How Will Incorporating Benefit You?

There are many benefits to incorporating. In order to determine whether or not incorporating is the best option for you and your business entity we advise that you consult a trusted accountant or attorney for financial and legal advice.  Incorporating can be a big milestone in the life of your business and American Incorporators can help every step of the way!

These are our top three reasons for incorporating:

1) It offers liability protection

By forming an LLC or Corporation you create a barrier between your personal assets and your company assets, should your company every be sued. In this case you can protect your personal assets from being seized.  

2) It lends a sense of legitimacy

Forming a legal business entity also lends a sense of legitimacy to your venture.  This can help attract investors, clients, and vendors.  People tend to have more faith in a company with Inc. or LLC at the end of its name.

3) It allows for longevity

If the initial owner dies, the business entity continues and shares can be passed on to others. Or if the owner wants to sell his or her shares in a company it is much easier to do if a legal entity has been formed. 

Find more answers to the top 50 questions about incorporating in our newly published eBook!

Member-Managed or Manager-Managed? What's the Difference?

A Member-Managed and a Manager-Managed LLC differ in the way that the company is run.

A member-managed structure is the most common approach. This approach is recommended for companies where the members plan to have an active role in the daily activity of the company. This grants the members authority to act on behalf of the business.

In a manager-managed LLC, the members act more like silent partners and leave the day-to-day management of the company to a member-appointed manager. This operating structure is applicable only if a single member will be involved in running the company - the manager appointed can be a member.

Whichever managing approach the LLC chooses for its operation, it is important that the agreed upon rules and processes are clearly outlined in the company's operating agreement. 

What if I need to change my directors or members? It is a simple internal process to change a director or member. The company would need to have a meeting to pass a resolution indicating the new members or directors. Meeting minutes would be kept to record this transaction of resolution being signed by the current directors or members. It is also allowable, although generally not required, to file an amendment with the state naming the new directors or members. This allows for more formal documentation since the amendment would become part of the company's public record. 

The Importance of Having a Registered Agent and Address 

The first and most important reason that your business needs a registered agent and registered address is that it is required by law.  The state in which you choose to incorporate your business in will not approve the initial incorporation/ formation certificate without providing a valid registered agent and registered address.  

The registered agent and address must be located in the state of incorporation or formation and must be a physical street address.  The registered address cannot be a post office box.  The primary responsibility of the registered agent and registered address is to accept all annual report and tax notices from the state and to accept any Service of Process on behalf of the company in the event of a lawsuit.  The registered agent must be available during normal business hours Monday – Friday to accept any Service of Process on behalf of the company.  If your corporation or LLC fails to maintain a registered agent and registered address, the state may declare the company void for noncompliance.  If a corporation or LLC is declared void or noncompliant by the state, it may lose all of the liability protections provided as an incorporated entity.

Need a registered agent and address? We can help! Click Here

An important first step after forming your LLC is to draft an operating agreement that outlines the rules and protocols of how the company will conduct business and who will be in positions of ownership and management. Specifically, the operating agreement describes the responsibilities of the managers and members, the percentage of member ownership, as well as voting rights. This operating agreement is crucial to providing liability protection to the members of the LLC. It should be maintained with other corporate records such as meeting minutes and membership certificates.

In the operating agreement it is important to lay out the management style of the LLC. It can either be member-managed or manager-managed. A member-managed structure is the most common approach. This approach is recommended for companies where the members plan to have an active role in the daily activity of the company. This grants members authority to act on behalf of the business. In a manager-managed LLC, the members act more like silent partners and leave the day-to-day management of the company to a member-appointed manager. This operating structure is applicable only if a single member will be involved in running the company – the manager appointed can be a member.

It is important to maintain a membership ledger to keep track of stock issued to members.

In order to maintain good standing with the state of formation and the appointed registered agent, it is important to pay all annual fees to the relevant state authorities and registered agent in a timely manner.

Although requirements for LLCs differ, maintaining a thorough record of all meeting minutes, documents, and internal resolutions is crucial for the successful function of your LLC.

