In
what state should I form my LLC
or Corporation
Unless you plan on having a
large, multi-state operation, it
is generally best to form your
company in the state in which it
is located. Generally speaking,
most states will expect you to
be registered with them if there
is substantial ongoing business
and/or a physical presence in
that state. If you do form your
company in a state other than
the one in which your company is
located, you may ultimately need
to register your company as a
foreign (out of state) company
with your home state, which will
subject you to all of the fees,
taxes, and regulations of that
state.
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Does forming an
LLC or Corporation require an
attorney?
No, it
does not. An attorney is not a
legal requirement to form a LLC
or Corporation. While we always
recommend consulting the
appropriate legal and accounting
specialists, we can take care of
the filings for you and save you
the attorney fees.
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What is a
Registered Agent and do I need
one?
Almost every
state
requires a
Corporation
or an LLC to
have a
Registered
Agent
(sometimes
called a
resident
agent,
statutory
agent, or
agent for
service of
process).
The
Registered
Agent
address is
the address
that will be
used by the
state for
any official
legal and
tax
correspondence.
The
Registered
Agent
address must
be a
physical,
in-state
street
address;
P.O. Boxes
are not
acceptable.
If needed,
PlanYourIdea.com
can provide
you with a
Registered
Agent for
only $99.00
per year,
and any
official
legal and
tax
correspondence
from the
state will
be forwarded
to your
billing/shipping
address.
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Are Non-US
Residents allowed to own a
Corporation or LLC?
There are
no citizenship or residence
requirements for ownership of a
C Corporation or an LLC. The S
Corporation however does not
allow nonresident aliens to be
shareholders (owner), but any US
citizen or resident alien may be
a shareholder (owner). You
would, of course, require an in
state street address for the
state to forward official legal
and tax correspondence including
service of process, known as the
registered agent address, but
neither residency nor
citizenship is required for
ownership of a C Corporation or
an LLC.
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What
are the differences between
Officers, Directors and
Shareholders?
A corporation
consists of all three: officers,
directors and shareholders.
Shareholders are the owners of
the corporation and elect the
directors. Directors guide and
are involved in the fundamental
decisions of the corporation on
behalf of the shareholders.
Officers are selected by the
directors and run the day-to-day
operations of the corporation.
These do not need to be separate
people. Any person can fill all
three positions. In small
businesses, one person can be
the only shareholder, the only
director, and the only officer.
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What is stock par
value?
Par value
is a nominal dollar amount given
to corporate shares. It doesn’t
necessarily reflect their real
value, and is typically set at a
low value (i.e. one dollar or
one cent). The par value of a
share is the minimum price at
which it may be sold to
shareholders, and the par value
must be the same for all shares
of the same class. The shares
can be sold to the initial
shareholders, at par value or
more, but the price must be the
same for each share. Not all
states require a par value.
Unless you specify otherwise, by
default PlanYourIdea.com will
authorize 1500 shares (this is
due to the fact that 1500 is
easily divisible by 2, 3, 4, 5,
6) with a par value of one cent,
or at no par value if not
required by your state.
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What
are Bylaws?
The bylaws of a
corporation are an internal
document that contains rules for
holding corporate meetings and
carrying out other formalities
according to state corporate
laws. Bylaws are not filed with
the state.
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How many shares of
stock will my Corporation need?
The number
of initial shares your
corporation is authorized to
distribute is specified in the
Articles of Incorporation. The
actual number is more or less
arbitrary, at your discretion.
PlanYourIdea.com uses a default
number of 1500 shares (this is
due to the fact that 1500 is
easily divisible by 2, 3, 4, 5,
6), with a par value of one cent
(if your state requires par
value, otherwise no par value
will be assigned). Some states
charge more to form a
corporation with a high number
of shares and/or high par value.
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How is a C
Corporation Taxed?
Unlike
many other business entities in
which the profits pass through
to the owners’ personal tax
return (e.g. LLCs, S
Corporations, etc.), the C
Corporation is a completely
separate taxable entity. The C
Corporation pays federal taxes
on the net profits (after all
expenses, including salaries and
bonuses) of the business by
filing the 1120 form with the
IRS. The after tax profits can
be paid out to the owners
(shareholders) in the form of
dividends, or retained for
reinvestment of the business.
The first $50,000 of net income
is only federally taxed at 15%
rate, and the next $25,000 is
taxed at a 25% rate. Different
states have different rules on
how they tax corporations.
