Incorporating Your Business For Dummies
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Incorporating Your Business For Dummies

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eBook - ePub

Incorporating Your Business For Dummies

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About This Book

If you're a business owner, incorporation can help you protect your personal assets and cut down your tax bill. But all the paperwork and legalese can make incorporation seem like more trouble than it's worth. Incorporating Your Business For Dummies offers all the savvy tips you need to get incorporated — starting today!

Whether your business is big or small, incorporating isn't as simple as it could be. This handy reference makes incorporation make sense, and guides you through the process step by step. From handling the mountain of paperwork to getting back to business once you're finished, Incorporating Your Business For Dummies offers a wealth of helpful advice on these and many more topics:

  • Knowing whether or not incorporation can help you
  • Choosing the type of entity that will work best for your business
  • Dealing with shareholders and shareholder agreements
  • Transferring money and assets in or out of the corporation
  • Documenting corporate actions and maintaining compliance
  • Finding the right attorney, accountant, tax advisor, and other professionals

Written by the experts at The Company Corporation, who handle more than 100, 000 incorporations every year, this helpful book offers the kind of advice you can only get from professionals — but in a user-friendly, lingo-free format. Whether you just want a little help with the paperwork, or don't even know what a corporation is, you'll find everything you need to know:

  • What limited liability means
  • Corporate statutes, bylaws, and articles
  • Choosing directors and assigning duties
  • The benefits of S corporation status
  • Deciding where to incorporate
  • Registering corporate names and domain names
  • Balancing equity versus debt
  • Understanding shareholder rights
  • Getting your financial information in order
  • Hiring a professional to help with corporate compliance

If you want step-by-step help on setting up your corporation, dealing with the paperwork, and getting off on the right foot, Incorporating Your Business For Dummies is the only resource you need. Packed with the kind of tips and advice you'll find nowhere else, it's the uncomplicated way to get incorporated.

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Information

Publisher
For Dummies
Year
2011
ISBN
9781118053744
Edition
1
Part I

Is a Corporation Really for Me?

In this part . . .
More entrepreneurs and business owners than ever before are researching their options and choosing to structure their companies as corporations or the relatively newer limited liability companies. How do you decide whether a corporation is for you? In this part, we help you answer this important question. You learn the benefits of incorporation so that you are able to compare corporations to other forms of business entities. This part gets you started on the right path with a comprehensive pre-incorporation checklist.
Chapter 1

What’s a Corporation?

In This Chapter

bullet
Understanding corporations and their structure
bullet
Changing incorporation — the last 50 years
bullet
Looking to the future
For most, a corporation is simply a business entity. But what does that tell us? How do you know whether a corporation makes sense for you if you don’t understand what a corporation is? In this chapter, you’ll gain a greater understanding of what a corporation is, and why that is important for you. Let’s get started.

Defining Corporations

Before you get into the thick of this incorporation business, you probably want to know what a corporation is and what makes it special? This section breaks down a few of the defining characteristics of corporations.

The corporation as an individual

A corporation is a separate legal entity that is distinct from its creators. It’s not your corporation, and it has its own attributes and qualities, such as perpetual existence and the ability to do things in its own name. Of course, a corporation can’t do anything unless people like you (the board and officers) do those things for it. Nonetheless, such individuals are acting on behalf of the corporation and not on behalf of themselves. When you create a corporation, you have created a legal person — it’s not an extension of its individual officers, directors, or shareholders.
Corporations are creatures of statute, requiring a corporation law in each state in order to exist at all. Fortunately, all states have corporation statutes.

State of incorporation

Where do you live? You have a legal residence — one that determines where you vote, obtain a driver’s license, and pay taxes. This is true even if you spend parts of a year in some other state. The same is true for corporations. Even though your corporation may do business in a number of states, it has only one home. A corporation is considered to be a domestic corporation of that state where it incorporates. If it qualifies to do business in other states (a concept we consider in Chapter 10), it’s a foreign corporation in those other states.
Confused? Assume you incorporate your business in Delaware. Delaware becomes the state of incorporation. For purposes of Delaware law, you are a domestic corporation. What if your Delaware corporation does business in Oregon? It must comply with Oregon law and qualify to do business there as well, so your corporation is considered a domestic corporation in Delaware and a foreign corporation in Oregon.
Remember
We discuss these topics in greater detail in Chapters 3 and 10. But for now, understand that you incorporate in one state (domestic corporation) and qualify to do business in other states (foreign corporation).

