how long should the process take?)
How much
does it cost to incorporate?
What is Incorporation?
The process of incorporating entails the preparation of certain documents,
including a document referred to as the “Articles of Incorporation,” and
filing the documents with the Secretary of State. (For an LLC, the main document
used to incorporate is referred to as the “Articles of Organization.”)
What is Corporate
Formation?
“Corporate formation” is a synonym for incorporation. It refers to
the process by which a corporation or LLC becomes officially incorporated.
Do I need
a lawyer to incorporate?
Hiring a lawyer to incorporate your business is not a legal requirement. Nevertheless,
in certain circumstances it may be sensible to hire a lawyer to incorporate.
It is recommended that you see a lawyer instead of using our services if your
incorporation seems to involve a high degree of complexity or if you have specific
questions unanswerable on this site. Business owners sometimes feel more assured
by hiring a lawyer to incorporate. In fact, if you have the extra time and
money, we encourage you to hire a lawyer. However, DirectIncorporation.com
is an accessible alternative for entrepreneurs who require precise, efficient
incorporation services for a fraction of a lawyer’s fees.
What do I
need to know before I incorporate?
In order to incorporate effectively, you need to know the following pieces
of information: where to incorporate (which state), your choice of corporate
form (C-Corporation, S-Corporation, or LLC), an official name for your company,
the address of your company, and the name and address of your company’s
resident agent (see below).
For a C-Corporation or S-Corporation, you
will also need to decide on the number of shares the corporation
is authorized to issue, which is completely up to you (see below).
For an LLC you will also need to choose a type of management,
either manager-managed, or member-managed (it’s not a difficult
concept- see below).
Also, a few states will require information
about your corporation’s board of directors (just their
names and addresses).
Lastly, a few states ask whether an LLC
is to be at-will or perpetual existence (this also is not a very
difficult concept- see below).
When
you can answer the questions above, you are ready to incorporate!
In what state
should I incorporate?
When you choose to incorporate, you will need also to choose a state to incorporate
in. The choice is an important one, as the state of incorporation will be the
company’s legal home. However, the legal home is not necessarily the
company’s physical home. States do not require that a business incorporated
under its laws maintain an office within the state. A company can operate and
carry on all of its business in a state other than its state of incorporation.
This opens a wide range of options of states in which to incorporate, but for
most businesses the choice usually boils down to the State of Operation, Delaware,
or Nevada.
Click here to learn more…
What is a
Corporation?
A corporation is a business entity that is separate from the owner(s) of the
business. To become a corporation, a business must incorporate with a state.
There are two basic types of Corporations: C-Corporations and S-Corporations.
What is an
LLC?
A Limited Liability Company (LLC) is similar to a corporation in that it is
a business entity that is separate from the business’s owners. An LLC
is favorable because it avoids the “double tax” of a corporation,
yet also affords its owners the personal liability protection of a corporation.
Other benefits of an LLC include less stringent state formality requirements,
management flexibility and relaxed ownership qualifications.
How does an
S-Corporation differ from the traditional C-Corporation?
The S-Corporation is similar in structure to a C-Corporation, yet it is not
subject to the C-Corporation “double tax.” The profits of an S-Corporation
will only be taxed at the individual level, whereas a C-Corporation is taxed
at the corporate and individual level.
An S-Corporation is initially formed as
a C-Corporation by filing the Articles of Incorporation within
a state. The C-Corporation can then become an S-Corporation when
an extra step is taken by filing with the IRS.
What is double-tax
and how do I avoid paying it?
The major disadvantage of a C-Corporation is that it is subject to “double-taxation.” It
is called “double-taxation” because a C-Corporation’s profits
are taxed at the corporate level, and then again at the individual level when the
profits are paid out to the owners.
Neither the S-Corporation nor the LLC is
subject to the double tax. The S-Corporation and the LLC do not
pay tax at the corporate level. Taxes will only be paid by the
individual owners of the company when distributions are made.
What is a
Resident Agent and do I need one to incorporate?
Appointing a resident agent is required for incorporation. The corporation’s
resident agent is simply a person designated by the corporation to receive
important legal and other documents on behalf of the corporation. The resident
agent must be a resident of the company’s state of incorporation and
the resident agent’s address must be a physical address (not a PO Box)
within the state of incorporation.
Virtually any state resident can serve
as a corporation’s resident agent. However, it is strongly
encouraged that the corporation appoint someone who is closely
associated with the corporation as to ensure that the corporation
is alerted to all important documents received. A corporation
commonly appoints an owner, director, or officer of the business
to serve as the initial resident agent.
Whom should I appoint as my resident agent
if I want to incorporate in Nevada or Delaware?
