What to Issue and How Much 

When incorporating your company it is important to understand the shares your company possesses, the right number of these shares to issue for your business venture, and the different ownership status with these shares. Many first time entrepreneurs lack clear, concise answers to their common questions about stock. AIL wants you to have the answers in order to run a successful business.

What is an issued share?

Issued shares represent the shares of stock that have actually been assigned or sold to shareholders. 

What is an authorized share?

Authorized shares are different than issued shares. They are the total number of shares that the company is allowed to issue. The number of authorized shares is specified initially in the company's Articles of Incorporation - however, the total can be amended with shareholder approval at a later date if necessary.Generally, a greater number of shares are authorized than required in order to give the company the flexibility to continue to issue stock as needed over time. 

How do I know how many authorized shares of stock to issue?

There is no magic number of shares that you should authorize when you form a company. The number depends largely on what you intend to do with the stock.  However, you should be aware that authorizing a higher number of shares than the state minimum (amount varies by state) can lead to higher formation costs and additional fees, even if those shares are not issued. AIL suggests a standard of 1500 shares in Delaware and 1000 shares in most other states.  We certainly can, and have, filed significantly higher amounts for our clients in the past. 

What is the difference between common and preferred stock?

Both common and preferred stock represent ownership in a C Corporation. Preferred stock shareholders are paid dividends first and more regularly than common stock holders.  Likewise, if the company liquidates or goes bankrupt, preferred shareholders are entitled to a portion of company assets before common shareholders.  However, they generally do not possess the same voting rights that are granted to common shareholders, whose number of votes correlates to their number of shares.  Preferred shareholders know the value of their projected dividends ahead of time and the amount they receive in dividend compensation does not increase with time. Alternatively, common shareholders may or may not receive dividends depending on how well the company is doing and the determination of the Board of Directors. 

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Domestic and Foreign Qualifications

A domestic corporation or LLC is a company formed in the state it is operating in. Meaning if you form your corporation or LLC in Delaware - you will be considered a domestic entity in Delaware. A foreign corporation or LLC is a legal business entity that has qualified to do business in a state other than where it was initially incorporated. In order to become a foreign entity a business must first qualify.  

If a business would like to expand and do business in a state other than where they formed, a Foreign Qualification, or Certificate of Authority, can be filed with the state. Once this document is filed the business may be permitted as a foreign entity in the applicable states. Without the proper foreign qualification, you could lose access to that state's judicial system or even be hit with fines, back taxes and penalties. 

Corporations and LLCs are subject to taxes and annual report fees in both the state of formation and any states where they are qualified to do business as a foreign entity. Most states also require corporations and LLCs to have a registered agent in each state where the company is qualified.

Need a Foreign Qualification (Certificate of Authority)?

We prepare and file qualifications for a foreign corporation or LLC, plus we provide registered agent services in all 50 states. Visit us online: www.ailcorp.com 

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State of Delaware Offers a Unique Climate for Business Formation

More than a million business entities have been formed in Delaware, and over 50% of publicly traded companies make their legal home in Delaware (including nearly 65% of the current Fortune 500 companies). But why is Delaware so popular? Most business experts point to Delaware’s long-standing pro-business climate.

 

 

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Why  Delaware?

1. The state formation fees are reasonable ($89 for corporations and $90 for LLCs) and companies are formed within 24 hrs (in most cases) without paying additional expediting fees when you use American Incorporators Ltd to prepare and file your document.

2. Delaware corporate law is well established (enacted in 1899) and reviewed annually so that the most current, advanced ideas in corporate law can be added.

3. The Delaware Court of Chancery, a special business-only court of expert judges, hears and decides cases quickly and fairly, referencing a case law history over 100 years old. 

4. The Delaware formation documents require only a general purpose (specific business activity description is not needed); one person can hold all offices (corporation) or can be the sole member (LLC) and does not need to be named on the document.

5. Financial benefits - no state income tax and no business license required if not located in Delaware; no inheritance tax on stock held by non-residents. Many venture capitalists and angel investors prefer investing in Delaware-based corporations.

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  Are you thinking of forming a business? 

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Understanding the Basics

Before you get started in your new business venture you will have to establish a name! Your business name is going to be one of the largest parts of your brand's identity and for many people the naming process is an exciting one that allows for creativity. It is important to pick a name that has both meaning to your customers and relevance to your product or service. Choosing a name that is both professional and creative can help your business stand out from competitors in the same field.  

Before beginning the process it is important that we address the answers to your most common naming questions:

1) Can I pick any name I want for my company? 

Generally yes, but naming conventions do exist and they vary state by state.  

• You cannot name your company a name that is already in use in the state where you are forming.
  •  In order to check if a specific name is in use we recommend you complete our complimentary name search.   
• There are limitations on corporate endings you can use. Many states limit the use of professional words such as "Accounting" or "Financial Services" to companies that have gone through a formal application process for the descriptor.
  • For LLC you can use: LLC or Limited Liability Company. For corporation you can use: Corp., Co., Inc., Ltd., or others depending on state law. 
    
• Many states limit the use of 'less desirable' words in corporate names, as well. 

2) Can I change my company name after I incorporate?

