What are the benefits of incorporation?
Incorporation can provide many benefits. Incorporation can help limit your personal
liability as a business owner. In general, creditors of your corporation must satisfy
their claims by seizing the assets of the corporation rather than your personal assets.
In contrast, as a sole proprietor or partner in a partnership you are financially
responsible for all liabilities of the business, and your personal assets are subject
to seizure or lien by creditors. Other benefits of incorporation can include greater
tax deductions for health insurance and medical expenses, lower payments for social
security tax and medicare tax, and greater opportunity to raise capital for the business
through the issuance of stock.
Return to Top
Does incorporation require me to complete extensive paperwork?
No. By using the Corporate Creations service, incorporation is a simple process.
The Confidential and Secure Order Form
contains all of the information necessary for us to form your
corporation in any state. We will file articles of incorporation (called certificate
of incorporation in Delaware and a few other states) with the state you select.
Corporate Creations will handle all details of forming your corporation. We can also
assist with the formation of a limited liability company, limited partnership,
nonprofit corporation or offshore company.
Return to Top
In which state should I incorporate?
Generally, you should incorporate in the state where your office is physically
located. If you incorporate in another state such as Delaware, you may need to
submit an application to qualify as a foreign corporation in the state where your
office is physically located. We can assist you with the foreign qualification
application.
Most states have revised their corporate laws based on the laws of
Delaware. For companies that are privately owned (not publicly traded),
generally there are no substantive differences any more between the
corporate laws of Delaware and those of other states. If you incorporate
for the purpose of owning and operating a business, the general rule is
that you should incorporate in the state where your main business office
is located. We look forward to receiving your incorporation order.
Return to Top
What services are provided by the registered agent?
Under state law, every company is required to have a registered agent located
in the state of incorporation and in all states where the company is qualified
to transact business. The role of the registered agent is to receive legal
papers (called service of process) and state annual reports on behalf of the
company. As part of registered agent service, you will receive upon request
free updates regarding the status of the company and information about the
procedure to amend the company. There is an annual fee for registered agent
service. In the United States, registered agent service is provided by
Corporate Creations Network Inc.
Return to Top
What is the annual renewal fee for an offshore company?
For a BVI company, the annual renewal fee of US$800 is due starting January
1 of the calendar year after incorporation if the company is formed in the
first half of the year (January 1 through June 30), or July 1 of the
calendar year after incorporation if the company is formed in the second
half of the year (July 1 through December 31).
Return to Top
Are there annual filings if I incorporate?
Yes. In general, corporations file an annual tax return (IRS Form 1120 or
1120S) and a simple one page annual state report that updates information
such as the address of the corporation and the names of its current
officers and directors. (The names of the shareholders are generally not
listed in the annual state report.) Note that annual tax returns are also
filed by sole proprietorships (Schedule C to IRS Form 1040), limited liability
companies (IRS Form 1065) and general partnerships (IRS Form 1065).
Return to Top
How many directors and officers are required to form a corporation?
In most states, one person is enough to form a corporation. The same person may
hold the offices of President, Secretary and Treasurer and may be the only person on
the Board of Directors. The officers manage the daily business of the corporation
based on the instructions of the Board of Directors.
Return to Top
Who owns the corporation?
The corporation is owned by the shareholders. A corporation may have one or more
shareholders. In general, since the shareholders elect the persons who serve on the
Board of Directors, the corporation is controlled by the shareholders. The
shareholders who own more than 50% of the corporation's common stock get to make the
ultimate decisions about running the corporation.
Return to Top
What are the requirements for foreign ownership of a U.S. company?
Generally, there are no restrictions on foreign ownership of a company
formed in the United States. The procedure for a foreign citizen to form
a company in the United States is the same as for a U.S. resident. It is
not necessary to be a U.S. citizen or to have a green card to own a
corporation or limited liability company formed in the United States. To
receive pass-through profit distributions, a foreign citizen may form a
limited liability company. In contrast, all profit distributions (called
dividends) made by a C corporation are subject to double taxation.
(Under U.S. tax law, a nonresident alien may own shares in a C corporation,
but may not own any shares in an S corporation.) For this reason, many
foreign citizens form a limited liability company instead of a C
corporation.
A foreign citizen may be a corporate officer and/or director, but may not
work in the United States or receive a salary or compensation for
services provided in the United States unless the foreign citizen has a
work permit (either a green card or a special visa) issued by the United
States. Some work permits allow a foreign citizen to work only for a
sponsoring employer. Such work permits generally do not enable a foreign
citizen to also work for a new, unrelated company formed by the foreign
citizen. The foreign citizen would need to obtain a separate work permit
to work for the new company. We do not provide immigration advice.
Return to Top
Do I need an attorney to form a corporation?
No. To determine the value of incorporation for your business, we suggest you
consult with your attorney or tax advisor. To form your corporation, however, you
may use our incorporation service to save money on the administrative aspects of
incorporation. The Corporate Creations incorporation service is used worldwide by
attorneys, accountants and business owners. Corporate Creations offers competitive
prices and the highest quality incorporation and corporate services in the United States.
