FAQ's

Corporation FAQ's

LLC FAQ's

Non-Profit FAQ's

CORPORATION FAQ's

What is a corporation?

What paper work is required to incorporate?

Do I need an attorney to incorporate?

What should I name my corporation?

What are the advantages of incorporation?

What are the disadvantages of incorporation?

What is an S corporation?

What is the organizational structure of a corporation?

How many directors do I need?

Where should I incorporate my business?

What is a registered agent and why do I need one?

What is a publication requirement?

How do I get started with the incorporation process?

What is a corporation?

A corporation is a legal entity that can exist separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation (called a charter or certificate of incorporation in some states) are filed with the proper state authority, and all fees are paid.

What paperwork is required to incorporate?

Articles of incorporation conforming to state law must be prepared and filed with the proper state authorities and filing fees, initial franchise taxes, and other initial fees must be paid.

If you incorporate through US LegalCorp, all you need to do is complete the online order form, and US LegalCorp prepares and files your articles of incorporation. Additionally, the price you pay includes all filing fees. It’s simple, just fill out the order form to get started.

Do I need an attorney to incorporate?

No, an attorney is not a legal requirement to incorporate. You can prepare and file the articles of incorporation yourself; however, you should understand the requirements of your intended state of formation.

You can use our service to incorporate and save money on attorney fees. However, if you are unsure if incorporation will benefit your business, consult an attorney or accountant.

What should I name my corporation?

Choose the name of your corporation carefully. It is very important that you portray the image you want for your new corporation. Legally, the name you select must not be "deceptively similar" to any existing corporation or must be "distinguishable on the record" of your state. For example, if a corporation named Flower Corp. exists in your state, you probably would not be allowed to name your business Flour, Inc. It is possible that the name you select will not be available; therefore, we ask for a second choice on the incorporation order form.

Additionally, the name you choose must show your business is incorporated. Most states require that the corporate name be followed by some type of indicator, such as Corporation, Incorporated, or an abbreviation.

What are the advantages of incorporation?

One of the primary advantages of incorporation is the limited liability the corporate entity affords its shareholders. Typically, shareholders and directors are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder or director to pay debts of the corporation. In a partnership or sole proprietorship the owner's personal assets may be used to pay debts of the business. Maintaining the limited liability of a corporation requires that the shareholders and directors follow all the rules of governance, including holding annual meetings and maintaining meeting minutes, which is why we offer corporate forms disks and corporate kits as part of our complete incorporation package.

Other advantages:

• A corporation's life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business.

• Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.

• Ownership of a corporation is easily transferable.

• Capital can be raised more easily through the sale of stock.

• A corporation possesses centralized management.

What are the disadvantages of incorporation?

The primary disadvantage to a corporation is double taxation. Profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. They are taxed first as income to the corporation, then as income to the shareholder. All reasonable business expenses such as salaries are deductions against corporate income and can minimize the double tax. Further, the double tax can be eliminated by making an S corporation election.

Other disadvantages:

• There is more complexity and expense with forming a corporation.

• There are more extensive record keeping requirements.

• Operating a corporation across state lines often requires the corporation to qualify to do business in the other state.

What is an S corporation?

Standard business corporations or C corporations are required to pay income tax on taxable income generated by the corporation. Making a subchapter S election by completing and filing federal Form 2553 with the IRS is a way to avoid having your corporation treated as a separately taxable entity.

An S corporation is a standard business corporation that has elected a special tax status with the IRS. This tax treatment allows the corporation not to be a separately taxable entity. Instead, the income of the corporation is treated like the income of a partnership or sole proprietorship; the income is "passed-through" to the shareholders. Thus, shareholder's individual tax returns report the income or loss generated by an S corporation.

To be classified as an S corporation, a corporation must make a timely filing of Form 2553 to the IRS. This election must be made by March 15 if the corporation is a calendar year taxpayer, in order for the election to take effect for the current tax year. A corporation may later decide to elect S corporation status, but this decision would not take effect until the following year.