If you wish to incorporate in Delaware or Nevada and your company does not
have an office within the state, DirectIncorporation.com can provide you with
a dependable resident agent as part of our incorporation service.
Can a Corporation
or LLC have only one owner?
Yes. Most states allow a corporation or LLC to have only one owner.
Aside from
incorporation, are there other legal requirements that I
need to be aware of before my company transacts business?
Employer Identification Number:
Before your company transacts business it will need to obtain an EIN (Employer
Identification Number) from the IRS. When you incorporate with us, we can walk
you through the process of obtaining an EIN at no extra charge.
Publication Requirement:
A handful of states have a publication requirement. This requirement generally
directs a new corporation or LLC to file a notice of incorporation (organization)
in a newspaper of local circulation. The following states have such a requirement:
- New York (LLCs),
- Pennsylvania (C and S-Corporations),
- Georgia (C and S-Corporations),
- Arizona (LLCs, C and S-Corporations), and
- Nebraska (LLCs, C and S-Corporations)
License Requirements:
In order to comply with state business regulations, certain categories of new
corporations and LLCs will be required to obtain a license and possibly pay
a state fee before transacting business.
Corporate Formalities:
Corporations and LLC must follow certain corporate formalities. See below for
further explanation.
I’m
ready to incorporate, but I’m not completely certain
at this time who will and who will not become owners of the
company
It is not necessary that all the owners be known at the time of incorporation.
The initial ownership interests will be officially distributed at the organizational
meeting after incorporation. Furthermore, it is expected that ownership interests
will change hands from time to time throughout the life of the corporation.
Do I need to incorporate my business?
We can’t tell you whether or not you should incorporate your business.
However, we can explain the advantages of incorporation so that you can make
the decision for yourself. The most important reason to incorporate your business
is to protect yourself from business liabilities. If you are operating an unincorporated
business, its creditors may be able to reach your personal assets. Assets such
as your personal residence and personal bank account can be used to pay business
debts or to satisfy a lawsuit against your business. If you incorporate, business
creditors cannot reach your personal assets, as an incorporated business and
its owners are separate entities.
Other reasons to incorporate include: tax
advantages, perpetual existence of the corporation, the image
of the company, improving management in the company, and the
ease with which it can be done online with DirectIncorporation.com. Click
here for a more detailed explanation.
After I incorporate
can I change the form of my business at some later date?
Yes. For example, if you form as a C-Corporation today, you can change the
form of the company to an LLC at some future date. To make the switch you will
need approval from the shareholders of the company and will need to file an
amendment of your articles of incorporation.
What is an
EIN and do I need one to incorporate?
Every new corporation or LLC is required to obtain an Employer Identification
Number (EIN) from the IRS. However, an EIN is not a prerequisite to incorporation.
(The only exception is Louisiana. If you are from Louisiana, click
here ).
When you incorporate with us, we walk you
through the process of obtaining an EIN as part of our basic
service.
What Company
Name Should I Choose?
You will have wide discretion in choosing your company’s name. Basically
all that is required in selecting a corporate name is that the name is distinguishable
from already existing corporate names. When you incorporate with us, we give
your name choice a preliminary check before filing the Articles with the state.
What if my
company does not yet have an address?
Does your business already have an office, or are you doing business from your
home for the time being? Either can serve as the company’s initial office.
Keep in mind that the official company address must be a physical address,
and not a PO Box.
What is a
Board of Directors?
The decision-making authority of a corporation is centralized in a Board of
Directors. The Board of Directors delegates this authority to the company’s
officers, but maintains the power to oversee the operation of the business.
Each director is usually appointed for an annual term by a Shareholder vote,
and may be re-appointed thereafter.
There is no requirement that directors,
shareholders and officers be different people. In small corporations,
the directors are usually shareholders or officers as well.
What are
Corporate Shareholders?
Shareholders are the owners of the company. Essentially, the company is run
for the shareholders’ benefit. A shareholder’s portion of ownership
in the company is evidenced by a stock certificate. It is not required that
shareholders also have an active role in the company’s operation, but
in small companies, shareholders are usually officers and directors as well.
What are
LLC Members?
A "member" is an owner of the LLC. A “member” is
the LLC equivalent of a corporation’s shareholder.
Do the Board
of Directors and the Shareholders have to be different people?
No. In fact, directors, shareholders and officers are very often the same people
in smaller corporations.
Does an LLC
have a Board of Directors? / What is the Difference
between a Member-managed and Manager-managed LLC?
An LLC’s Articles of Organization ask to designate between one of two
types of management structures. An LLC can either be Manager-managed, or Member-managed.
