What’s the difference between management of S-Corporations and LLCs?

 

Rachael, Direct Incorporation Staff

When trying to decide between forming an LLC or an S-Corporation, it is important to know the differences in how the companies are owned and managed. The terms used for each type of company are more than just colloquial differences—a stock certificate is different than a share certificate. Here’s what you should know about these discrepancies:

Shareholders vs. Members

A shareholder is someone (or a group of people or company) who owns at least one share of a company’s stock. S-Corporations have shareholders with stock certificates, while LLCs have members with share certificates. Members, (which can be one or more persons, a corporation, or LLC) rather than owning a specific number of shares, own a specific percentage of the company. An important limitation for S-Corporations is that they can have a maximum of 100 shareholders, and all shareholders must be legal U.S. citizens. LLCs do not have these limitations.

Rights and Transfer of Shares

Shareholders can easily transfer their stock to another shareholder, while the process for LLC members can be slightly more complicated. S-Corp shareholders are able to attend meetings, vote on corporate matters, serve on the board of directors, and sue officers and directors for things such as fraud or misrepresentation. Members, if part of a member-managed LLC, can participate in the management of the LLC in the same ways. This usually happens when there is a small number of members. However, if the LLC is manager-managed, this job is done by a Board of Managers.

Board of Directors vs. Board of Managers

S-Corporations are managed by a Board of Directors, which are elected by shareholders. The Board of Directors then appoints the CEO. In manager-managed LLCs, the Board of Managers can be voted upon or self-appointed—something decided in the company bylaws.

Similarities

Of course, S-Corporations and LLCs have many things in common. Both forms of business give owners liability protection, and both are only taxed at the personal level (instead of at both the corporate and personal level). LLCs require less red tape and are cheaper to set up, so an LLC could be a good choice if you’re a new business owner. However, fast-growing businesses looking for investors could benefit from incorporating as an S-Corporation. Looking at the nuances in management can help you decide which form of business is right for you.

 

 

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Don’t let these 5 things stop you from starting a business

 

Rachael Lacey
Direct Incorporation Staff

 

There’s no way around it: the thought of starting a business can be daunting. People will give you all sorts of reasons not to do it, and a lot of those arguments can be valid. However, some of the most common motives for hesitation are based on ideas that just aren’t true. Here are five frequently stated reasons for not starting a business, and why you shouldn’t let them hold you back:

1. “I don’t have a good enough idea”

You don’t need to be the next Edison in order to start your own business. Creating a product from scratch or coming up with a revolutionary new service is far from necessary. You can build a company around anything from wedding planning to accounting. If you like dogs, you can be a dog walker. Like writing? Be a freelance copywriter. Pretty much any hobby that you have can be turned into a business. So why not get paid for it?

2. “It’s too risky”

Yes, it is risky, and there’s no way around that. But it’s also incredibly rewarding. Julie Lepper, founder of Julie S. Lepper Accounting and Tax Services, LLC, explains, “The risk is high, but the reward is also very high. It’s very cool to see how you take nothing and turn it into something.” Here are some more rewards for starting your own business, according to other entrepreneurs in Ann Arbor:

3. “I’m too young”

Yes, I can tell you from experience that being a young adult feels like you are constantly scrambling to figure out what you’re doing. But the thing is, being a young adult also tends to offer a lot of freedom and flexibility. Chances are, you don’t have a spouse or family to provide for. It would probably be easy to pack up and relocate if you wanted to. And I mean, the founders of Facebook, Microsoft, Apple, and Google were 20, 20, 21, and 25, respectively. And this guy is a millionaire at age 22.

4. “Being the boss means getting bogged down with paperwork and boring stuff”

Administrative work is going to be a part of any business, but there are also lots of cheap options for hiring help with taxes and legal forms. Plus, being an entrepreneur is anything but boring.