In order to qualify for S corporation status, the S corporation can have no more than 75 shareholders and must make the election to be an S corporation . The shareholders cannot be non-resident aliens. Also, an S corporation cannot issue preferred shares of stock with special liquidation, dividend, or conversion rights. To compare the S corporation to the C corporation and limited liability company, view our comparison page.

What is the organizational structure of a corporation?

The organizational structure of a corporation relies on three basic groups: shareholders, directors, and officers.

A corporation is owned by shareholders; however, they do not directly manage the corporation. Instead, they influence corporate decisions through indirect methods such as electing and removing directors, approving or disapproving amendments to the articles of incorporation and voting on major corporate issues.

The directors, who comprise the "board of directors," are responsible for managing the affairs of the corporation. Usually, directors make only the major business decisions and supervise and appoint the officers who make the day-to-day business decisions of the corporation.

Officers are responsible for the everyday management of the corporation. Typically, officers are appointed directly by the board of directors.

It is important to note that a shareholder may serve on the board of directors and as an officer. In fact, in most states one person is enough to form a corporation.

How many directors do I need to form a corporation?

Only one director is required in most states although you can elect to have more. Some states use the number of shareholders in the corporation to determine the minimum number of directors. If the number of shareholders is three or more, then the corporation must have three directors. If the corporation has less than three shareholders, then the number of directors may equal the number of shareholders.

Where should I incorporate my business?

One of the first decisions a business must make after deciding to incorporate involves selecting the proper state of incorporation. A corporation is not required to incorporate in the state of its operations; however, often the best decision may be to incorporate in your home state.

Two issues must be weighed to determine the proper state: (1) a dollars and cents analysis comparing the costs of incorporating in the state of operation versus qualifying to do business as a foreign corporation in the state under consideration and (2) determining the advantages and disadvantages of each state's corporate laws and tax structure. The decision usually falls between the state in which the business is located or Delaware.

If the corporation is a closely held corporation and does business primarily within a single state, local incorporation is often preferable. The cost of local incorporation will usually be less than incorporating in another state and qualifying to do business as a foreign corporation in the state. A foreign corporation that qualifies to do business in another state is subject to taxes and annual report fees from both the state of incorporation and the qualifying state. Another disadvantage of incorporating outside of your home state is the possibility of having to defend a law suit in another state.

For advice regarding which state is optimal for your particular business situation, consult an attorney or an accountant.

During the life of your business, if you find that your company needs to foreign qualify to transact business in another state, US LegalCorp can assist with this process. To learn about US LegalCorps' foreign qualification service, click here.

What is a publication requirement?

A few states require notice to be published in a newspaper that a corporation or LLC has been formed. States with this requirement include: Pennsylvania (corps only), Georgia (corps only), Arizona (corps and LLCs), Nebraska (corps and LLCs), and New York (LLCs only). The filing performed by Business Filings completes the publication requirement for each of the states except for New York LLCs.

How do I get started with the incorporation process?

If you choose to incorporate, articles of incorporation must be filed with that state and initial fees must be paid. US LegalCorp will complete these administrative tasks quickly and effectively.

After your articles are filed, your corporation must hold an organizational meeting where bylaws are adopted and the incorporation process is completed. Share certificates should be distributed to shareholders and these transactions should be recorded on the corporation's stock ledger. All of this information should be kept in a corporate record book.

US LegalCorps' corporate kit includes all of the information and paperwork needed to make this process easier.

LLC FAQ's

What is a limited liability company?

What paper work is required to form an LLC?

Do I need an attorney to form an LLC?

What should I name my LLC?

How many people are needed to form an LLC?

How is an LLC taxed?

What is the organizational structure of an LLC?

How is an LLC managed?

What are the advantages of a LLC?

What are the disadvantages of a LLC?

What is a registered agent and why do I need one?

Should I choose an LLC or an S corporation?

What is a publication requirement?

How do I get started setting up an LLC?

What is a limited liability company?

The limited liability company or LLC is not a partnership or a corporation. An LLC is a distinct type of business that offers an alternative to partnerships and corporations, by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation.

What paperwork is required to form an LLC?

Articles of organization must be prepared and filed with the state and filing fees, initial franchise taxes, and other initial fees must be paid.