If an LLC is Manager-managed, the power and authority of the company’s
management lies within its Board of Managers, which is similar to the Board
of Directors of a Corporation. If an LLC is Member-managed, there is no Board
of Managers, and the LLC is directly managed by its Members (the owners).
Either type of management (Members or Board
of Managers) can delegate power and authority to the company’s
officers. If the management does delegate authority, it will
retain the responsibility to oversee the affairs and activities
of the company.
Do the Managers
of an LLC have to be different people from the Members (owners)?
No. In fact, in small LLCs, members and managers are very often the same people.
What are
Articles of Incorporation?
The Articles of Incorporation are the main documents that are used to incorporate
a corporation.
What are
Articles of Organization?
The Articles of Organization are the main documents that are used to incorporate
an LLC.
What are
corporate formalities?
In order for the business to continue as an officially recognized corporation
or LLC after incorporation, states require that companies follow certain “corporate
formalities” and keep accurate records of their activities. There are
basically three prongs of the corporate formality requirement: the corporate
records requirement, the annual reporting requirement, and the meeting requirement.
Corporate Records Requirement:
Although this requirement varies from state to state, it generally compels
a Corporation or LLC to maintain certain past and present corporate records
at its principal office. Such records may include the current Articles of Incorporation,
the Corporate Bylaws (Operating Agreement), minutes of shareholder and director
meetings, written communications between the shareholders and the Corporation
within the last three years, the Corporation’s stock transfer ledger,
the names and addresses of current shareholders, directors and officers, the
most recent annual report and the financial records from the last three years.
Annual Reporting Requirement:
Most states require that Corporations and LLCs file a statement and pay a moderate
fee on an annual or biennial basis. This filing requirement, which is generally
referred to as an “Annual Report” or “Franchise Tax,” updates
the state government as to the status of the company, and permits the company
to continue in existence.
Meetings Requirement:
The organizational meeting is the official meeting that must be held after
incorporation, signaling the commencement of the corporation of LLC . There
are two types of meetings that a company must hold on a continuing basis. The
corporate shareholders (or LLC members) are entitled to at least an annual
shareholder meeting and the board of directors (or LLC board of managers) is
required to hold periodic meetings throughout the year.
What is
an organizational meeting?
After the articles of organization are filed and the business is officially
formed, the company should hold the organizational meeting. All the proposed
directors, officers, and shareholders should be in attendance. At this meeting,
the people in attendance lay the foundation for the company’s operation.
The initial corporate matters should be addressed at the meeting, and “minutes” should
be taken to record the results.
The matters that need to be addressed at
the organizational meeting include officially electing the directors,
officially adopting the articles of incorporation, adopting a
set of corporate bylaws, electing officers, approving the corporate
seal, and issuing the company’s stock certificates.
What is
a Corporate Seal?
A Corporate Seal is a heavy-duty stamp, engraved with the company’s official
seal. The seal should be used to authenticate all important corporate documents.
What are
Meeting Minutes?
Meeting minutes are merely a summary of matters that were discussed at a given
corporate or LLC meeting. The minutes should indicate what resulted from the
discussion; for example, if the matter was voted on, the result of the vote,
or whether the vote was tabled, etc.
What are
Meeting Resolutions?
Resolutions should be made to document important actions taken by the Board
of Directors (Corporation), or Board of Managers (LLC). Resolutions generally
result from a Board Meeting vote.
How can
I obtain stock or membership certificates to act as official
evidence of ownership in my corporation or LLC?
When you incorporate with us, stock certificates (corporations) or membership
certificates (LLCs) bearing your company’s official name are included
in our Comprehensive Formation Package.
What are
authorized shares?
The authorized shares are the total number of shares set out in the Articles
of Incorporation. This term is only applicable to corporations. After incorporation,
the Board of Directors is responsible for determining if and when to issue
the authorized shares. A great deal of the authorized shares will be issued
at the start of the company, but the remaining authorized shares may be issued
at later dates. However, there is no requirement that the total number of authorized
be issued at some date.
It may be wise for the company to authorize
more shares in its articles than it plans to issue. This will
allow the company flexibility to issue more shares if a second
round of financing is required. Naming a small amount of authorized
shares in the articles will limit the company’s ability
to do this. The number of shares authorized can only be changed
by officially amending the articles with the Secretary of State.
What are
issued shares?
Issued shares are the authorized shares that have actually been issued to shareholders.
The total number of shares that have been distributed at a given time are the
shares that comprise the entire pie of ownership. Shares that are authorized
and un-issued are not taken into account when determining what percentage of
ownership a given shareholder has. However, a shareholder’s percentage
of ownership is subject to dilution if the Board decides it is appropriate
to issue more of the authorized shares.