This local entrepreneur argued, “As an entrepreneur, I was able to decide everything that I wanted to learn, and also be exposed to new things on a daily basis, and overcome new challenges. And for me I think that’s one of the best parts about running my own business”

5. “I don’t know what I’m doing”

Although it wouldn’t hurt, it’s not necessary to have a business-related degree in order to start your own business. Rene Greff, co-founder of Arbor Brewing Co. in Ann Arbor, reminisced about starting her successful brewpub with her husband:

“I was a philosophy major and he was a political science major, so we had no business experience. We knew nothing about setting up or running a business, and we kind of just did everything by the seat of our pants.”

And more than 20 years later, ABC is still going strong. Raul Perdomo, founder of Michigan Draft Solutions and current owner of Apples and Oranges in Ann Arbor, also told me about his experience incorporating his business:

“When I started Michigan Draft Solutions, I had no idea what I was doing. I talked to some business owners I knew to ask what they’d done, and once I figured it out and got the paperwork I needed, I was good to go.”

It might take some time and research, but if you want to figure it out, you’ll certainly be able to. Don’t let these reasons prevent you from starting a business you’ve been thinking about (or just thought about now). You’ll never know what you can do if you don’t try, so don’t let these doubts keep you from taking that leap of faith. It might just be the best decision you’ve ever made.

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Mission and Community-Based Business: Kathy Sample Shares Her Story and Advice

Rachael, Direct Incorporation Staff

Among the most common types of small businesses in the U.S., “Farm and Food Production” ranks number 12, and “Restaurants, Cafés, and Bakeries” stands at number 5. In some ways, Argus Farm Stop in Ann Arbor might seem like a simple combination of these two types of businesses: a grocery store/coffee shop that sells locally sourced food. Yet, it is so much more than that. This week I had the joy of speaking with Kathy Sample, Co-Founder of Argus (which she owns with her husband Bill), about her experience with Argus for the past two years. Not only is her story inspiring, but she also offers great advice for anyone thinking about starting a business–especially one with a social mission in mind. Here’s our full conversation:

 

Can you start by telling me a little about yourself and what you do?

“Argus Farm Stop is an L3C: a Low-profit Limited Liability Company. So we’re a for-profit company with a mission to grow the local food ecosystem in Washtenaw County. We’re essentially a grocery store for which all the farmers own the produce and meat and dairy products, and we sell their products for them on consignment so that they don’t have to stay at a farmers market. You might have one guy who just has raspberries and wants to have an outlet but doesn’t want to sit in a farmers market, so we provide that space. We’re open every day all year, so we not only give them an additional approach to get to customers, we also offer an every day, year-round market for customers to access local food. So if they cant make the Saturday or Wednesday Farmer’s Market, they can come into Argus and get the same products from local farms. We started with about 40 farms but now we have about 150 different producers growing things or making things from local ingredients.”

How did you come up with the idea for Argus?

“We went down to Ohio to take our kid to college and saw a place that was similar to this called Local Roots in Wooster, Ohio. My first reaction was, ‘Why doesn’t every city in the United States have something like this?’ Where local farms can bring their stuff, and it can be sold but the farmer doesn’t have to stand there all day. Because you want to be working at your farm when it’s a nice day, and if it’s not a nice day, you’re not going to get a lot of traffic at a farmers market. We’ve made our famers work into a really weird model. You wouldn’t make somebody who sells gas stand there and sell their gas one day a week at an outdoor market. So I don’t understand how this has happened and its just a little boutique-y thing (well actually I do know: industrialization of food and the ability to call a 1-800 number and order everything at a big grocery store is what happened).