Thinking of Incorporating?

Beginning the incorporation process can seem intimidating, but the process is actually easy! For your convenience, American Incorporators has provided this three-step comprehensive list of how to get started! 

Step 1: Select a State

Things to consider when selecting a state:

• What state doe the entity of a physical presence in?
• What state does the entity have employee(s) located in?
• What state(s) does the entity conduct business in?
• What state does the entity intend to open a bank account in?

Although American Incorporators does not provide legal or financial advice, if you answered any of the above questions with multiple states, you may be required by local agencies to register to do business in more than one state.

*Registering to do business in more than one state is known as a foreign qualification/registration – American Incorporators can assist with foreign qualification/registration

Step 2: Select a Type of Entity

Limited Liability Company (LLC)

An LLC is a legal entity separate and distinct from its owners, who are called "members." Members of an LLC may include any number of individuals, partnerships, corporations, trusts, nonresident aliens, etc.

S Corporation

An S Corporation avoids the double taxation inherent to general business corporations, in which both profits and dividends are taxed.

Ownership: Shareholders –By law, the number of eligible shareholders is limited to 100. Only individuals and certain trusts and estates are allowed to own stock.

Control: Owners share ownership through stock, and business is managed through a Board of Directors; certain legal regulations also apply. 

Liability: Owner’s liability is generally limited to assets in corporation.

Taxation: Corporation is not taxed; income is taxable to the shareholders at their personal income tax rate.

C Corporation or General Business Corporation

The C Corporation is the most widely used by both small and large businesses that plan to have shareholders.

Ownership: Shareholders –Unlimited number

Control: Owners share ownership through stock, and business is managed through a Board of Directors; certain legal regulations also apply. 

Liability: Shareholder liability is generally limited to the each has invested in the corporation, unless acting as guarantor of corporate debt.

Taxation: Corporation pays tax on business income at corporate tax rate. The profits are distributed to shareholders and are taxed at personal income tax rate. 

Non-profit Corporation

A non-profit corporation is designed to provide tax-exempt status for socially beneficial businesses that support charitable, religious, educational or scientific activities. It may not be used if you intend to run your business for profit. Most non-profit corporations have either tax-exempt or 501(c)(3) status, which exempts them from paying taxes on income. To obtain either of these tax designations, an Application for Recognition must be filed with the IRS.

General Partnership

A general partnership involves at least two people, with no maximum on the number of partners allowed. There are no state filings required to form a partnership. Taxes are collected on individual partners, not on the entity. A limited partnership is a statutory form of partnership consisting of one or more general partners who manage the business and one or more limited partners who invest in the business and do not participate in management.

Ownership: Two or more individuals or other entities according to the partnership agreement

Control: By the partners in accordance with partnership agreement

Liability: All partners are jointly and severally liable for all partnership debts

Taxation: Individual partners’ prorated share of partnership income or loss is included on the respective income tax return of the partner and taxed at personal or corporate rates

Sole Proprietorship

A sole proprietorship is a business conducted by one owner, who is taxed as an individual.

Ownership: Individual

Control: By owner

Liability: Owner is personally liable for all business debts

Taxation: All business income is considered personal income to the owner and is taxed at personal income tax rates

Step 3: Contact American Incorporators

To complete the process visit us online: https://www.ailcorp.com/packages

Or call: 800.441.5940

The Importance of Having a Registered Agent and Address 

The first and most important reason that your business needs a registered agent and registered address is that it is required by law.  The state in which you choose to incorporate your business in will not approve the initial incorporation/ formation certificate without providing a valid registered agent and registered address.  

The registered agent and address must be located in the state of incorporation or formation and must be a physical street address.  The registered address cannot be a post office box.  The primary responsibility of the registered agent and registered address is to accept all annual report and tax notices from the state and to accept any Service of Process on behalf of the company in the event of a lawsuit.  The registered agent must be available during normal business hours Monday – Friday to accept any Service of Process on behalf of the company.  If your corporation or LLC fails to maintain a registered agent and registered address, the state may declare the company void for noncompliance.  If a corporation or LLC is declared void or noncompliant by the state, it may lose all of the liability protections provided as an incorporated entity.