Limited liability

You may have many reasons why you would want to incorporate your business, perhaps none more important than limited liability. With limited liability, the personal assets of corporate shareholders are protected from the claims of corporate creditors. A shareholder’s liability exposure is limited to the capital the shareholder has invested in the corporation, usually the amount the shareholder has paid for his stock. So, for example, you may own personal assets worth more than one million dollars, but, in general, if your total investment in ABC, Corporation is the $200 you paid for your stock, $200 is the total extent of your liability exposure to ABC, Corporation creditors.
Here’s some more food for thought. Let’s say you are now in business as a sole proprietor. You like the informality, low cost, and simplicity. Generally, you have no state filing fees, no record-keeping requirements, and no administrative fees. One of the few things you are responsible for is filing a Schedule C with your personal tax return. But, you have no protection from personal liability because you and your business are the same entity. If a supplier sues your business, it applies to you personally, as well. You can buy insurance, but it doesn’t cover every situation.
When you opt for informality, you may have to pay the piper in the future. Suppose you didn’t listen to your attorney who recommended you incorporate your antique and collectible business because in her words, “it isn’t a hobby anymore.” Your business grew exponentially and you now have staff helping you canvass every yard sale in a tri-state region for treasure masquerading as junk. What if one of your employees gets into a horrible accident during one of these junkets? You may be facing many months of litigation, further aggravated by tremendous stress because you could possibly lose your house, boat, and lifetime savings. If you had incorporated your business, you would have greatly reduced the risk of losing your hard-won personal assets. (We discuss limited liability further in Chapter 2.)
In the 1980s and 1990s, new forms of doing business emerged, all focused on extending limited liability protection to a new type of business entity. Limited liability companies and limited liability partnerships are perhaps the best known from this period. Suddenly, business enterprises existed that could provide the limited liability benefit of corporations and the pass-through taxation of partnerships. Thus the choice of business entity became more difficult, as you’ll see in Chapter 2.

The Structure of Corporations

Corporations are creatures of statute. Corporate existence depends upon state corporation laws; laws that impose requirements on how corporations are organized and maintained. In effect, corporation laws provide the framework for the corporate structure described in the following sections.

A simple model, a more complex model

While some might say, “The more the merrier,” with corporations and other business entities, a more fitting phrase might be, “The less the merrier.” Here’s a simple corporate model: A single individual serves as sole shareholder and sole director, and holds all of the corporate offices. As you will learn, this is a pretty straightforward model without a great deal of complexity. Contrast this model with an example from the opposite side of the spectrum: Imagine a publicly traded corporation with millions of shareholders, offices throughout the world, a 20-person board of directors, and separate corporate officers. As you can see, a continuum of complexity exists. A good starting question is, “How complex do you want your corporate structure to be?” but a better question may be, “How much complexity can you handle?”
Tip
Do you anticipate a complex corporate model? Consider forming your professional team early and seeking advice from them. You may require legal and financial help from the beginning.
Fortunately for most small businesses, the more common corporate model tends to be less complex rather than more. A single individual often owns and controls the corporation. Still other corporations may be owned and controlled by fewer than a dozen individuals. A common model would look something like this: Joe, Jane, and John go into busin...

Table of contents

  1. Title
  2. Contents
  3. Introduction
  4. Part I : Is a Corporation Really for Me?
  5. Chapter 1: What’s a Corporation?
  6. Chapter 2: Choosing an Entity That Works for Your Business
  7. Chapter 3: Getting My Ducks in a Row — A Pre-incorporation Checklist
  8. Part II : How Do I Incorporate?
  9. Chapter 4: Who Can Help Me Incorporate?
  10. Chapter 5: Where, Oh Where Should I Incorporate?
  11. Chapter 6: Winning the Name Game
  12. Chapter 7: Getting Down to Business with the Articles of Incorporation
  13. Chapter 8: Getting to the Nitty-Gritty with Your Bylaws
  14. Chapter 9: Capitalizing Your Corporation
  15. Chapter 10: Doing Business in Other States
  16. Part III : I’ve Incorporated My Business, Now What?
  17. Chapter 11: Conducting an Organizational Meeting
  18. Chapter 12: Getting Started: Numbers, Elections, Registration
  19. Chapter 13: Shareholders: Do’s and Don’ts
  20. Chapter 14: Preparing Shareholder Agreements
  21. Chapter 15: Understanding the Role of Directors and Officers
  22. Chapter 16: Director and Shareholder Meetings
  23. Chapter 17: Getting Money (And Other Items of Value) In and Out of the Corporation
  24. Part IV : Compliance Issues — The Paper Trail Continues
  25. Chapter 18: Documenting Corporate Actions
  26. Chapter 19: Corporate Record Keeping
  27. Chapter 20: Getting Your Financial Information in Order
  28. Chapter 21: Closing Up Shop
  29. Chapter 22: Who Can Help Me with Corporate Compliance Matters?
  30. Part V : The Part of Tens
  31. Chapter 23: Ten Ways to Locate and Retain a Good Professional Team
  32. Chapter 24: Ten Things You Never Want to Do with Your Corporation
  33. Chapter 25: Ten Common-sense Principles to Incorporate and Live Each Day By
  34. Appendix A: Sample Forms
  35. Appendix B: Resources
  36. Appendix C: Glossary