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How is a Corporation managed?
A Corporation is
managed and run by its directors
and officers. The directors are
appointed by the shareholders
and are responsible for the
overall management and corporate
governance of the corporation.
The directors appoint the
officers who are responsible for
the day to management and
operations of the corporation.
The typical officer positions
are president, vice-president,
treasurer, and secretary,
although there can be more and
sometimes different titles are
used. In most states only one
director and one officer is
required, and they can usually
be the same person.
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What are the
disadvantages of a C
Corporation?
More
extensive record keeping
requirements: Corporations
typically require more ongoing
paperwork than most other
business entities in order to
stay compliant with the law and
maintain their corporate status.
This includes holding and
documenting annual meetings of
shareholders and directors and
keeping minutes of important
corporate meetings.
Dividend payments
can lead to double taxation:
Dividends are paid to
shareholders/owners from the
after-tax profits of a C
Corporation. The dividends
received by the owners are then
tax personally on dividends
received. This means the income
is taxed twice, if dividends are
paid.
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What are the
advantages of a C Corporation?
Limited
Personal Liability: This limits
the liability of the
owners/investors to only the
amount of their investment. The
owners of a corporation are not
personally liable for business
debts, claims, or other
liabilities.
Perpetual
Existence: The existence of a
corporation is considered
perpetual, although it can be
terminated voluntarily by its
owners (shareholders).
Better fringe
benefits: While all business
entities can provide fringe
benefits to its owners and/or
employees, the Corporation
allows for a greater range of
benefits.
Advantageous
Corporate Tax Treatment/Income
Splitting: Tax rate on corporate
income is usually lower than the
tax rate on personal income up
to the first $75,000 in income.
The owners can arrange salaries
and bonuses in conjunction with
retained corporate earnings to
lower their overall tax rate.
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What
is a C Corporation?
A C Corporation
is a completely separate tax and
legal entity from its owners,
and owners who work in the
business are treated and taxed
as employees of the corporation
(Note: The “C” in C Corporation
refers to a sub chapter of the
tax code; C Corporations are one
of the most common forms of
corporations, and they are
frequently referred to
generically as corporations). C
Corporations are subject to
corporate income taxes separate
from the owners, where most
other forms of business entity
allow for the company profits to
“pass-through” to the personal
income tax statements of the
owners. As such, C Corporations
are the most formal business
entity and they have greater tax
reporting responsibilities than
other business entities. C
Corporations allow for profits
to be retained in the business,
if desired, and frequently these
profits can be taxed at a lower
rate than personal income. C
Corporations can also pay out
after tax profits to its owners
in the form of dividends, but
this can also lead to double
taxation.
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What is an S
Corporation?
An S
Corporation
is a special
form of
corporation
(Note: The
“S” in S
Corporation
refers to
sub chapter
S of the tax
code). S
Corporations
are based on
C
Corporations
but they are
not treated
as a
separate tax
entity as C
Corporations
are.
Instead, the
income of an
S
Corporation
is “passed
through” to
the personal
income of
its owners
(shareholders)
in
proportion
to their
ownership
interest. An
S
Corporation
is created
by forming a
traditional
C
Corporation
and then
filing the
IRS Form
2553 (The
Subchapter S
Election)
for federal
recognition
of S
Corporation
tax status.
While the S
Corporation
has many of
the same
features as
a C
Corporation,
there are
some
important
differences.
While the S
Corporation
features
similar pass
through
taxation to
an LLC, in
the area of
self-employment
taxes an S
Corporation
can have an
advantage
over an LLC.
The
compensation
(salary and
bonuses) of
S
Corporation
shareholders
is subject
to
self-employment
tax, but not
on the
profits
automatically
allocated to
them as a
shareholder.
This can be
an advanced
and
aggressive
tax
strategy, so
be sure to
consult with
the
appropriate
tax and
legal
specialists
before
pursuing it.
^top
Who
will typically select an S
Corporation?
Typically
entrepreneurs will select the
S-Corporation as the entity of
choice for the following
reasons:
-
The
S-Corporation
combines
the
advantages
of the
sole
proprietorship,
the
partnership,
the LLC
and the
corporation
into one
entity.
-
Unlike
sole
proprietors
and the
partners
in a
partnership
the
shareholders
of the
S-Corporation
are
granted
the same
level of
limited
liability
and
personal
asset
protection
as are
the
shareholders
of a
corporation.
