- What are the differences between an S corporation and a C corporation?
The only difference between an S corporation and a C corporation is how the corporations and their shareholders are taxed. By default, a corporation will be a C corporation unless the shareholders elect Subchapter S status by filing Form 2553, “Election by a Small Business Corporation”, with the IRS. If a corporation has not elected Subchapter S status, the corporation will have to pay income tax on all of its income. If the corporation then distributes that income to its shareholders, the shareholders will have to pay income tax on those distributions. This results on double taxation (once at the corporate level and again at the shareholder level). On the other hand, if a Subchapter S election has been made, as a general rule, there will be no tax on the corporation and the income will be taxed only to the shareholders. Subchapter S corporations often are referred to as “pass-through entities” since, for tax purposes, the income is treated as if it passes through the corporation without taxation to the shareholders who then pay income tax only once on this income. Limited Liability Companies (LLC) and partnerships also are “pass-through entities.”
- Can a corporation be owned by only one person?
Yes, a corporation can be owned by one person.
- What are the advantages of incorporating in Delaware?
Delaware is often referred to as a business-friendly State. According to the Delaware Secretary of State, Delaware has the most advanced and flexible business formation statute in the nation and the Delaware Court of Chancery is a unique 215 year old business court that has written most of the modern U.S. corporation case law. Delaware's State Government is business-friendly and accessible. According to the Delaware Secretary of State, these factors have all contributed to making Delaware a premier legal home to companies around the world. You do not have to live in Delaware in order to incorporate in Delaware.
- What are the advantages of incorporating in Nevada?
The Nevada Secretary of State lists the following advantages, among others, for incorporating in Nevada:
- No Corporate Income Tax
- No Taxes on Corporate Shares
- No Franchise Tax
- No Personal Income Tax
- Nominal Annual Fees
- No Franchise Tax on Income
- No Inheritance or Gift Tax
- No Estate Tax
- Competitive Sales and Property Tax Rates
- Minimal Employer Payroll Tax - 0.7% of gross wages with deductions for employer paid health insurance
- Nevada's Business Court, developed on the Delaware model, minimizes the time, cost and risks of commercial litigation
- Once I incorporate my company, are other companies prevented from using my company’s name?
No. It is still possible for another company to use your company’s name. The best way to protect against someone else using your company’s name would be to get trademark protection of the name. A and A Incorporating Services offers trademark services.
- Once I incorporate my business will my personal assets always be protected?
Incorporating is a good way to protect your personal assets from claims against your business. However, in order to get this protection, you have to not only incorporate your business, but you also have to operate your business as a separate legal entity. For example, you should prepare Shareholder and Board of Director minutes, open a separate bank account in the name of the corporation, use stationary and business cards that make it clear that you are doing business as a corporation, enter into contracts in the name of the corporation, etc.
- How often do I need to prepare Shareholder Minutes and Board of Director Minutes?
Shareholder and Board of Director Minutes should be prepared at least annually. However, it may be advisable to prepare Board of Director minutes more frequently in order to approve contracts and leases that the company enters into during the year, appoint any new directors, issue any additional shares of stock, etc.
- What is typically included in Shareholder Minutes and Board of Director Minutes?
Annual shareholder minutes typically include the election of your company’s Board of Directors. Annual Board of Director minutes typically include the election of officers for the company. In addition, Board of Director minutes should be prepared in order to approve contracts and leases that the company enters into, issue additional shares of stock and approve other significant company events.
- Which States have the best overall business tax climates?
South Dakota, Nevada, Alaska, Florida, Montana, Texas, New Hampshire, Oregon and Delaware (according to “2009 State Business Tax Climate Index”, The Tax Foundation, October 2008, based on corporate tax rates, individual income tax rates, sales tax rates, unemployment insurance tax rates and property tax rates).
- Which States have the worst overall business tax climates?
New Jersey, New York, California, Ohio, Rhode Island, Maryland, Iowa, Vermont, Nebraska, Minnesota (according to “2009 State Business Tax Climate Index”, The Tax Foundation, October 2008, based on corporate tax rates, individual income tax rates, sales tax rates, unemployment insurance tax rates and property tax rates).
- Which States have no personal income tax?
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming (according to “Business Tax Index 2008”, Small Business & Entrepreneurship Council, April 2008).
- Which States have the highest personal income tax rates?
California, Vermont, Oregon, New Jersey, Maine, Washington D.C. and Hawaii (according to “Business Tax Index 2008”, Small Business & Entrepreneurship Council, April 2008).
- Which States have no corporate income tax? Nevada, South Dakota, Washington and Wyoming (according to “Business Tax Index 2008”, Small Business & Entrepreneurship Council, April 2008).
- Which States have the highest corporate income tax rates?
Pennsylvania, Washington D.C., Iowa, Minnesota, Massachusetts, Alaska and New Jersey (according to “Business Tax Index 2008”, Small Business & Entrepreneurship Council, April 2008).
- Why does every company need a Federal Employer Identification Number (EIN)?
All companies actively engaged in business require an EIN from the Internal Revenue Service, except for sole proprietors who do not file any excise or pension plan tax returns. In addition, most banks, creditors and others with whom a company will do business or encounter require EIN’s.
- Why should every corporation have its own bylaws, organizational minutes and stock certificates?
One of the benefits of incorporating a business is to protect your personal assets from creditors of the business. It is not sufficient, however, just to incorporate. You must also ensure that corporate formalities are followed such as the preparation of bylaws, organizational minutes and the issuance of stock certificates to the shareholders.
- I live in Florida. Can I incorporate in Delaware?
Yes, you do not have to live in a particular State in order to incorporate in that State.