Return to Top
What is a nonprofit corporation?
The process to form a "for profit" versus "nonprofit" corporation is similar,
but the text of the articles of incorporation is different. There are no
owners in a nonprofit corporation. Instead, a nonprofit corporation is
controlled by a board of directors. The profits of a nonprofit corporation
may not be paid to the "founders" of the nonprofit,
except that the founders may receive compensation for the fair market
value of actual services provided to the nonprofit. In general, a nonprofit
corporation is exempt from federal income tax, except with respect to
unrelated business income. If a nonprofit corporation will seek charitable
contributions from the public, the nonprofit must apply for 501(c)(3) status,
which is a separate application that should be filed within 15 months after
incorporation of the nonprofit.
Return to Top
What is a C corporation?
The term C corporation refers to the way in which the corporation is taxed. There
is a corporate level income tax on the profits of a C corporation. In addition, if a
dividend is paid to shareholders from retained earnings, the dividend is included on
the personal tax return of each shareholder. Thus, the profits of a C corporation
are subject to potential double taxation. Your corporation will be taxed as a C
corporation this year unless you timely file IRS Form 2553 to elect tax treatment as
an S corporation.
Return to Top
What is an S corporation?
The term S corporation refers to the way in which the corporation is taxed. An S
corporation is a pass through entity. There is no corporate level income tax.
Instead, a pro rata portion of the annual profit or loss of the S corporation is
included on the personal tax return of each shareholder. If IRS Form 2553 is filed
within 75 days after incorporation, the corporation will be treated as an S
corporation for tax purposes. Many start-up businesses benefit by making the
election to be taxed as an S corporation.
Return to Top
How does an S corporation differ from a limited liability company?
A limited liability company (LLC) is like an S corporation. Generally,
business owners form an LLC rather than an S corporation if one or more
of the following situations apply:
1) ANY owner of the company is another business entity or a nonresident
alien (a person is a nonresident alien if he or she is neither a resident
nor a citizen of the United States).
2) The company will be owned by more than 75 persons.
3) The company plans to issue more than one CLASS of stock (for example,
special allocations of profits and losses will be made that are not
proportionate to the equity percentage of each owner).
4) The owners desire to use business debt (money borrowed by the
company) to increase their tax basis.
5) The state where your business is located imposes an entity level
income tax on the profits of an S corporation and does not impose such a
tax on the profits of an LLC.
If these situations do not apply to you, then an S corporation should do
the job. Generally, the LLC is treated like a partnership for tax
purposes and there is no entity level tax. Under the recently approved
IRS check-the-box regulations, an LLC will be taxed like a partnership
unless the members elect to have the LLC taxed like a C corporation
(association).
Prior to the check-the-box system, to be taxed like a partnership, an LLC
could have no more than two of the following four characteristics of a corporation:
1) Limited Liability; 2) Centralized Management; 3) Continuity of Life;
4) Free Transferability of Ownership Interests. Most LLCs have only the first two characteristics.
Formation of an S corporation or an LLC can offer many benefits including limited liability and
tax savings. An LLC also provides liability protection like a corporation.
Return to Top
How does an S corporation differ from a C corporation?
Some start-up companies benefit by starting out as an S corporation, while
others remain as C corporations because the owners desire to deduct 100% of
medical expenses, the corporation fails to qualify for S corporation status,
or the shareholders desire to have the opportuntiy to exclude from gross income
50% of the gain from the sale of "qualified small business stock" (explained below).
Generally, a corporation fails to qualify for S corporation status if one or more
of the following situations apply:
1) ANY owner of the company is another business entity or a nonresident alien
(a person is a nonresident alien if he or she is neither a resident nor a citizen of the
United States).
2) The company will be owned by more than 75 persons.
3) The company plans to issue more than one CLASS of stock (for example,
special allocations of profits and losses will be made that are not
proportionate to the equity percentage of each owner).
If the above situations do not apply to you, then the corporation may
apply for S corporation status by timely filing IRS Form 2553. The law
requires submission of Form 2553 for the S election within 75 days after
the corporation first has assets, shareholders or starts doing business.
If you miss the deadline, you may file Form 2553 within 75 days after
January 1, but there may be tax consequences. If a corporation
fails to qualify for S corporation status, then the corporation must be a
C corporation. With a C corporation, 100% of the medical expenses incurred by you
(as a shareholder and employee), your spouse and your children are tax
deductible. In a sole proprietorship, only 60% of such medical expenses
are tax deductible for the 2001 tax year.
In 1993, Section 1202 of the Internal Revenue Code was enacted to provide
a 50% exclusion of any capital gain from the sale of "qualified small
business stock." For shares to qualify for the exclusion, several tests
must be met. For instance:
1) Shares must be purchased directly from a C corporation and the shares
must be held for at least five years (shares do not qualify if purchased
in any later trading market).