-
The
S-Corporation
allows
shareholders
to avoid
the
“double
taxation”
levied
on
shareholders
of
C-Corporations
that is
because
all of
the
income
or
losses
in a
S-Corporation
are
reported
only
once on
the
personal
income
tax
returns
of the
S-Corporation’s
shareholders.
^top
How
is an S Corporation taxed?
For purposes of
federal taxation, an S
Corporation is taxed differently
than a C Corporation. Typically,
the S Corporation files its
annual return using the Form
1120S, as opposed to the 1120
for a C Corporation. The 1120S
is an informational return; it
simply informs the federal tax
authorities the amount of net
profit/loss made by the S
Corporation, the shareholders
amongst which the profit/loss
will be distributed, and the
proportion in which the
profit/loss is distributed to
the shareholders. There is no
tax payment/refund associated
with the 1120S tax return, as
the S Corporation does not have
the independent tax status that
a C Corporation has. Instead,
the profits/losses of the S
Corporation are considered
distributed to the shareholders
in proportion to the ownership
interest of the shareholder.
^top
What
are the disadvantages of an S
Corporation?
More
extensive record keeping
requirements: Corporations
typically require more ongoing
paperwork than most other
business entities in order to
stay compliant with the law and
maintain their corporate status.
This includes holding and
documenting annual meetings of
shareholders and directors and
keeping minutes of important
corporate meetings.
Additional
Restrictions:
-
S
Corporations
cannot
have
more
than 100
individual
(not
entity)
shareholders
-
S
Corporations
must
have
shareholders
who are
US
Citizens
or US
Residents
-
S
Corporations
may only
have one
class of
stock
^top
What are
the advantages of an S
Corporation?
Limited
Personal Liability: This limits
the liability of the
owners/investors to only the
amount of their investment. The
owners of a corporation are not
personally liable for business
debts, claims, or other
liabilities.
Perpetual
Existence: The existence of a
corporation is considered
perpetual, although it can be
terminated voluntarily by its
owners (shareholders).
Better fringe
benefits: While all business
entities can provide fringe
benefits to its owners and/or
employees, the S Corporation
allows for a greater range of
benefits.
Pass-Through
Taxation: The S Corporation does
not have a separate tax status
from its owners (shareholders).
Instead, the income is allocated
to the personal income
proportional to his or her
ownership interest.
^top
How is
an LLC taxed?
For federal
income tax
purposes the
profits of
an LLC
(Limited
Liability
Company)
“pass
through” to
the personal
income of
the
members/owners.
In the case
of a single
member LLC
it is taxed
the same as
a sole
proprietorship
(i.e.
typically
filed on the
schedule C
of the
owner’s
personal
income tax
filing). In
the case of
a multi
member
member it is
taxed the
same as a
partnership
(i.e. a 1065
partnership
return is
filed with
the IRS,
with a
schedule K-1
being
supplied to
each
partner/member
showing the
proportional
profit/loss
allocated to
them, with
this being
filed on the
schedule C
or E). These
are general
tax
explanations
and may not
apply to
everyone.
You should
confer with
the
appropriate
accounting/tax
specialists
to make sure
you
understand
your
personal tax
liability.
^top
Can I
form an LLC with just one
member?
There was
a time when almost every state
required the LLC to have two or
more members, but that is no
longer the case. This important
change came in response to
revised IRS regulations that
clearly permitted single-member
LLCs. As a result, in most
states, if you plan to be the
sole owner of a business and you
wish to limit your personal
liability, you can choose
between forming a corporation or
an LLC.
^top
What is
an LLC (Limited Liability
Company)?
A limited liability
company (LLC) is a form of
business entity that is separate
and distinct from a person, like
a corporation. The LLC is often
described as hybrid between a
corporation and a partnership
(or sole proprietorship). It
allows for the limited liability
protection similar to that of a
corporation (i.e. your risk is
limited to the amount that is
invested in the LLC, and
personal assets beyond that are
usually protected). It also
allows for a more flexible setup
and operating structure than a
corporation while providing the
pass through taxation of a
partnership (if a multi-member
LLC) or a sole proprietorship
(if a single member LLC). One of
the main advantages of an LLC
over a Partnership or a Sole
Proprietorship is the Limited
Liability protection.
^top
What
is the purpose of an alternate
company name during the order
process?
In order to
form your
company, we
need to know
what name
you want for
the
business.
Before
forwarding
the
necessary
formation
documents to
the state we
do a name
search in
your state
of formation
to see if
the company
name is
available.
