C-Corporation (C-Corp)

A C-Corporation is the traditional and most common type of corporation. Forming a C-Corporation allows the company to have an unlimited number of shareholders. This is beneficial to companies which will require many investors, as well as companies who envision offering stock publicly. An inherent benefit of all Corporations and LLCs is that they shield their shareholders from personal liability arising from business debts and business lawsuits.

• Ease of Transfer
  
  A favorable aspect of the C-Corporation is the simplicity by which its stock can be sold or otherwise transferred. Transfers of C-Corporation stock have very few limitations. Furthermore, if a company will offer stock publicly, the C-Corporation is the only option. S-Corporations and LLCs are not permitted to offer ownership through public offerings.
• Familiarity
  
  Familiarity with the C-Corporation often drives business owners to choose the corporation over the LLC. While an LLC is a relatively new form, the C-corporation is the traditional business type with which most business owners have previously dealt with on some level. This familiarity often leads owners to make the comfortable choice, and stick with what they know.
• Low Cost
  
  A further consideration is the state filing fee. In most states, the fee to form a corporation is slightly less than the fee to form an LLC. Use our "Quick Quote" tool to see the fees charged by your chosen state.
• Disadvantage
  
  The primary disadvantage of the C-Corporation is that it is subject to “double taxation.” This means that the company's profits are initially taxed at the corporate level, and then taxed again at the individual level when distributions are made to the shareholders.

S-Corporation

Since its creation, the S-Corporation has increasingly become the preferred form for many small businesses. The S-Corporation is similar in structure to that of a C-Corporation, but must meet a few further requirements. In fact, an S-Corporation is initially formed as a C-Corporation by filing the articles of incorporation with the Secretary of State. The C-Corporation can then become an S-Corporation when an extra step is taken by filing with the IRS.

• Avoid "Double Tax"
  
  The primary benefit of an S-Corporation is that it allows the shareholders to receive profits free of taxation at the corporate level. The profits will only be taxed at the individual level, thereby avoiding the "double tax" that C-Corporation shareholders are subject to. (C-Corporations are taxed at the corporate and individual level).
  
  However, not all C-Corporations are able to take advantage of the S-Corporation status. A corporation is only eligible for the S-Corporation election if it meets the following list of ownership requirements:
  1. The company must have no more than 100 shareholders (a husband and wife qualify as one shareholder).
  2. All shareholders in the company must be individuals and not other corporations or LLCs (estates, some exempt organizations and certain trusts qualify as shareholders).
  3. No shareholders can be non-resident aliens.
  4. There can only be one class of stock in the company (this limitation disregards differences in voting rights).
  5. The company making the election cannot be a bank or thrift institution, an insurance company, or a domestic international sales corporation (DISC).
  6. Each shareholder must consent to the S-Corporation tax status (as explained in column K of IRS form 2553).
  7. No more than 25% of the company's gross corporate income may be derived from passive income.

Limited Liability Company (LLC) - with comparison of LLC to S-Corporation

Today, many businesses are forming as a Limited Liability Company (LLC) and are finding that an LLC offers the "best of both worlds" of corporate forms. An LLC allows for pass-through taxation (see "Tax Advantage" below), thereby avoiding the "double tax" of a C-Corporation, yet also affords its owners the personal liability protection of a corporation.

• Tax Advantage
  
  The popularity of the LLC is primarily based on the Tax Advantage. An LLC operates in most ways as a corporation, yet the distributions to its "members" (shareholders) are not subject to taxation at the corporate level. Instead, the distributions are "passed through" the corporate level and are taxed only at the individual level. Therefore, the LLC avoids "double taxation."
• Personal Liability Protection
  
  Corporations and LLCs are separate entities from their owners. Since the two are separate, the personal assets of the owners (such as their personal residences, and personal bank accounts) are not reachable by business creditors.
• LLC or S-Corporation?
  
  As mentioned above, a C-Corporation that satisfies certain requirements can choose to file as an S-Corporation. The primary benefit of an S-Corporation is that it allows the shareholders to receive profits without taxation at the corporate level. Instead, the profits will only be taxed at the individual level, thereby avoiding the “double tax” that shareholders are usually subject to.
• If an S-Corporation is also not subject to the "double tax," are there situations where an LLC is still preferable?
  