How do I
know how many shares I should authorize?
As explained above, it may be wise for the company to authorize in its articles
more shares than it plans to issue. This will allow the company flexibility
to issue more shares if a second round of financing is required. Naming a small
amount of authorized shares in the articles will limit the company’s
ability to do this. The number of shares authorized can only be changed by
officially amending the articles with the Secretary of State.
What is
par value?
Par value is a term that is still widely used but no longer has much meaning.
Par value is not necessarily the amount paid for the stock, and does not necessarily
represent the value of the stock at any time. It can best be described as an
arbitrary number put in the articles of incorporation and on the stock certificates
which signifies that the stock has some value. Nevertheless, most states allow
a company to state within the articles of incorporation that its stock has
no par value.
What is
the difference between an At-Will LLC and Perpetual-Existence
LLC?
In most states, an LLC can either be a term company or an at-will company.
A term company has a specified number of years designated for its “term,” or
lifespan. For example, a term LLC can state in its articles that the term (lifespan)
is to be “25 years from the date of filing of the Articles of Organization,” or
the Articles can designate a specific future date, such as January 8, 2050.
A term company that continues to do business past its term will become an at-will
company.
An at-will company does not specify a term.
Instead, the company will operate indefinitely. In an at-will
company, the dissociation of a Member (owner) of the LLC will
dissolve the LLC unless a specified percentage of the remaining
members agree to continue the business of the company. The specified
percentage of members required to approve the continuation
of the business should be indicated in the operating agreement
of the LLC.
Although a term company has a designated
length of existence (which, as indicated above, does not in itself
end the company), the term company’s existence will not
be affected by the withdrawal or disassociation of one of the
Members.
What are
Corporate Bylaws?
Corporate Bylaws are the internal rules of a corporation. After incorporation,
the shareholders of the company will create and approve a set of bylaws
that fits the needs of the particular corporation. Creating and maintaining
corporate bylaws is usually required in order to comply with state corporate
regulations. A set of corporate bylaws is included in our Comprehensive Formation
Package. This set of bylaws can be adopted by the corporation “as-is”,
or can be altered with the use of the included CD Rom.
Does an
LLC have Bylaws?/ What is an Operating Agreement?
An LLC does have By-laws, except that they are not referred to as “By-Laws,” they are referred to as the Operating Agreement.
An LLC’s Operating Agreement, similar
to By-laws, is the internal rules of the LLC. After incorporation,
the Members (owners) of the LLC will create and approve an
Operating Agreement that fits the needs of the particular company.
Creating and maintaining an Operating Agreement is often required
in order to comply with state corporate regulations. An operating
agreement is included in our Comprehensive Formation Package.
The Operating Agreement can be adopted by the company as is,
or can be altered with the use of the included CD Rom.
Can I delay
the start of my business?
A corporation or LLC generally comes into existence and becomes officially “incorporated” when
the Articles of Incorporation (or Articles of Organization) are filed with
the state. Becoming incorporated on the date of filing is usually the best
option. However, if there is a reason that you require your corporation or
LLC to become incorporated at a later date, states allow a delayed effective
date, if so stated on the Articles of Incorporation. If desired, indicate the
number of days after filing that you want your corporation to begin when filling
out the online incorporation form. In most states, the date cannot be more
than ninety days after filing.
How long
will it take me to fill out the online incorporation form?
The entire process usually takes about ten minutes. For your convenience, we
provide meticulously structured “help files” for quick reference
as you fill out the form.
How long
before my company is officially incorporated with the state
(how long should the process take)?
Immediately after you complete the online form, we will audit the information
you have submitted and begin preparation of your articles of incorporation
(or articles of organization). Usually, we will be able to send the Articles
to their destination the following business day. When the state approves and
returns the Articles of Incorporation to our office, we will notify you of
the approval and immediately ship the Articles, along with other documents
and information to your company.
By far, most of the time
involved in processing your Articles will be the time it
takes for the state of incorporation to complete its work. This
aspect of the process is not within our control. The amount
of time an individual state takes can vary widely depending
on such external factors as the time of year, the state of
the economy, the particular state’s backlog compared
to its staffing, etc. Typically it can take from two to
three weeks (or sometimes even twice that long). Regardless
of whom you incorporate with, the time the state takes to
process the Articles will be the same.
We at DirectIncorporation.com will do our part to minimize the amount of time
the process takes by ensuring that your documents are processed and sent out
within two business days of receiving your online information.
How much
does it cost to incorporate?
Click
here, for a quick quote.
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