If your LLC is formed through US LegalCorp, all you need to do is complete our simple order form. We will prepare and file your articles of organization and pay the initial filing fees.

Do I need an attorney to form an LLC?

No, an attorney is not a legal requirement. You can prepare and file the articles of organization yourself; however, you should understand the requirements of your intended state of formation.

You can use our service to form your LLC and save money on attorney's fees. However, if you are unsure of what entity type would be most beneficial to your business, consult an attorney or accountant.

What should I name my LLC?

Choose the name of your LLC carefully. It is very important that your name portray the image you want for your new company. Legally, the name you select must not be "deceptively similar" to any existing company or must be "distinguishable on the record" of your state.

For example, if an LLC named Flower LLC exists in your state, you probably would not be allowed to name your business Flour Limited Liability Company. It is possible that the name you select will not be available; therefore, we ask for a second choice on the LLC order form.

Additionally, most states require that the name you select show your business is a limited liability company, by including the words "Limited Liability Company," or the abbreviation LLC.

How many people are needed to form an LLC?

The IRS does allow one member LLCs to qualify for pass-through tax treatment; however, taxation of one person LLCs at the state level may be different.

How is an LLC taxed?

A state-registered LLC can be taxed for federal income tax purposes as a partnership. Under the check-the-box rules, an LLC can elect partnership status to avoid taxation at the entity level as an "association taxed as a corporation." If an LLC is not taxed as a partnership, it will be taxed at the entity level similar to a standard or C corporation.

The state income tax treatment of LLC profits and losses may or may not mirror the IRS tax treatment depending on the state. For specific information on your state rules visit your state's web site. The web address can be found on our detailed state information page.

Please note that California LLCs are subject to an annual minimum franchise tax of $800 per year. The first payment must be made within 3 months of forming your LLC. The state of California does send a bill to help you to remember to make this payment.

What is the organizational structure of an LLC?

An LLC is owned by its members. They are analogous to partners in a partnership or shareholders in a corporation, depending on how the LLC is managed. A member will more closely resemble shareholders if the LLC utilizes a manager or managers, because then the members will not participate in management. If the LLC does not utilize managers, then the members will closely resemble partners because they will have a direct say in the decision making of the company.

A member's ownership of an LLC is represented by their "interests," just as partners have "interest" in a partnership and shareholders have stock in a corporation.

How is an LLC managed?

An LLC may be managed by its members (owners) or by selected managers.

If the LLC is to be managed by its members, it operates much like a partnership. Each member has an equal say in the decision making process of the company.

If the members choose, they may elect a manager or managers to act in a capacity similar to a corporation's board of directors. These managers are in charge of the affairs of the corporation.

Member management is the normal default rule of state law. This means that if managers are not selected in the articles of organization, the members will direct the affairs of the LLC.

What are the advantages of an LLC?

LLCs offer numerous advantages.

• Pass-Through Taxation
  LLCs allow for pass-through taxation. This means that earnings of an LLC are taxed only once. The earnings of an LLC are treated like the earnings from a partnership, sole proprietorships and most S corporations.

• Limited Liability
  The LLC owner's liability is generally limited to the amount of money which the person has invested in the LLC. Thus, LLC members are offered the same limited liability protection as a corporation's shareholders.

• Flexible Management Structure and Flexible Ownership is Permitted
  Like general partnerships, LLCs are generally free to establish any organizational structure agreed on by the members. Thus, profit interests may be separated from voting interests.

What are the disadvantages of an LLC?

The disadvantages of an LLC include:

• More Paperwork Than an Ordinary Partnership
  Documents must be filed at the state level to create an LLC, which is not the case with a general partnership.

• Dissolution Date
  Some states require that a dissolution date be listed in the articles of organization. This date may be amended. Further, certain events, such as death of a member, a member leaving, bankruptcy, etc. can be a dissolution event. A corporation has unlimited life and these events are not dissolution events for a corporation.

• Newer Entity Type
  The LLC is a newer entity, and people are not as familiar with the LLC as a corporation.

Should I choose an LLC or an S corporation?

While the S corporation's special tax status eliminates double taxation, it lacks the flexibility of an LLC in allocating income to the owners.