  An advantage of an LLC is that the formation and ownership requirements are less stringent. Usually, an S-Corporation can issue only one class of stock, while an LLC may offer a variety of classes. The S-Corporation also limits the number of shareholders to one hundred or less, and prohibits non-resident aliens from possessing ownership in the company. Further, S-Corporation shareholders cannot be other corporations, LLCs, or partnerships. An LLC has no such limits to ownership.
  
  The LLC also offers an advantage in management flexibility. The LLC can be "member-managed," meaning that it would be managed directly by the shareholders. Or the owners of the LLC can agree to have the business “manager-managed,” meaning that the management can be structured and delegated from the owners to managers.
• Why not Choose an LLC?
  
  Although the LLC form is preferable in many ways, a C-corp or S-corp may still be the best form in many circumstances. The primary reason that a C-corp or S-corp may still be preferable is the simplicity by which the stock can be sold or otherwise transferred. A sale of an ownership interest in an LLC must meet certain requirements, while a sale of corporate stock virtually has no limitations. As mentioned above, other favorable aspects of the corporation include the public's familiarity with the form and lower state filing fees. Finally, the "pass through" tax advantage may be less beneficial to businesses that are small enough to take advantage of the 15% and 25% tax rates.
  
  Note that although every state allows corporations to have a single shareholder, a small minority of states require that an LLC have more than one Member. The rest of the states allow a single Member LLC.

Your State

Incorporating in your home state is usually the preferred choice because it is the least costly and least complicated. For example, if you incorporate in a state other than your state of operation you may have to qualify to do business in your home state as a "foreign corporation." Also, if you incorporate and operate in different states you may have to file annual reports in both states and may have to pay income and franchise tax in both states. Incorporating in your state of operation will simplify procedures and cut back on these redundant costs.

Finally, incorporating in your state of operation will allow you, or someone closely associated with your company, to serve as your company's resident agent. Naming yourself or someone associated with your company as resident agent ensures that you will personally receive important documents without wasted time and money.

The Delaware Option

Delaware has the longstanding reputation as the best state in which to incorporate. Thousands of start-up companies make this choice every year, despite the fact that they operate completely or partially in states other than Delaware. The upfront benefits of incorporating in Delaware are applicable to both large and small businesses. For example, Delaware offers low incorporation and franchise fees. Additionally, companies which conduct all business outside of Delaware are not subject to Delaware state income tax. Management Flexibility is also an advantage, as Delaware allows a corporation with fewer than 30 shareholders to be managed directly by the shareholders.

Although Delaware incorporation may be beneficial to any size company, it is the larger companies that have the most to gain. For instance, Delaware incorporation is advantageous to companies who intend to offer their shares to the public. For this reason the majority of companies on the New York Stock Exchange, as well as 58% of Fortune 500 companies, are incorporated in Delaware.

Also, if you choose to incorporate in Delaware, you may have to "qualify" to do business in other states that you operate in. This means that you will probably have to qualify to do business in your business' home state. Further, you may have to file annual reports in both Delaware and your home state of operation, and will likely be subject to franchise taxes in both states. The cost and complexity of the dual reporting requirements are more easily absorbed by larger companies.

If you choose to incorporate in Delaware but do not have a physical street address within the state, Direct Incorporation can provide you with dependable Delaware resident agent services.

The Nevada Option

In recent years, Nevada has gained recognition for its favorable corporate laws. As such, a growing number of out of state businesses choose to incorporate in Nevada. The tax savings of incorporating in Nevada is one advantage. Nevada does not tax corporate profits, there is no state personal income tax, and there is also no franchise tax.

Shareholders of a Nevada corporation also enjoy the benefit of complete privacy. In contrast to most states, Nevada has minimal reporting and disclosure requirements. For example, Nevada does not require shareholders to be listed on public record, as most states do.

However, like Delaware incorporation, larger corporations have the most to gain from incorporating in Nevada. In fact, for smaller corporations, the disadvantages of Nevada incorporation may outweigh the benefits. For example, if you choose to incorporate in Nevada and mainly operate in another state, you may have to "qualify" to do business in that other state. Furthermore, all states have annual reporting requirements, and although Nevada's requirements are minimal, it is generally less complicated to deal with the reporting requirements of just one state- your state of operation- rather than two.

If you choose to incorporate in Nevada but do not have a physical street address within the state, Direct Incorporation can provide you with dependable Nevada resident agent services.

