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BUSINESS & CORPORATE FORMATION
Frequently Asked Questions
Table of Contents
General Incorporation Questions
- What is Incorporation?
- What is Corporate Formation?
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What do I need to know before I incorporate?
- What state should I incorporate in?
- What is a Corporation?
- What is an LLC?
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How does an S-Corporation differ from a
C-Corporation?
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What is double taxation and how to I avoid paying
it?
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What is a Resident Agent and do I need one to
incorporate?
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Can a Corporation or LLC have only one owner?
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Aside form Incorporation, are there other legal
requirements I need to abide by before I transact business?
- Do I need to incorporate my business?
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Can I change the form of my business at some later
date after I incorporate?
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What is an EIN and do I need one to incorporate?
Specifics About Incorporating
- What should I name my corporation?
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What if my company doesn't have an address yet?
- What is a Board of Directors?
- What are Corporate Shareholders?
- What are LLC Members?
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Do the Board of Directors and the Shareholders have
to be different people?
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What are Articles of Incorporation (AOI)?
- What are Articles of Organization?
- What are Corporate Formalities?
- What is an organizational meeting?
General Incorporation Questions
Incorporation is the process of preparing certain documents,
including a document referred to as the "Articles of Incorporation," and the
filing of the document with the Secretary of State. If forming an LLC, the
document used is referred to as the "Articles of Organization."
It's a synonym for "Incorporation." It's the process by
which a corporation or LLC becomes officially incorporated.
Before you incorporate, you need several pieces of
information. You need to know where you would like to incorporate (which
state), your choice of corporate form (S-Corp or C-Corp, or LLC), an official
name for your company, the companies address, and the name and address of your
company's resident agent.
For a C-Corp or S-Corp, you will need to decide how many
shares the corporation is authorized to issue. For an LLC, you will need
to choose the type of management (manager-managed or member-managed).
You will need to choose what state to incorporate in.
This is a very important decision because it will be the company's legal home.
However, the legal home doesn't have to be the company's physical home. A
company can operate and carry on all of its business in a state other than the
state of its incorporation. However, it usually boils down to
incorporating in the state of its operation, Delaware or Nevada.
A corporation is an entity that is separate from the owners of
the business. To become a corporation, you must incorporate with the
state. The two basic types of corporation are S-Corps or C-Corps.
An LLC (Limited Liability Company) is similar to a corporation
in that it is separate from the owners of the business and are entitled to
limited liability. An LLC is favorable in some instances because it
entitles the owners to limited liability and avoids the "double taxation" of a
corporation. Although an S-Corporation also affords these same benefits,
an LLC has less stringent corporate formalities, management flexibility and
relaxed ownership qualifications.
An S-Corporation is similar in structure to a C-Corporation,
however it is not subject to double taxation. The profits of an
S-Corporation is taxed at the individual level, whereas the C-Corporation is
taxed at the corporation, as well as the individual level.
A C-Corporation is formed when you file the Articles of
Incorporation with the Secretary of State. An S-Corporation is created
when you elect to create one with the IRS.
One major disadvantage of a C-Corporation is its double
taxation. It's called double taxation because its profits are taxed once
at the corporate level. and then taxed again at the individual level when
the distributions are made.
Neither the S-Corporation nor the LLC is subject to the double
taxation rule. They are only subject to the taxation the individual level
- not the corporate level.
To incorporate in any state, you must appoint a registered
agent. This person is designated by the corporation to receive important
legal documents on behalf of the corporation. This agent must be a
resident of the state of incorporation. To incorporate in Nevada, you must
have a registered agent in Nevada. This agent must also have a physical
address - in other words, they may not use a P.O. Box address.
Yes. Most states allow a corporation or LLC to have one
owner.
EIN - Employer Identification Number:
Before your company transacts business, it will need an
employer identification number (EIN) from the IRS. Our firm also provides
services in obtaining such identification number.
License Requirement:
Before transacting business, some state require you to obtain
a license and possibly pay a state fee. Additionally, the city in which
you transact business may require you to obtain a license and pay a city
licensing fee.