An LLC may offer several classes of membership interests while an S corporation may only have one class of stock.

Any number of individuals or entities may own interests in an LLC. However, ownership interest in an S corporation is limited to no more than 75 shareholders. Also, S corporations cannot be owned by C corporations, other S corporations, many trusts, LLCs, partnerships, or nonresident aliens. Also, LLCs are allowed to have subsidiaries without restriction.

For advice regarding which entity is best for your particular situation, please contact an attorney or accountant.

What is a publication requirement?

A few states require notice to be published in a newspaper that a corporation or LLC has been formed. States with this requirement include: Pennsylvania (corps only), Georgia (corps only), Arizona (corps and LLCs), Nebraska (corps and LLCs), and New York (LLCs only). 

In New York, all LLCs formed or foreign qualified there are required to publish a notice of formation for six consecutive weeks in assigned newspapers. The publication is made at the county level in two newspapers as assigned by the local county recorder. The cost of this requirement varies greatly based upon the county where the business is located. In New York County, the publication costs will be higher than in the rest of the state.

To comply with this requirement, please contact your local county recorder’s office and they will assign the newspapers. The county recorder’s phone number is located in the blue pages of your local phone book.

How do I get started setting up an LLC?

After you decide to form an LLC, articles of organization must be filed with that state and initial fees must be paid. If you choose US LegalCorp to form your LLC, we will complete these administrative tasks quickly and effectively.

After your articles of organization are filed, your LLC should have an organizational meeting where an operating agreement is adopted, interest certificates are distributed, and other preliminary matters are completed.

US LegalCorp' LLC kit includes all of the information and paperwork to make this process easier.

NON-PROFIT FAQ's

What is a nonprofit corporation?

What steps need to be taken to form a nonprofit corporation?

What purposes are valid for a nonprofit?

What are the IRS classifications of nonprofit corporations?

What form needs to be filed to apply for federal tax-exempt status?

When must form 1023 be filed?

How many directors are nonprofit corporations required to have?

What are the advantages of forming a nonprofit corporation?

What are the disadvantages of forming a nonprofit corporation?

What is a nonprofit corporation?

A nonprofit corporation is a corporation formed for purposes other than generating a profit and in which no part of the organization's income is distributed to its directors or officers. Nonprofit corporations are formed pursuant to state law, often under the Revised Model Non-Profit Corporation Act(1986). A nonprofit corporation can be a church or church association, school, charity, medical provider, legal aid society, volunteer services organization, professional association, research institute, museum, or in some cases a sports association. Nonprofit corporations must apply for tax-exempt status at both the federal and state level.

What steps need to be taken to form a nonprofit corporation?

The first step is to file nonprofit articles of incorporation with the proper state agency. It is important that the articles contain the required clauses to make sure your articles will qualify for tax-exempt status. US LegalCorp prepares and files nonprofit articles of incorporation.

After the nonprofit articles are filed, tax-exempt status must be applied for at both the federal and state levels. To apply at the federal level, a timely filing of form 1023 must be made. US LegalCorp does not prepare IRS form 1023. To determine what form needs to be filed at the state level, contact the state department that deals with taxation.

The corporation must comply with corporate formalities and hold annual meetings of directors and members. Bylaws must be adopted for the corporation. Documents that help you comply with these corporate formalities are contained US LegalCorps' corporate kit.

What purposes are valid for a nonprofit?

To qualify for federal tax-exempt status under 501(c)(3) of the federal tax code, the nonprofit corporation must be organized and operate for some religious, charitable, educational, literary, or scientific purpose permitted under this section of the code. Nonprofit corporations may also be formed for other purposes pursuant to different sections of the IRS code. To qualify for federal tax-exempt status as a nonprofit under a different section of the code, your corporation must comply with the requirements of that federal tax code section.

The religious category refers to general types of religious organizations and more formal institutionalized churches.

Charitable purpose is defined in section 501(c)(3) as providing services beneficial to the public interest.

Scientific research that is carried on in the public interest qualifies for tax-exempt status; however, research incidental to commercial or industrial operations does not qualify.

The literary purpose includes writing, publishing and distribution of books which are directed toward promoting the public interest rather than engaging in commercial book writing and selling.