What is a Resident Agent?

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.

The primary reason states require their corporations to maintain a resident agent within the state is so that each corporation has someone designated to receive important legal and other documents on its behalf, even if the company does not otherwise have a physical presence within the state. Resident agency is a legal mechanism set up for the protection of consumers and others who may be harmed by the corporation's products and services. It is not necessarily a mechanism that benefits the corporation.

When do I need a Resident Agent?

Every corporation or LLC must appoint a resident agent in its state of incorporation. Therefore, your company will always need a resident agent. The issue is whether you or someone associated with your company should serve as resident agent, or whether you will be required to contact an outside party to be your resident agent.

The outside party will charge a fee for the resident agent services. The service generally consists of the agent forwarding unopened documents received on your behalf to your company's office. Although this seems like a superfluous, time-consuming step, there is a situation where it is necessary to pay the fee and appoint an outside party as your resident agent. See below.

Whom should I appoint as my Resident Agent?

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 so as to ensure that the corporation is alerted to all important documents immediately. Corporations commonly appoint an owner, director, or officer of the company to serve as the initial resident agent. Appointing such a person as your resident agent is usually only an option when you incorporate in your state of operation.

When you incorporate in a state in which you do not have an office, it may be necessary to contact an outside party to serve as your resident agent. Since it is required that the resident agent have a physical street address within the state of incorporation, this may be the only way to fulfill the requirement. Appointing an outside party as your company's resident agent will add cost and time, but may be necessary in order to receive the benefits of incorporating in Delaware or Nevada.

If you wish to incorporate in Delaware or Nevada and your company does not have an office within the state, Direct Incorporation can provide you with a dependable resident agent as part of our incorporation service.

Number of shares the corporation is authorized to issue (for corporations)

At the time of incorporation, the incorporation documents specify the total number of shares that the corporation can issue. These are called the "authorized shares". The Board of Directors is responsible for deciding if and when to issue the authorized shares. When shares are actually given to the shareholders, they become issued, authorized shares.

When determining ownership percentages, the number of authorized shares is not a factor. All that is considered in determining ownership is the proportion of shares issued to each shareholder, not the actual number of shares.

It may be wise for the company to authorize 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. Designating 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.

Note that designating a large number of authorized shares may increase the state filing fees in a limited number of some states. Our system will alert you during the application process if your state does this.

Designating the number of authorized shares is done in the Articles of Incorporation for C-Corporations and S-Corporations and does not apply to LLCs. In an LLC the shares are called "membership interests," and the shareholders of the LLC are called its "members."

Common Shares and different classes of stock

If the company has only class of shares, these shares are referred to as the common shares. If they are the only class of shares, the common shares must be given all the rights associated with shares:

• the right to vote at the shareholder meetings,
• the right to receive dividends (if and when distributed), and
• the right to receive the company's remaining assets upon dissolution.

Different classes of shares may be created and vary based on differing rights and restrictions given to each particular class. In defining different classes of shares, it is important to note that at least one class of shares must have voting rights, at least one class must have the right to receive dividends and at least one class must have the right to receive the property of the corporation at its dissolution.

If a corporation has more than one class, the classes will usually have an alphabetical designation. For example, "Class A Common Stock," and "Class B Common Stock."
Another common way to differentiate between shares is to have one class of common shares and one class of preferred shares.

Preferred Shares

Corporations are required to issue common shares. However, corporations are not required to authorize any preferred shares.

The advantage of owning preferred shares, to shareholders, is that they have priority over common shareholders in receiving dividends. The preferred shareholders are entitled to receive a specified amount of dividends before the common shareholders receive any. The downside of preferred shares is that they are usually (but not always) non-voting. Further, the preferred shares usually have a “capped” right to receive dividends, meaning that the distributions have an upward limit.

The specifics of the rights and restrictions of preferred shares should be determined before issuing by the Board, or otherwise be designated within the corporate bylaws.

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.
For LLCs: The management type of the LLC

An LLC's Articles of Organization require a choice 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 lie 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.

If Manager-managed, the Members elect or approve of each proposed Manager at the organizational meeting. Each Manager may be appointed by the owners for a one year term, expiring at or before the following annual Member meeting.

Member names and addresses

In an LLC, the "Members" are the owners of the company. In a few states, the Articles of Organization require the names and addresses of all the initial Members. It is not necessary to amend the Articles of Organization if a Member is added to the LLC in the future.