So we saw this place and said,  ’We could do that in Ann Arbor.’ We came back here and called people at U of M that are in the sustainability area, asking ‘Has anyone ever done this in Ann Arbor? Is anyone doing this in Ann Arbor?’ We just kept making phone calls. Then at the Local Food Summit we introduced this concept to farmers and customers and got really good feedback. We wanted to make the Ann Arbor Farmer’s Market a full-time enclosed area, and they said, ‘It’ll take too long to get approved, but we love your idea so we’ll help you do your own thing.’ We started looking for locations, and this [building] was abandoned, and affordable, and we thought, ‘It’s kind of a cool part of town,’ so we took a chance. We did a demographic analysis with the Small Business Development Center, which is a fantastic resource, we used Michigan State University Product Center, we talked to people about what its like to go into business with your spouse…A couple people were like, ‘Grocery retail is really hard,’ but we both have business backgrounds and we thought the coffee shop would help us. The model is that the farms get eighty percent of the price they set and we get twenty percent, which you can’t run a business on. But the coffee bar gives enough margins to support the whole model. When we have this robust coffee bar with this community, (which is what the whole thing’s about: people who love local food) it works.”

Kathy and Bill inside of Argus

What do you like about having your own business?

“I was in the corporate world for my whole career, as was Bill, my husband, who started this company with me (we also had another partner, Scott Flack, who now works in Detroit). So coming from a corporate background, I like the fact that I have complete autonomy to make decisions about what happens here. If I see that something needs to change, I can address it by working out something with our staff and everybody’s opinions—but the point is, I can make a decision and get it done.”

Do you have any advice for someone who is thinking about starting something similar?

“My advice would be: make sure that you form a network. It takes a village. To do something with a social mission like this and a mission that involves a local community, you need to have a whole network of people who support you: in our case it was farms and customers. You really have to have the ability to contact people that you need at different points, you need a really deep net of contacts. You need to know people in the food industry, the people who do food policy, local people like the farmer’s market people (because they need to be supportive of you—it’s a community, we’re not trying to out-perform the farmers market, we’re trying to make everybody’s local food access better, so we work in concert with them). So I’d say at a very minimum, cast a wide net and find a lot of supporting characters. And then do your homework. Know what you’re getting into. Know what the rules and expectations are. If you’re doing something that copies another model, spend a lot of time with that model. We have about ten different entities working with us to form ‘Arguses’ in their own way around the country. They spend time with us, shadow us, learn our systems…they ask the right questions, the hard questions. So, learn a lot before you do it. Spend some time upfront, don’t just think, ‘Oh that looks like fun, I’m gonna do that.’ It doesn’t work that way.”

So what is it like running a business with your spouse?

“It’s great. One of the things people told us (and it would be the same rule for any kind of business partner), is to pick your tasks and stick to them. Bill’s analogy is that it’s like playing soccer: if the ball goes by, not everybody goes after the ball. You know when you go after the ball, and the other guy knows when he goes after the ball. We know what our roles are and we know what our skills are, so we’ve divided it that way. And then we hired an awesome staff. If you don’t have great people that are committed to your mission, its not the same. This is about food, and it’s about local farms. So all our people have farming backgrounds, or do some farming, or have sustainability interests, or cook…but they all can tell the story of local farms. That’s the important thing.”

When talking to Kathy, it was clear that she absolutely loves what she does. She’s managed to create a business that is successful financially, successful in food sustainability, and successful in working towards a mission that she is passionate about. That sounds like a pretty good business model to me.

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S-Corporation, C-Corporation, or LLC?

Rachael, Direct Incorporation Staff Member

Thinking about starting your own business, but are unsure what form your business should take? Should you form an S-Corporation, C-Corporation, or LLC? While it can seem a bit confusing at first, it’s possible to figure out which type of business is best for you.

Let’s start with what they all have in common: by forming any of these types of business, you are given personal liability protection from anything related to your company. This means that your business is a separate legal entity, and any business debts or lawsuits are filed against the business and not you personally. Because it is a separate legal entity, it can be passed on to someone else like any other asset. Also, all of these forms are subject to filing annual reports and paying franchise taxes. But here’s how they differ:

Taxation

An advantage of both LLCs and S-Corporations is that instead of the company being taxed, they are taxed as an attachment to your personal tax return. C-Corporations, however, are taxed at both the corporate level and the individual level.