Corporate Formalities:
Corporations and LLCs are require to abide by certain
corporate formalities. See below for such formalities.
Ultimately, it is your decision to incorporate your business.
We may give you our opinion as to whether it is best to incorporate, and the
advantages and disadvantages of incorporating. However, the ultimate
decision is yours.
One of the most important reasons to incorporate is to shield
yourself from personal liability. If you are not incorporated, creditors
may sue you personally and reach your personal assets (i.e., personal residence,
bank accounts). Generally, if you incorporate, creditors are unable to
reach these assets.
There are other reasons on why you should incorporate:
personal image, perpetual existence of the corporation, and tax advantages.
The short answer is YES. If you have an LLC, you may
incorporate in to an S or C Corporation and vice versa. However, there are
certain requirements that must be fulfilled - i.e., shareholder approval.
Every new Corporation or LLC needs an Employer Identification
Number. An EIN number is similar to a Social Security Number if you were
to tranact business as an individual. You don't need one to incorporate,
but you must obtain one after incorporating. We assist clients obtaining
their employer identification number.
Specifics About Incorporating
The name of your corporation can be as wild as your
imagination. The only requirement is that it must be distinguishable form
other corporations. Prior to filing the articles of incorporation, we do a
preliminary name check to see whether your name is already taken.
The official company address must be a physical address - not
a PO Box. However, if you have not already rented office space, you may
set your address as your home address.
They are the decision making authority of the corporation.
They delegate authority to the officers of the corporation, but maintain power
to oversee the operation of the corporation. Directors are usually
appointed by shareholders.
There is no requirement that directors, officers and
shareholders be different people. Shareholders can be directors and
officers. In small corporations, the shareholders are usually the
directors and officers.
Shareholders are considered the owners of the company.
The Directors and Officers work to better serve the shareholders. Although
the corporation is liable for the debts of the corporation, shareholders have
limited liability - it is limited to the amount the invest in the corporation.
A "member" is an owner of an LLC (Limited Liability Company),
much like a corporation's shareholder.
No. They are often the same in smaller corporations.
Articles of Incorporation are the main documents used to
incorporate. These articles are filed with the secretary of state.
Articles of Organization are the main documents used to form
an LLC. These articles are filed with the secretary of state.
To continue recognition as a corporation or LLC, the
corporation/LLC is required to abide by certain "corporate formalities" and to
keep accurate records of its activities. There are three distinct
corporate formality requirements: Corporate Records Requirement, the
Annual Reporting Requirement, and the Meeting Requirement.
Corporate Records Requirement:
The corporate records requirement compels Corporations and
LLCs to maintain certain corporate records at its principal office. These
records include the Articles of Incorporation, the Corporate Bylaws (Operating
Agreement), Minutes of shareholder and director meetings, written communications
b/t shareholders and the corporation for the past three years, the corporations
stock transfer ledger, names and address of shareholders, directors and
officers, most recent annual report, and financial records for the past three
years.
Annual Reporting Requirement:
Corporations and LLCs must 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
in existence.
Meetings Requirement:
Once the corporation is formed, the organizational meeting is
the official meeting that must be held after incorporating. There are two
types of meetings that a company must hold on a continuing basis. The corporate
shareholders (or LLC members) are entitled to at least an annual shareholder
meeting and the board of directors (or LLC board of managers) is required to
hold periodic meetings throughout the year.
Once the Articles have been filed, and the business is
officially formed, the company should hold an organizational meeting. All
directors, officers and shareholders should be attending. At this meeting,
those attending lay the foundation of the company's operation. It's a synonym for "Incorporation." It's the process by
which a corporation or LLC becomes officially incorporated.
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Us for More Information
We invite you to discuss your business
with us. We can help protect you and your family! Call now for
a free consultation. You may reach our office at (310)205-5529.
Remember...Failing to Plan is
Planning to Fail!
LAW OFFICES OF ALON DARVISH
9454 Wilshire Boulevard, Penthouse
Beverly Hills, CA 90212
Tel: (310)205-5529
SERVING LOS ANGELES COUNTY
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