Manager names and addresses

If the 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 in a C or S-Corporation. In some states, the Articles of Organization require the names and addresses of all Managers to serve on the initial Board of Managers of the company. The Focused Incorporation System™ will alert you during the application process if your state does this.

Most states require that the Board of Mangers, whether listed in the Articles or not, have at least three Managers, unless there are fewer than three Members (owners). Where there are fewer than three Members, the number of Managers in these states must match the number of Members.

There is no requirement that Managers, Members and officers be different people. In a small LLC, the Managers are usually Members or officers as well.

Director information

A few states require the names and addresses of the people who will serve as the first directors of the corporation. The majority of these states permit a Board with only one member. The other states require that at the Board have at least three members, unless there are fewer than three shareholders. Where there are fewer than three shareholders, the number of directors in these states must match the number of shareholders. Our online formation process tracks these requirements for you and describes the particular requirements of your state as you fill out the form.

Basically, all that is required in selecting a corporate name is that the name is distinguishable from already existing corporate names. When you fill out the online application, to ensure that the name is distinguishable we will execute a preliminary name check. Further, we will ask that you supply more than one name in order to increase your chances of selecting one that is distinguishable, and to expedite the incorporation process.

Within the Articles of Incorporation a corporate name must be followed by the word:

• Corporation,
• Incorporated, or
• Company.

An LLC name must be followed by the words:

• Limited Liability Company, or
• Limited.

An abbreviation of the corporate indication, such as:

• Inc.,
• Co.
• Corp.
• L.L.C.
• Ltd., or
• LLC

is also acceptable. Our online process will prompt you with the acceptable designations.

Incorporation is the process by which a company incorporates and thereby gains the benefits and status of an incorporated company. This process entails preparing 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.") Below is a list and discussion of the essential knowledge required to successfully incorporate a business.

Once you are able to answer these six questions, you are ready to incorporate. Incorporating with Direct Incorporation entails filling out an online form, which will take about ten minutes to complete. We will then use the information you have supplied us to prepare the necessary documents and file them with your chosen state. We will walk you through the process and enable you to effectively incorporate your business based on your business's specific needs, at a fraction of the cost of a lawyer.

1. Where to incorporate
   
   The choice of where to incorporate 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. Most states do not require a business, which is incorporated under its laws, to 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.
   
   
   • Your State
     
     Incorporating in the state of operation, your home state, is generally the best option for a mid-sized to small company where virtually all business is to be conducted within that state. Incorporating in the state of operation is preferable because it is usually the least complicated and least costly choice.
   • Delaware
     
     Delaware has the reputation of the incorporation capital of the United States. Thousands of start-up companies make the choice to incorporate in Delaware every year, despite the fact that they operate completely or partially in states other than Delaware. Although Delaware incorporation has the potential to be advantageous to all corporations due to the state's low incorporation fees, low taxes, and management flexibility, it is the larger corporations who stand to benefit the most. In fact, for smaller out of state corporations, the disadvantages of Delaware incorporation may outweigh the benefits.
   • Nevada
     
     Recently, Nevada has gained a reputation for its favorable corporate laws. As such, a growing number of out of state businesses choose to incorporate in Nevada. These businesses are attracted to Nevada by the state's low taxes, low fees and corporate privacy laws. However, like Delaware incorporation, larger corporations have the most to gain from incorporating in Nevada. Similar to Delaware, the smaller, out of state corporations may find that the disadvantages of Nevada incorporation outweigh the benefits.
2. The corporate form (C-Corp, S-Corp, or LLC)
   
   There are essentially three options for the corporate form of a for-profit company: a C-Corporation, an S-Corporation, or an LLC.
   
   
   • C-Corporation
     
     A C-Corporation is the traditional and most common type corporation. The benefits of a C-Corporation include personal liability protection, lack of limitation on the number of shareholders allowed, the ease by which stock can be transferred, low state formation fees and the public's familiarity with the C-Corporation as a business entity. The major disadvantage of a C-Corporation is that it is subject to "double taxation."
   • S-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. However, not all C-Corporations are able to take advantage of the S-Corporation status. A corporation is only eligible for the S-Corporation election if it meets a list of detailed ownership requirements.
   • Limited Liability Company (LLC)
     
     An LLC offers the best of both worlds of business types. 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, in relation to the S-Corporation, relaxed ownership qualifications. However, the drawbacks of an LLC include restrictions in ownership transfer, and the public's lack of familiarity with the LLC as a corporate form.
   