Need a registered agent and address? We can help! Click Here

In 2016, AIL will be publishing another free eBook! You have already learned about the importance of incorporation, and all of the details about choosing an entity type, naming your entity, and tools to run your newly formed business.  You've incorporated, now what? AIL wants to provide entrepreneurs and new customers with industry insight on all the necessities to run your newly incorporated business.

This new eBook will provide advice and information about business licenses, foreign qualifications, annual tax payments, and "Doing Business As" filings to ensure that your business is operating in compliance with specific state and national regulations.  

We are also sharing advice on the ins and outs of responsible financial planning for your business expenses, whether it be business insurance, book keeping or payroll! 

Lastly, we are sharing our insight on running a successful website, and how it can positively increase your company's visibility and even sales!  

Our new eBook is filled with helpful tips for continuing to run a successful business after you've taken the first step to incorporate! Look out for its launch in 2016!

With Business Goals

Many successful businesses originally started out of a home office. Mary Kay and Apple are two well known companies that started out of a home. In recent years, starting a business from home has become a growing trend. Shows like "Shark Tank" have highlight individuals who start a businesses from home, but the show also highlights how important the correct planning is for success.

Home businesses present plenty of benefits, but there are also pitfalls that can quickly turn a home business sour if not carefully avoided. We've collected 5 tips that will make starting a business from home in 2019 your most successful New Year's resolution yet!

• Know Your Market. Researching and understanding the business industry you are attempting to enter is the first step to success. Your research phase will help you form your business to best suit you, your audience, and your financial means. Many businesses fail due to poor planning or a poor understanding of the desired market. Networking is another great way to do your research. Connect with business owners within your desired industry to gain a better understanding of what you will be facing when you start a business from home. 

• Incorporate Your Business. Incorporating your business is a crucial part of achieving success. This process designates the business as a separate entity from yourself. Through incorporation, you designate your business as a corporation or an LLC, and you can protect your personal assets, increase tax savings, and start raising capital. 

• Create a Business Plan. A business plan is a great way to gain an understanding of whether or not the business you have chosen will be successful. Follow a business plan and carefully work through each step. Creating this business plan before you start a business from home will help you better understand your business model, goals, and finances before a problem arises. 

• Hire a Professional for Taxation & Business Regulations. Understand the taxation rules and self-employment regulations at both national and state levels. Seek out a professional accountant to gain a better understanding of what paperwork you need to file and how this potential business will affect your taxes and tax bracket. Being educated and informed is half the battle. 

• Set Up The Space. When you decide to start a business from home you have to be ready to delegate a work space. A garage, a home office, or even a basement or attic, are perfectly acceptable spaces to start a business. Set up the area for business purposes and business purposes only. This space has to be able to accommodate the business you are planning, so be mindful of equipment and resource needs before deciding on a space.

Making the decision to start a business from home can be incredibly rewarding and lucrative, if planning has been thorough and complete. If you decide to start a business from home in 2019, we hope these tips will help you along the way! 

Each year your corporation's state of formation or domestication will set obligations.  These obligations are placed on corporate entities to maintain good standing with the state. The requirements vary by state, but can include paying a franchise tax to the Secretary of State or filing an annual report which lists officers and directors. 

What's an annual report? It is a document filed with the Secretary of State. The exact information required on the report and how often it is filed varies by state, but in general you should be prepared to answer questions such as the principal place of business, the company phone number and the names and addresses of officers and directors (or members and manages of an LLC). 

In order to maintain good standing, businesses must also maintain their registered agent office.  If they are using a commercial agent this generally means renewing that service annually.  Often the commercial registered agent can help companies meet their annual requirements through various compliance programs. 

Remember that these annual requirements are distinct and separate from any state or federal income tax that the company may owe.  You should consult your accountant for income tax requirements specific to your business venture.