Starting a Business Info
"Everything you need, in one place, for Starting a Business in Hours"

1. What type of corporation,
2. Which state or states in which to incorporate (it's not always that obvious), and
3. Which, if any, incorporation services to purchase

What Type of Corporation

The types of corporations you can select from include a standard "C" corporation, an "Sub S" corporation, an "LLC" corporation or a nonprofit corporation. It used to be that people were often wrongly advised to incorporate as Sub S corporations. More recently the bad advice has shifted to the utilization of LLC corporations. In most instances the more simple C corporation is the best choice.

Both Sub S corporations and LLC corporations permit you to avoid the double taxation that occurs when a corporation must first pays taxes on its income, and then its shareholders must pay tax on their dividend income from the corporation. LLCs differ from Sub S corporations in that they are highly flexible... equity, losses, profits and income and deductions can be split and mixed in almost limitless ways. This makes them particularly appealing to tax professionals.

The case for C corporations are that they are simple and inexpensive to setup and maintain... and in real practice, they don't generate double taxation. Why is that? Well, if they are run properly, they don't generate profits or distribute dividends... the owners take everything out in the form of salary and benefits. Salary expenses are taxed only once... and many benefits are not taxed at all.

For this reason, Sub S corporations and LLCs are most often used in startups that require large amounts of capital.... but even then, loaning the money or property to the company often makes more sense. If the loan or lease is properly secured with a lien on the corporation's property, it can have substantial advantages if the company fails.

It is possible for a Corporation to get so large and successful that you can't justify a salary large enough to bleed off the its profits... but that is the time to when conversion to a Sub S or LLC, and their attendant costs, should be considered.

Which State or States in Which to Incorporate

The most common choice you face is whether to incorporate in your home state or in Delaware.

Many people wrongly assume that it is less expensive to incorporate in Delaware. The fees for incorporating in Delaware low. But if you intend to operate your business in another state (such as your home state), you will have to qualify your Delaware corporation to do business in that state.

This increases the your costs beyond what they would be just incorporating in your home state. The the fees for qualifying your Delaware corporation in a state will typically be the same as those for incorporating in that state... and you will still have to pay for the Delaware incorporation as well as someone to act as your registered agent in Delaware.

If your home state is other than a major commercial state such as New York, Illinois or California, Delaware may provide more favorable laws... at least more favorable to controlling shareholders.

In the case of corporate disputes over shareholder rights, Delaware law is most often advantageous to the wealthier party in a dispute. For a number of technical reasons, Delaware litigation is much more expensive than litigation in most other jurisdictions... which provides an advantage to the party more able to bear the cost of litigation.

Incorporation in Nevada can be a good option if you are trying to hide assets in a corporation. Nevada laws have been optimized for privacy. But unless that is your primary goal, you might want to avoid Nevada... because its reputation for being used for such purposes is not always the kind of image you want to present to others.

Which, if Any, Incorporation Services to Purchase

Here is a list of incorporation services for you to consider when you incorporate a corporation:

• The filing of the articles of incorporation. This creates the corporation and is the minimum you need to do in order to be incorporated. This is often not that expensive... at least in many states.
• The initial components of the corporate record book include:
  • Documentation of the issuance of shares including entering the issuance into a stock transfer ledger.
  • The actual stock certificates representing the shares of the corporation
  • The initial shareholder and director's organizational minutes
• The initiation and maintenance of the corporate record book are important in maintaining your corporate liability shield. You will want to make sure that it is in place and current before entering into your first agreement... after all, the primary purpose of the corporation is to shield you from personal liability.
• Shareholder Agreement
  • Lack of a shareholder agreement is the most common cause of shareholder disputes. It's an item that people frequently delay... waiting until it becomes important. The problem is that once they become important, it's often impossible to get everyone to agree to the same terms. The result is that people often get dispossessed from the benefits of the very company they built.
  • These agreements typically deal with control, management, right to employment, allocation of profits, rights to sell and buy shares... and in Sub S and LLCs they also deal with tax issues.
• Executive Employment Agreements
  • These are important to put in place early if you intend to accept investor money. Keep in mind that if you want a favorable employment agreement, you have to put it in place well before accepting investor money. Most investors will not countenance a highly favorable employment agreement put in place just prior to their investment... they will view it as stacking the deck.
  • These agreements can also assure founders payment of past salary in instances where a founder forgoes salary in the early months or years of a new business.
• Other Related Service
  • Registered Agent Services. The registered agent must be a resident of the state of incorporation. All states require a registered agent.
  • Filing for an employer identification number service and in the case of a Sub S corporation, the S Corporation election filing.
  • Apostille Certificate. These certificates are used to authenticate your corporation as a real entity when it engages in international transactions. They were authorized under the Hague Convention to facilitate international trade.
  • Other services also come in handy around the time of incorporating your business. These include trade mark and naming services and virtual office and telephone answering services. All of these are listed elsewhere on this site.
• Click Here for online incorporation services

• Click Here for online incorporation services