   
3. The Name of the company
   
   Basically all that is required in selecting a corporate name is that the name is distinguishable from already existing corporate names. Within the Articles of Incorporation a corporate name must be followed by the word "Corporation," "Incorporated," or "Company." An LLC name must be followed by the words "Limited Liability Company," or "Limited." An abbreviation of the corporate indication, such as "Inc.," "Co.," or "LLC" is also acceptable.
4. The address of the company's initial office
   
   The Articles of Incorporation ask for the address of the company's initial office. An actual physical address is mandatory, as a PO Box is unacceptable.
   
   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.
5. The name and address of the Resident Agent
   
   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.
   
   If you wish to incorporate in Delaware or Nevada and your company does not have an office within the state, Direct Incorporation can provide you with a dependable resident agent as part of our incorporation service.
6. For Corporations: Number of shares the corporation is authorized to issue
   
   Authorized shares are the total number of shares that the Corporation can issue. The Board of Directors is responsible for deciding if and when to issue the authorized shares. When shares are actually given to the shareholders, they become issued, authorized shares.
   
   When determining ownership percentages, the total number of shares becomes an arbitrary number. All that is considered in determining ownership is the proportion of shares issued to each shareholder, not the actual number of shares.
   
   It may be wise for the company to authorize 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.
   
   Note that the number of authorized shares may increase the state filing fees in a limited number of some states.
   
   Designating the number of authorized shares is done in the Articles of Incorporation for C-Corporations and S-Corporations and does not apply to LLCs. In an LLC the shares are called "membership interests," and the shareholders of the LLC are called its "members."
7. For LLCs: The management type of the 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.
   
   If Manager-managed, the Members elect, or approve of each proposed Manager at the organizational meeting. Each Manager may be appointed by the owners for a one year term, expiring at or before the following annual Member meeting.
   
   
   • Member names and addresses
     
     In an LLC, the "Members" are the owners of the company. In a few states, the Articles of Organization require the names and addresses of all the initial Members. It is not necessary to amend the Articles of Organization if a Member is added to the LLC in the future.
   • Manager names and addresses
     
     If the 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 in a C or S-Corporation. In some state, the Articles of Organization require the names and addresses of all Managers to serve on the initial Board of Managers of the company.
     
     Most states require that the Board of Mangers, whether listed in the Articles or not, have at least three Managers, unless there are fewer than three Members (owners). Where there are fewer than three Members, the number of Managers in these states must match the number of Members.
     
     There is no requirement that Managers, Members and officers be different people. In a small LLC, the Managers are usually Members or officers as well.
   
   

Incorporating is essential to the success of any business. 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.”)

Below is an explanation of why it is necessary for every business to incorporate. The primary advantages of incorporation are discussed, as are the risks involved in operating an unincorporated business.

• Shield yourself from liability
  
  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.
  
• Establish perpetual existence and transfer of ownership
  
  Perpetual existence is an advantageous aspect of an incorporated business. Perpetual existence means that the life and continuation of the business will not be affected by the withdrawal or death of one of the owners. An unincorporated business's existence, as well as its operation, is generally disrupted by the withdrawal or death of one of the owners. Subtract this risk from your business by incorporating.
  
  Similarly, the ownership interest in an unincorporated business may be very difficult to transfer. If the business is incorporated the shareholders can easily transfer their interest by sale or gift.
  
• Gain tax advantages
  
  If you incorporate your business, there are tax deductions for a wide variety of operating costs which will substantially cut back your company's overall tax liability. These deductions may include the cost of materials/production, employee wages, the cost of insurance, the cost of retirement plans, as well as business travel and entertainment expenses.
  
• Enhance the company's image
  
  Another essential reason to incorporate your business is that it adds credibility to its operation. The perception of a business is improved by its incorporation and use of "Inc.," "Co.," or "LLC" following the name of the business. Customers are more likely to trust and deal with a business that has this positive image. More importantly, the business will be more attractive to banks and investors if and when the business seeks outside financing.
  