The educational purpose is a broad purpose that allows instruction for both self-development and the benefit of the community.

The purpose must be listed in the articles of incorporation; therefore, it is very important that the purpose of the corporation be well described in the articles of incorporation. Additionally, certain states require approvals from state departments prior to approving the formation of a nonprofit corporation. One example of this is New York. New York often requires one or several departmental approvals based on the business purpose of the prospective nonprofit corporation. Please keep in mind that there may be additional time required to obtain these approvals, and additional fees charged, This varies by state. If you would like Business Filings to obtain these approvals on behalf of your prospective nonprofit corporation, the fee is $100 per approval.

For a specific answer to whether or not your company’s purpose is acceptable to be classified as a nonprofit corporation, contact an attorney or accountant.

What are the IRS classifications of nonprofit corporations?

US LegalCorp prepares articles of incorporation for nonprofit corporations pursuant to section 501(c)(3) of the IRS code. Nonprofits formed under 501(c)(3) must be formed for some religious, charitable, educational, literary, or scientific purpose.

Nonprofit corporations may also be formed for other purposes pursuant to different sections of the IRS code. If you want US LegalCorp to form your nonprofit pursuant to a different provision of the IRS code, please let us know the code section in the purpose portion of our order form.

To determine if your nonprofit needs to be formed pursuant to another provision of the IRS code, please consult the IRS organizational reference chart.

For specific advice, please consult an attorney or accountant.

What form needs to be filed to apply for federal tax-exempt status?

For a nonprofit company to qualify for 501(c)(3) federal tax-exempt status, a timely filing of IRS form 1023 must be made.

A few groups are NOT technically required to file form 1023. Examples of these include:

• A church, interchurch organization, convention of churches, or an integrated auxiliary of a church
  

• A subordinate organization covered by a group exemption letter (a parent tax- exempt company must submit a letter saying its subsidiary company will be tax- exempt).
  

• A group that qualifies for public charity status and which normally has gross receipts of LESS than $5,000 per year.
  

However, the only way to be assured that the IRS views the corporation as a 501(c)(3) tax-exempt group. is to file for tax-exempt status. If the IRS successfully challenges your corporation’s tax-exempt status, your corporation may be subject to back taxes and tax fines for the period it operated as a corporation. It is always advisable to discuss your particular situation with an attorney or accountant.

When must form 1023 be filed?

The 1023 application must be filed in a timely manner in order for tax-exemption to be effective retroactively. This means it needs to be postmarked within 15 months after the end of the month when your articles of incorporation were filed.

How many directors are nonprofit corporations required to have?

Most states require nonprofit corporations to have a minimum of three directors; however, some only require one director and others allow for less than three members.

What are the advantages of forming a nonprofit corporation?

If your nonprofit is granted tax-exempt status under 501(c)(3) of the tax code, your corporation will be exempt from payment of federal corporate income taxes. With federal income tax rates at between 15% to 34% this can amount to quite a tax savings.

A 501(c)(3) nonprofit is eligible to receive both public and private grants. Individual donors can claim a federal income tax deduction of up to 50% of income for donations made to 501(c)(3) groups.

Nonprofits also receive the same limited liability protection as for-profit companies. This means that directors or trustees, officers, and members are typically not personally responsible for the debts and liabilities of the corporation.

Other benefits include:

• A corporation's life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell their interest, the corporation will continue to exist and do business.
  

• Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation
  

• 501(c)(3) corporations receive lower postal rates on some bulk mailings.

What are the disadvantages of forming a nonprofit corporation?

The main disadvantage of forming a nonprofit company is the increased paperwork that is required. Articles of incorporation must be filed with the state, bylaws prepared, and meeting minutes must be kept with your corporation’s records. US LegalCorp can help with these steps by preparing and filing your incorporation papers, and our nonprofit kit contains sample bylaws and meeting minutes.

Also, applications for tax-exempt status must be filed at both the federal and state levels. US LegalCorp does not prepare the necessary federal or state tax forms; therefore you will need to complete this process separately. It is important to remember that nonprofits cannot be used to generate profits for the owners, and the purpose must conform to IRS regulations.