| Q. |
Why should I incorporate? |
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| A. |
When you form a
corporation, you are creating an entirely new legal entity.
It's like creating a new person that has its own rights and is
responsible for its own debts! All it takes is 1 person to
form a corporation in most States!
The greatest benefit of forming a corporation is
that it protects your personal assets. Any creditors of
a corporation would have a claim against the assets of the
corporation, not against the personal property of its
stockholders, officers or directors. The amount of money you
would risk would be limited to the amount of money invested in
the corporation. |
| Q. |
What type of corporation should I form? |
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| A. |
General vs.
Close Corporation
A Close
Corporation can have no more than 30 stockholders. Any
stockholder who wants to sell their stock must first offer the
stock to the all other stockholders before selling to anyone
outside the corporation.
A General
Corporation has no restrictions on the number of
stockholders it may have and the stockholders have no
restriction on selling their stock. They can sell their stock
to anyone, whether or not they are a current stockholder.
"S" Corporation
An
"S" Corporation allows you to avoid
double taxation by passing any profits or losses through your
personal income tax. It allows you to have the protection of a
corporation, while allowing you the tax benefits of a sole
proprietorship or partnership. The following restrictions
apply:
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There can be no more than 35 shareholders. |
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It must be a domestic corporation. |
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Shareholders must be individuals, estates or certain trusts. |
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Only 1 class of stock is allowed. |
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It can have no nonresident alien shareholders. |
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Limited
Liability Company (LLC)
A Limited Liability
Company is an unincorporated association that combines the tax
advantages of a limited partnership with the "limited
liability" protection of a corporation. It is run by Members
and Managers instead of Officers and Directors. It has no
stockholders. Instead,ownership is shown by percent of capital
contributions.
Please consult with your attorney,
accountant or tax advisor to see which type of corporation or
Limited Liability Company would best benefit you! |
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| Q. |
Where should I incorporate? |
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| A. |
Don't be fooled by companies that
say you can save money by incorporating in Delaware, Nevada or
Wyoming! The best place for you to form a corporation is in
the State where the business will be operating. If you
incorporate in any other State, you will need to register your
corporation in the state in which you are doing business as a
"foreign" corporation. This means you will be spending money
in two states instead of one. |
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