If the name
you want for
your company
is the same
as or too
similar to
an existing
company, the
state will
reject the
filing. In
the case of
this
eventuality,
we request
an alternate
name that is
distinctly
different
from your
first
choice. If
the first
choice is
not
available we
will proceed
with the
alternate
choice. If
neither is
available
for filing
we will
contact you
for further
options.
^top
What
is an EIN?
An EIN
(Employer
Identification
Number,
frequently
called a Tax
ID number)
can be
thought of
as a Social
Security
Number for
your
business. It
is usually
required to
open a bank
account in
the name of
the business
and to
properly pay
and account
for any
wage/payroll
employees of
your
company. If
you require
this service
we will
prepare the
required
documents
and file for
an EIN on
your behalf.
Just select
the this
option
during the
order
process on
our website.
^top
What
is an EIN?
Once your
order is
placed we
will file
the
formation
documents
the very
next
business day
with your
state. If
additional
information
is required
we will
contact you
for the
necessary
information.
We handle
your
formation
from
beginning to
end and make
sure that
your
formation is
filed
quickly and
correctly.
^top
Do I
need to sign anything?
Each state
has
different
requirements.
Some states
require your
signature on
the
Registered
Agent
acceptance
form and
some do not.
If the
formation of
your company
will require
your
signature we
will sign on
your behalf,
as your
authorized
representative.
^top
What
are the current state filing
fees?
The
following
state filing
fees are
charged by
each state
in addition
to the
PlanYourIdea.com
filing fee:
| |
C
Corporation |
S
Corporation |
LLC |
| Alabama |
$130 |
$130 |
$120 |
| Alaska |
$275 |
$275 |
$275 |
| Arizona |
$120 |
$120 |
$110 |
| Arkansas |
$70 |
$70 |
$70 |
| California |
$125 |
$125 |
$95 |
| Colorado |
$75 |
$50 |
$75 |
| Connecticut |
$225 |
$225 |
$85 |
| Delaware |
$89 |
$85 |
$90 |
| Florida |
$95 |
$95 |
$150 |
| Georgia |
$125 |
$125 |
$125 |
| Hawaii |
$75 |
$75 |
$75 |
| Idaho |
$125 |
$125 |
$125 |
| Illinois |
$200 |
$196 |
$550 |
| Indiana |
$115 |
$115 |
$115 |
| Iowa |
$75 |
$75 |
$75 |
| Kansas |
$115 |
$115 |
$190 |
| Kentucky |
$80 |
$80 |
$65 |
| Louisiana |
$85 |
$85 |
$100 |
| Maine |
$170 |
$170 |
$200 |
| Maryland |
$145 |
$145 |
$125 |
| Massachusetts |
$325 |
$325 |
$550 |
| Michigan |
$85 |
$85 |
$75 |
| Minnesota |
$185 |
$185 |
$185 |
| Mississippi |
$75 |
$75 |
$75 |
| Missouri |
$85 |
$85 |
$130 |
| Montana |
$95 |
$95 |
$95 |
| Nebraska |
$95 |
$95 |
$150 |
| Nevada |
$75 |
$75 |
$75 |
| New Hampshire |
$140 |
$140 |
$140 |
| New Jersey |
$150 |
$150 |
$150 |
| New Mexico |
$125 |
$125 |
$75 |
| New York |
$160 |
$160 |
$225 |
| North Carolina |
$150 |
$150 |
$150 |
| North Dakota |
$115 |
$115 |
$160 |
| Ohio |
$150 |
$150 |
$150 |
| Oklahoma |
$75 |
$75 |
$125 |
| Oregon |
$80 |
$80 |
$80 |
| Pennsylvania |
$150 |
$150 |
$150 |
| Rhode Island |
$255 |
$255 |
$175 |
| South Carolina |
$260 |
$260 |
$135 |
| South Dakota |
$150 |
$150 |
$150 |
| Tennessee |
$125 |
$125 |
$325 |
| Texas |
$325 |
$325 |
$325 |
| Utah |
$80 |
$80 |
$80 |
| Vermont |
$100 |
$100 |
$100 |
| Virginia |
$100 |
$100 |
$125 |
| Washington |
$220 |
$220 |
$200 |
| Washington DC |
$250 |
$250 |
$215 |
| West Virginia |
$135 |
$135 |
$125 |
| Wisconsin |
$125 |
$125 |
$155 |
| Wyoming |
$125 |
$125 |
$125 |
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