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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.
Ownership: One or more members
Control: Members or managers, as set in operating agreement
Liability: Absent of any specific personal guarantees, the amount of risk for members is limited to their investment in the LLC. Their personal assets are generally beyond reach of creditors. This protection is enjoyed by all members. LLC members may be active in company management without risking their limited liability status.
Taxation: Members may also enjoy the same flow-through tax benefits which are applicable to partners of a partnership (Taxes are collected on individual partners, not on the entity).
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.
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.
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
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