Yes, you can file an amendment to your name at anytime.  The filing is done at the state level and is an easy process.  Just as with a new formation, the name you chose must be available for use in that state.  For assistance in filing an amendment please call: 800.421.2661

3) Do I have to reserve my company name ahead of time?

No, you do not. Although you certainly can reserve a name before formally incorporating, it is not required.  Many people reserve a name with their state of formation to assure that the trademark of that name is available before officially forming their company.  In some states, doing a name reservation ahead of time can save you time and money in the instance that your first choice name is not available. Other clients decide they really like a name and want to make sure it is available when they are ready to formally incorporate. Think of these scenarios in comparison to your own in order to help you decide!

4) How do I trademark my name?

AIL works closely with a third party vendor who specializes in trademark services.  The trademark process is entirely separate from the incorporation process and takes longer to complete.  

If time is of the essence we recommend you form your LLC or Corporation first and then begin the trademark process. In this instance, if your company name cannot be trademarked you can always file a name amendment and apply for a trademark for the new name! This will allow your corporation to maintain its original formation date.

If trademarking your name is a priority, we recommend you go through the trademark process first to secure the name you want. As mentioned in question 3, you can also file a name reservation with the state where you plan to incorporate while you wait for the trademark process to be completed. 

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What's the Right Choice For My Business?

The primary entity types available in the United States are Corporations, Limited Liability Companies and Non-Profits. Corporations issue shares of stock to owners and are run by officers and directors. Limited Liability Companies (LLCs) are owned by members and can be run by the members or appointed managers. Non-profit organizations offer similar limited liability protections to corporations and LLCs, but have the added benefit of tax free existence as defined under section 501(c)(3) of the IRS Code. How do you know which entity type to choose? A lot of factors go into deciding which entity type is best for you.  These include legal liability, tax implications, costs and future needs.  This is an important decision and should be done after consulting a trusted accountant or attorney.  

Comparing Entity Types:

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What You Need to Know Upfront

These three questions always come first when beginning the incorporation process. Whether you are a new or experienced entrepreneur, incorporating is a major step in your business' future. The process can seem intimidating, but after consulting your attorney or accountant to determine the best entity and state of formation for your business venture read these three basics.

What do I have to do to incorporate?

Once you have decided on your entity type and state of formation, incorporating your new business is simple. Contact an incorporation provider like American Incorporators who has years of experience filing paperwork in all 50 states as well as the District of Colombia and Puerto Rico. They will walk you through a series of questions necessary to file the documents.  You need to know who will be listed as initial members or directors, as well as who will act as the registered agent for the company.  You will also need to explain the general purpose of your business.  If you are forming a corporation you will be asked about shares of stock and officers.

If you are ready with this information the entire process should only take 10-15 minutes. However, if you have questions our specialists are happy to take the time to walk you through every step.

Once the order is placed, documents will be filed with the state the same day and you should get your paperwork back in 2-10 business days depending on the state of formation. 

How much does it cost?

Prices for incorporation vary significantly depending on the state and services you are looking for. Click here for more info. Make sure to ask about hidden fees as you explore your options. You will have to pay state fees as well as service fees depending on who you use to form your company. Other items that can add to your costs are add-ons and registered agent service. Be sure to read the fine print in order to see what is included in the initial cost and what will be an additional cost after formation. 

How long does it take?

This really depends on where and how you form your company. In Delaware, businesses are generally formed the same day and documents are sent back to the client within 24 hours. If you are in a real hurry and are willing to spend a lot of money on expediting fees you can even form your company in an hour or two. In other states it can take a lot longer -- sometimes several weeks. 

Additionally, it can depend on how you file - in many states it makes sense to expedite your filing. In general, AIL tells clients expect Delaware documents in 1-2 days, if you expedite in other states expect them in 3-7 days, and non-Delaware non-expedited filings can be expected in 10-15 business days.

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Thinking of Incorporating? You'll Need to Appoint a Registered Agent

What’s a registered agent? This is a commonly asked question of entrepreneurs who are new to the incorporation process.  It is a statutory requirement that all entities appoint a registered agent, also known as resident agent or statutory agent, when incorporating.  The registered agent can be an individual or business entity and must have a physical address in the state of incorporation.  The primary responsibility of the registered agent is to receive legal correspondence on the entity’s behalf, in addition to, any official notices from the Secretary of State.  Failure to maintain a registered office in the state of incorporation can cause the entity to fall out of good standing and even be declared Void if a new agent is not appointed.

Designation of the registered agent is typically made on the formation documents.  There is often a misconception that the registered agent address is the same as the principal office address.  This is not the case.  The two are very different and serve different purposes.  Most jurisdictions allow business entities to maintain a principal place of business outside the state.  If the business does not operate or maintain an address in the state of incorporation, a commercial registered agent can be appointed.  If the business does operate or maintain an address in the state of incorporation, ie: director or officer, then either can be appointed as the registered agent of the entity.

There are many benefits of appointing a commercial registered agent.  The commercial registered agent maintains a physical address in the state and is staffed during normal business hours to accept all correspondence received on your company’s behalf.  The registered agent’s address is kept on file with the Secretary of State and this information is stored as Public Record.  Utilizing a commercial registered agent means that you need not worry about address changes or not receiving an important company document. 

American Incorporators Ltd. provides this service nationwide & is ready to assist with all of your corporate needs.  Contact us today!

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