Ownership

In an LLC, owners are referred to as members. They are given membership Share Certificates that document what percentage of the LLC that they own. Corporations are owned by shareholders with stock certificates that show the number of shares they own out of the total number of shares. Because of the simplicity with which stock can be sold and transferred in a corporation, this can make it an appealing choice over an LLC (for which a sale of an ownership interest must be approved by other members).

While the decision-making authority of a Corporation is called the Board of Directors, for an LLC it is a Board of Managers (if there is more than one owner).

If deciding between an S-Corporation and a C-Corporation, there are two important guidelines for owners of an S-Corporation: there must be fewer than 100 shareholders, and all shareholders must be legal U.S. citizens.

Paperwork

LLCs are subject to less stringent ongoing formalities in their maintenance of corporate records, but they also tend to have higher filing fees than corporations. Also, some states require LLCs to list a dissolution date in their formation documents (whereas corporations are not required to do so).

If all of this still seems a bit confusing, here is a table to parse down the key advantages and disadvantages for LLCs, C-Corporations, and S-Corporations!


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You’re officially incorporated! Now what?

 

Rachael, Direct Incorporation Staff

You’ve made it through the paperwork and red tape of incorporating–congrats! But of course, you’re probably figuring out that the paperwork and red tape never really ends. Sure, the initial steps are over. But here are steps beyond the initial incorporation paperwork that are important to remember:

Annual Report and Franchise Tax

You will be required to file either an annual or biennial report for your company, depending on your state of incorporation. This includes a Franchise Tax. The purpose of the report is to update both the state and the general population on basic information about your business such as location, ownership, and number of issued stock shares, while the Franchise Tax is a fee for the ability to run a business in that state.

Corporate Records

For S-Corporations and C-Corporations, it’s required that you maintain corporate records on file. The specifics can vary from state to state, but these records may include:

  • Articles of Incorporation
  • Bylaws
  • Minutes of shareholder and director meetings
  • Written communications with shareholders within the last three years
  • Stock transfer ledger
  • Names and addresses of current shareholders, directors and officers
  • Most recent annual report
  • Financial records from the last three years

For LLCs, the requirements are less stringent, but the company may still have to maintain:

  • Articles of Organization
  • Operating Agreement
  • Minutes from various meetings
  • Stock transfer ledger
  • Names and addresses of all current members, managers, and officers
  • Most recent annual reports and financial records.

Licenses

Practically every business requires some form of business license, including but not limited to:

  • Accountants
  • Architects
  • Attorneys
  • Collection agencies
  • Contracting services
  • Cosmetic and hair shops
  • Damage appraisers
  • Dealers and salespersons
  • Electrical workers
  • Employment agencies
  • Engineers
  • Manufacturing companies
  • Nurseries
  • Real estate brokers
  • Restaurants and food vendors
  • Security brokers

It’s essential to check with the appropriate state agencies to ensure that you comply with the license requirements for your particular business.

Trademarking

Filing for a federal trademark is not required, but if you want your trademark to be recognized and protected everywhere in the country—examples of companies with registered trademarks include Nike and Coca-Cola—you’ll have to file a trademark through the US Patent and Trademark Office. An unregistered, or common law trademark, doesn’t require additional paperwork, but is usually enforceable only within the geographic region or locale where the trademark owner is using it in business. It is incredibly important that you make sure to run a trademark search before attempting to acquire a trademark–because being sued for trademark infringement is the last thing you want.

Taxes

C-Corporations will have to pay both federal and state taxes at the corporate level (with the exception of Washington, South Dakota, Wyoming, Nevada and Florida).

Neither S-Corporations or LLCs are subject to taxation at the corporate level–instead, a simple attachment to the owner’s individual tax return is required.