• Improve ability to manage
  
  The decision-making authority of an incorporated business is centralized, which usually means that the shareholders have vested the authority in a Board of Directors. The Board of Directors can delegate this authority to the company's officers. In an unincorporated business, the power structure and decision-making authority may not be defined and may be subject to manipulation by a co-owner or employee. This lack of structure will substantially affect the ability of the business to operate. Subtract this risk from your business by incorporating and thereby centralizing its management structure.
  
• Incorporate online because it's easy
  
  Incorporating online will take you about ten minutes and will cost you a fraction of what it would cost if you used a lawyer. We will walk you through the process, and enable you to effectively incorporate your business based on your business's specific needs.

Hiring a lawyer to incorporate your business is not a requirement.

You don't need a lawyer to incorporate your business. 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. 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, Direct Incorporation is an accessible alternative for entrepreneurs who require precise, efficient incorporation services for a fraction of a lawyer's fees.

Find a lawyer in your area at the American Bar Association website

Corporate Formalities

• Annual Report 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 its existence.
  
• Corporate Records Requirements
  
  
  • C-Corporations and S-Corporations
    
    Almost every state has a Corporate Records Requirement. Generally the requirement compels a Corporation to maintain certain past and present corporate records at its principal office. Such records may include the current Articles of Incorporation, the Corporate Bylaws, 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.
    
    Included in the Premier Incorporation Package, Direct Incorporation offers information and tools that will help assist corporations to comply with the corporate records requirements of their state.
  • Limited Liability Company (LLC)
    
    Although the corporate records requirement is usually more stringent for a corporation, an LLC is subject to the records requirement to a certain degree and should follow the requirement as far as applicable. States that have corporate records requirements for LLCs may require a company to maintain at its principal office the current Articles of Organization, the Operating Agreement, minutes from various meetings, the company's stock transfer ledger, the names and addresses of all current members, managers, and officers, and the most recent annual reports and financial records.
    
    Included in the Premier Incorporation Package, Direct Incorporation offers information and tools that will help assist LLCs comply with the corporate records requirements of their state.
  
  
• Miscellaneous Issues after Formation
  
  
  • Licenses
    
    In order to comply with state business regulations, most new corporations and LLCs will be required to obtain a license and possibly pay a state fee before transacting business. The following is a non-exhaustive list of businesses that may be required to obtain licenses:
    
    
    • accountants
    • architects
    • attorneys
    • barbers
    • collection agencies
    • damage appraisers
    • dealers and salespersons
    • electrical workers
    • employment agencies
    • engineers
    • manufacturing companies
    • nurseries
    • real estate brokers
    • restaurants
    • security brokers
    
    After formation, it is urged that you check with the appropriate state agencies to ensure that you comply with the license requirements for your particular business.
  • Trademark Corporate Name
    
    In order to protect the exclusive use of a company's name, the company may be required to obtain a Trade Mark on the name. In some circumstances, protection may not be warranted simply by the use of the name in the Articles of Incorporation or Articles of Organization.
  • Employer Identification Number (EIN)
    
    Every new corporation or LLC is required to obtain an Employer Identification Number (EIN) from the IRS. If you have not already applied for an EIN, you must do so. An EIN can be applied for via mail by filing form SS-4, or by telephone.
    
    To apply by phone, call: 1-800-829-4933.
    
    To apply by mail, fill out the form and send it to your region's IRS office. The regional addresses can be found on the Internal Revenue Service's web site: http://www.irs.gov
    
    Download an application for an EIN (form SS-4)
  • Tax issues
    
    
    • C-Corporations
      
      It is important to remember that although federal taxes are likely to comprise the most significant portion of a C-Corporation's tax liability, the C-Corporation will also have to pay tax at the state level. A newly started business should contact its state's revenue department as soon as possible to be put on notice of its state's corporate income tax procedures. Further, it may be wise to contact a tax advisor for a complete discussion on complying with state and federal tax regulations. The States of Washington, South Dakota, Wyoming, Nevada and Florida do not have to be concerned about such requirements, as there is no state corporate income tax.
    • LLCs
      
      One of the primary benefits of the LLC is that it is not necessarily subject to tax at the corporate level. However, one must be aware that to take advantage of the LLC "pass through" taxation, multi-member (multi-owner) LLCs must file a partnership tax return (K-1). Filing this form does not mean that the LLC will pay taxes on income. Instead, the form merely notifies the IRS of the LLC's "pass through" taxation to its members. Single-member LLCs are not required to file this form. Instead, a simple attachment to the owner's individual tax return is required. Please contact a tax advisor for further details.
    