Publication Requirement

In some states, it is required that a new corporation or LLC files a notice of incorporation/organization in a local newspaper. The following states have such a requirement:

  • Arizona (LLCs, C-Corporations, S-Corporations)
  • Georgia (C-Corporations, S-Corporations)
  • Nebraska (LLCs, C-Corporations, S-Corporations)
  • New York (LLCs)
  • Pennsylvania (C-Corporations, S-Corporations)

If you have the resources, it could save a lot of stress and time to hire someone to get you through these hurdles. Just remember, you’ve gotten this far–you can do this!

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Real entrepreneurs give real advice for starting up

Rachael, Direct Incorporation Staff

We ventured out to the local business of Ann Arbor, and asked the real-life founders of companies what their advice would be for aspiring entrepreneurs. We learned everything from the highly practical to the highly inspirational. Here’s what four different entrepreneurs had to offer:

On making mistakes

“Don’t be afraid to make mistakes along the way, because mistakes are probably what makes you a better business owner.  You never know whether or not you’re going to be successful unless you take that leap of faith and have confidence in yourself. Don’t let the financial side of it steer you away from it, because ultimately it will get easier. It’s a lot of work, but it’s definitely worth the amount of time and effort that goes into it. So stick with it,  and make sure that whatever you do, don’t give up too early.”

-Bob Helber, Founder of Continental Capital Realty, Inc. in Ann Arbor.

It’s inevitable that you’ll make mistakes while starting your business–anyone who doesn’t, seriously deserves an award. Ask anyone who has started a business and they’ll tell you that yes, you’ll mess up occasionally. And you’ll learn from it. And the show will go on.

On knowing what you’re doing

You might think that in order to successfully start a business, you need to have an undergrad or graduate degree in business or economics or something “relevant” to business. While this certainly might help, it’s far from necessary. Take Rene Greff, co-founder of Arbor Brewing Co., for instance:

“I was a philosophy major, [my husband] was a political science major, so we had no business experience, we knew nothing about setting up or running a business, and we kind of just did everything by the seat of our pants.”

Arbor Brewing Co. has been a successful brewery in Ann Arbor for almost 20 years now, so not only is there still hope for success, but there’s hope for a lot of success.

On knowing your strengths (and weaknesses)

It’s okay that you don’t know everything. Running a business requires a lot of different skills, and at times it might feel overwhelming. If you’re willing to take the time to learn how to handle accounting, marketing, and legal paperwork on top of everything else, that’s awesome. But if you have the resources to, there is nothing wrong with delegating. Julie Lepper, founder of Julie S. Lepper Accounting & Tax Service, LLC, talks about working with a team:

“You need to know what you’re good at and what you’re not good at, and find the people around you who are good at the things you’re not good at. Be willing to understand that you don’t know everything. If you’re the big-picture person, you need someone who understands detail. And so having a team of people around you is a huge part of it. Understand what part you’re best at, and what part you like and get joy out of, because if you’re doing the pieces you don’t get joy out of, it won’t work for you. “

And Raul Perdomo, founder of Michigan Draft Solutions and current owner of Apples & Oranges, echoes the same sentiment:

“There are certain things that as the owner of a business, I know is not my forte, and it’s worthwhile for me to allow somebody who can do that to help me.”

Starting a company may be daunting, but if it’s something you’re truly passionate about, there are a million ways to make it work. Don’t let the little things keep you from dreaming big!

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What to do before you incorporate

 

Rachael, Direct Incorporation Staff

Direct Incorporation might be your one-stop shop for incorporating your business, but what has to happen before you give us a call? There are a few steps to take before you decide to make that final leap and start the incorporation process:

1. Make sure you’re choosing something you love

As Real Estate Investor Brandon Turner says, “Don’t start something you won’t want to do in five years. Because if you are successful, you’ll still be doing this in five years.” That’s pretty self-explanatory. If you’re doing something you hate, it’s going to make you apathetic about the success of your business, and make every challenge that much harder to overcome.

2. Pick your business partner(s) if necessary

Unless you’re planning on operating solo (and there’s nothing wrong with that), make sure you find the right person or people to partner with for your business. You’re going to be working with them every day, and if you don’t mesh well, it could not only make your workweek worse, but your business worse as well.

3. Learn as much as possible

Creating a company takes a bit of research. It doesn’t matter if you don’t know anything about starting a business, because in this Information Age we live in, there are literally thousands of ways you can teach yourself. The book Crossing the Chasm by Geoffrey A. Moore has been referred to as “the bible for entrepreneurial marketing,” and there are some awesome online training tools for learning the necessary skills to start a business.

4. Choose a business location

Unless your business will be hosted completely online, finding a place to set up is not something to be taken lightly. It’s important to consider the marketability of your product in that location, the local competition, the potential for employees, the safety and the zoning regulations of the area, and the tax options around you. Some entrepreneurs choose to incorporate in Delaware because of its low incorporation and franchise fees; there’s also Nevada because it has no profit tax, personal income tax, or franchise tax. But there are many things to consider when deciding whether you want to incorporate out of state or not.

5. Start marketing

You want people to know about your business as soon as possible, or you’ll be spending valuable time waiting for people to find out about your business when you could be earning revenue. Starting out with social media sites is a fantastic way to spread brand awareness—and don’t be afraid to ask friends and family to share your page. The worst case scenario is they’ll say no, but the best case scenario is an exponential increase in followers and potential clients. It’s important that you make yourself super available to your new Facebook/Twitter/Instagram “friends” (and you really should treat them as friends, because building relationships is essential for a small business), by responding frequently and personally to any questions they might have.

6. Get financing

Obviously, your business can’t function without some startup capital. You can get this in a plethora of ways: small business loans, startup incubators, crowdfunding campaigns, and more. Figure out the best way to fund your business, so that you’ll be ready to incorporate.

Once you’ve taken these steps, we’ll be able to help you with everything else, from deciding which type of corporation to set up, to trademarking, to website and logo design. You can get started by visiting directincorporation.com or calling 1-877-281-6496 today.

 

 

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Are entrepreneurs happier?

 

Rachael, Direct Incorporation Staff

The notion has been repeated by countless news outlets and research studies in the past five years: Entrepreneurs are happier than non-entrepreneurs. Some reasons for this are autonomy and flexibility in their jobs, but one of the biggest reasons is the feeling of having a personal stake in one’s career. Jane Park, founder of Julep, writes, “For me, the most powerful thing about being an entrepreneur is my effort to believe that tomorrow can be better than today. I know for sure that I’m more engaged and connected.  And [feeling like I’m making a difference] is what makes it exciting to wake up everyday.”

According to Manta’s Small Business Wellness Index, 94% of small business owners say they are happy they are a business owner, and 93% say they are happy with their personal life. Also, 52% of small business owners work 40 or less hours a week, and 27% take 4 or more weeks of vacation per year.

According to a study by the University of Pennsylvania’s Wharton School of Business, Wharton grads running their own businesses “ranked themselves happier than all other professions, regardless of how much money they made,” and “Grads running their own businesses also rated themselves higher than any other profession when it came to work-life balance.” While some might think that the business graduates comfortably working six-figure jobs would be happier than those dealing with the process of lifting up their own companies from scratch, it appears that money was not, in fact the determining factor of happiness. Most of the entrepreneurial happiness actually stems from people feeling like they are choosing to do what they want to do, instead of being forced to work for a company that they don’t necessarily believe in.

Yet according to the Global Entrepreneurship Monitor 2016 Global Report, “On average, 42% of working-age adults in the [researched] economies see good opportunities around them for starting a business, more than half of the working-age population in the 60 economies feel they have the ability to start a business, but a little more than one-third of them would be constrained from starting a business due to fear of failure.”