    
  • 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: Pennsylvania (C and S-Corporations), Georgia (C and S-Corporations), Arizona (LLCs, C and S-Corporations), Nebraska (LLCs, C and S-Corporations) and New York (LLCs only). If you choose to form your company through our services, we'll be sure to notify you of this requirement if it is applicable to your state.
  
  

A Trademark is one of the most valuable assets of any business. A Trademark is a word, name, symbol, design, phrase or sound that identifies a business organization, or its products or services, and distinguishes it from other business organizations. In other words, a Trademark is how potential customers recognize your business and set you apart from your competitors.

A Business must be extremely careful in choosing the names associated with it, as it can be exorbitantly expensive to change names midstream. As thousands of businesses have learned, the result can be devastating in terms of lost business.

One of the first steps to starting your business is naming your business. One of the first steps in launching a product or service is naming the product or service. Before you use the name, YOU NEED TO KNOW IF THE NAME IS BEING USED BY SOMEONE ELSE. Finding out the hard way can have a devastating effect on your business: fines, legal liability, the lost opportunity cost of having to switch names midstream…

Even if no one else is using the name in your state or geographic region, a Trademark Search will reveal if someone is using the name in any part of the country. This is important to businesses that envision expansion. Every year, thousands of business owners find out that they are practically frozen out of expanding to an area with their business or brand name, as someone in that area has Common Law Rights to that business name. A Trademark Search will reveal this scenario up front, before time, money and effort is put into building a trade name or brand.

The Trademark Search ensures that you can use the name you want to use in your business. It also mitigates the risk that your trademark registration application will not be rejected by the United States Patent and Trademark Office (USPTO). It is your responsibility to have the search done before you submit your application to the USPTO. Submitting a trademark registration application blindly risks a considerable amount of time and money.

Registering a Trademark puts the world on notice that you are using the mark, that it is your mark, and that no one else can use it. It also generates an indisputable record of your use, which is vital in defending your rights if another business were to come along at a later date and use the mark in violation of your rights. Trademarks should be registered by businesses that use the mark in interstate commerce, or plan on using the mark in interstate commerce.

Furthermore, registering a trademark will give your trade name and brand names more credibility with the public and with other business you deal with.

Common Law Trademark Rights: A business using a trade name in commerce may very well have Common Law Rights in that name. Basically, the only requirement is that the business was the first to use the name in that geographic area. Here, it wouldn't matter if you registered the Trademark with the USPTO. The business that first used the name would have the right to the name, in that area. But practically speaking, you could be blocked out from using this name anywhere. Common Law Trademark rights are extremely prevalent. Several million US business have Common Law Trademark rights in their trade names. This is why running a Trademark Search is extremely important.

Registered Trademarks: Registering a trademark gives the owner a presumptive right to the use of the trademark. Registering puts the world on notice that you are using the mark, that it is your mark, and that no one else can use it. It also gives your trade name and brands more credibility.

To avoid infringing on another business's name or trademark, a competent Trademark Search should be undertaken.

Though we use the word "Trademark" on this site to describe Trademarks and Servicemarks, there is a distinction. A Trademark serves to distinguish goods or products from similar goods or products. A Servicemark serves to distinguish a given service provided by one business from similar services provided by another, and to distinguish the marketing or sales promotion of a business organization.

The right and obligation of a trademark owner is to take legal action against anyone who is infringing on its trademark. The owner must be consistent and thorough in asserting its rights to ownership. Furthermore, the owner of the trademark must be diligent in asserting its claims of ownership. If the owner is not consistent and diligent, the law may deem the owner to have waived such rights to ownership.

Federal Trademark Registration gives national protection, and puts parties on notice of the trademark across the nation. State Trademark Registration can put parties on notice on a statewide basis, and can give some protection against infringement. However, merely registering a trademark in a single state will give no protection against infringement in another state. Furthermore, if a company does not register a trademark federally, the company may find it's precluded from expanding with the trademark to other states, where competitors are already using the mark.

In most cases a trademark is simply a word, or a combination of letters and numbers. However, some trademarks include a design element, which may require a drawing to be submitted with the application. Contact one of our Trademark Consultants today to discuss your Design/Logo Trademark, 877 281 6496.