The fear of failure is a fairly common reason for not starting a business, but entrepreneurs are incredibly important to the U.S. economy.  Small businesses employ 57% of the country’s private workforce, and also make up 99.7% of all companies in the U.S.  Approximately 68% of revenue from small businesses is reinvested in the community (as opposed to 33% from large corporations). Starting your own business could end up being the best thing you could do for both your community and for your own well-being.

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Client Spotlight: Ann Arbor Real Estate Associates

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Today, I had the pleasure of speaking with Caitlin Phillips, who recently incorporated Ann Arbor Real Estate Associates through Direct Incorporation. From the moment I walked into her office, I could tell why she was a successful real estate agent. She was so personable and open, and it was clear that she truly loved her job. She welcomed me in and we sat down to chat about her experience with Direct Incorporation, but first, she told me a little bit about herself.

Caitlin has been a real estate agent for years, but until earlier this year, she had never worked for herself. She wanted to incorporate on her own, but she wasn’t sure where to start. When she found Direct Incorporation, she said that the process could not have been easier.

“The [Direct Incorporation] website made it very easy for us to figure out how we should take our incorporation status, and which one would be best to fit our needs,” she told me. She then expanded on how Direct Incorporation’s ability to figure out whether her business name was available for use, so quickly and confidently, “was very important.”

“And then it was very easy because we could just finalize the process in the same transaction time…just in one sitting,” she continued, highlighting that our representatives were “personal, professional, and incredibly responsive.” She said that it was important to her that she was able to talk to a real person, rather than dealing with a recorded voice or computer, so that she could ask all the questions that she needed and get a quick, personal response.

“It’s very important that we have a firm that we can trust with all of our incorporation needs as we grow and expand. Having that kind of trust in that staff to take us through the process is really comforting.”

It was wonderful meeting with Caitlin, and if you ever need a real estate agent in Ann Arbor, I would highly recommend stopping by her office!

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Where Should You Incorporate Your Business?

Rachael, Direct Incorporation Staff

If you’re thinking about starting a new business, but are wondering where you should file your Articles of Incorporation, here are some ideas to help you figure out what to do:

The Delaware Option

Thousands of startup companies choose to incorporate in Delaware each year, due to its low incorporation and franchise fees. Companies don’t actually have to operate in the state that they file their incorporation in, and incorporated companies that conduct business outside of Delaware aren’t required to pay Delaware’s state income tax. Also, legislation in Delaware allows for corporations with less than 30 shareholders to be managed directly by those shareholders.

Yet Delaware incorporation is the most beneficial to larger companies that intend to offer their shares to the public, and for this reason the majority of Fortune 500 companies and those in the NYSE are incorporated in Delaware.

If you incorporate in Delaware but operate in another state, you may have to go through additional processes to qualify to do business in your state of operation. You may also have to file annual reports and franchise taxes in both Delaware and your state of operation.

Also, if you incorporate but do not operate in Delaware, you will need to designate a resident agent with a physical street address in Delaware. The resident agent is someone designated to receive important legal and other documents on the company’s behalf, and is a legal requirement.

The Nevada Option

Nevada’s favorable corporate laws have made it an increasingly popular state of incorporation in recent year. Nevada has no corporate profit tax, personal income tax, or franchise tax. Nevada also has minimal reporting and disclosure requirements, such as not requiring shareholders to be listed publicly.

However, like the Delaware incorporation, it is larger corporations that have the most to gain from incorporating in Nevada. If you incorporate in Nevada and operate in another state, you again may have to qualify to do business in that other state, and deal with the reporting requirements of both states.

Your State

Incorporating in your home state or state of operation is the least costly and least complicated. Unlike in other cases, you won’t have to qualify to do business in your home state as a “foreign corporation,” or file annual reports and pay income and franchise tax in multiple states.

Also, when incorporating in your state of operation,  you or someone closely associated with your company can serve as your company’s resident agent, which ensures that you will personally receive important documents with no extra time, money, or extra communication required.

Happy Incorporating!

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