2) A "qualified small business" must have not more than $50 million in
assets at all times before and immediately after the issuance of stock.
3) At least 80% of the corporation's assets must be used in the "active
conduct of one or more qualified trades or businesses" throughout the
holding period.
4) There are also limitations on the persons who may use the exclusion.
You should consult your own tax advisor as to the availability of the capital
gains tax exclusion.
Return to Top
How does an S corporation differ from a sole proprietorship?
With an S corporation, the distribution of S corporation profits is
exempt from the 15.3% social security/medicare tax that is imposed on
wages. The shareholder of an S corporation saves about $1530 for every
$10,000 profit distribution ($10,000 x 15.3% = $1530) because the entire
profit distribution is exempt from the social security/medicare tax.
This tax savings strategy is commonly called "wage reduction." Remember
to pay a reasonable wage if you implement the wage reduction strategy.
By contrast, in a sole proprietorship, all self-employment income is
subject to the 15.3% social security/medicare tax (called self-employment
tax in the context of a sole proprietorship). If you are the sole owner
of a business that has not incorporated, your business is considered a
sole proprietorship.
The 15.3% security/medicare tax is comprised of a 12.4% social security
tax and a 2.9% medicare tax. Wages higher than $80,400 in the year 2001 are exempt from
the 12.4% social security portion of the tax. Note, however, that the
2.9 % medicare portion of the tax is applied to all wages (and
self-employment income), without an upper limit.
In addition to the tax savings benefit explained above, there are
liability protection reasons for choosing to run your business as an S
corporation. With an S corporation, your liability is limited to the
money you invest in the business. With a sole proprietorship, you have
unlimited personal liability and all of your personal assets are subject
to the rights of creditors to seize or place a lien against your personal
assets.
Return to Top
Do all states recognize S corporation status?
For state income tax purposes, the following areas do NOT recognize S
corporation status and treat the S corporation like a C corporation:
District of Columbia, Louisiana, Michigan, New Hampshire, New York City and
Tennessee. In those areas, business owners generally benefit by forming an
LLC rather than an S corporation. Texas does not recognize S corporation
status either, but Texas does not have a corporate income tax measured by
net income for any type of corporation. Source: 1997 State Tax Handbook (CCH
Incorporated, Chicago).
Return to Top
What is a trademark?
A trademark is a word, phrase or logo that identifies a product or a service. Often, the
trademark is one of the most valuable assets of a business. "Trademark" means a brand name
and/or logo for the product or service sold by your company. The trademark may be the same
as or similar to your company name, or the trademark may be entirely different than your
company name. It is customary to omit the corporate suffix such as "Inc." from the trademark.
Return to Top
What are the benefits of trademark registration?
For protection of your brand name used in connection with the sale of goods or services in the
United States, we recommend federal trademark registration. A trademark can be registered in
the state where you do business or with the federal government. State trademark registration
puts competitors on notice that you claim priority rights to use your trademark in the area
where you do business. In general, federal trademark registration provides a right of
priority nationwide to the first company that submits a federal trademark application.
This right of priority nationwide is subject only to the limited common law rights that
others may have acquired in the geographic areas where they have advertised and sold
products or provided services under a confusingly similar trademark prior to the filing
date of your federal application.
You may apply for trademark registration of a brand name and/or logo. Some people mistakenly
believe that incorporation or the registration of an assumed name (fictitious name) provides
effective trademark protection. The practical reality is that trademark registration is the
only effective way to achieve trademark protection in the United States. It is important to
distinguish a trademark (brand name) from a company name. A trademark is the brand name of
the goods or services sold by a company. A company name is the name of an entity that
operates a business. In some cases, a company's trademark is similar to the company's
entity name. For example, the company "Corporate Creations International Inc." provides
corporate document filing services under the trademark CORPORATE CREATIONS. A company
name is a noun: "Corporate Creations International Inc. has many talented employees."
Contrast that to a trademark, which is an adjective: "You can order CORPORATE CREATIONS
incorporation services by phone or online."
It is customary to omit the corporate suffix such as "Inc." from a trademark. Note that a
company's exact entity name (including "Inc." or the equivalent) should be mentioned somewhere
in all marketing materials. Otherwise, state law requires a company to register its assumed
name (fictitious name) in the state where it has employees. For example, the company "Corporate
Creations International Inc." has registered the fictitious name "Corporate Creations" in
Florida where it has employees, and it also uses the trademark CORPORATE CREATIONS under
license from another entity that is the record owner of that trademark.
Return to Top
Do you provide trademark search and registration services?
The local Corporate Creations offices do not provide trademark services. Instead, an independent firm
affiliated with or referred by your local Corporate Creations office may provide trademark services. If
you pay by credit card, your local Corporate Creations office may act as a credit card processing agent
on behalf of the independent firm that provides the trademark services.
You should order a trademark search in addition to ordering the preparation of a federal
trademark application. Trademark searches are completed within five days of your request.
The fee for a Full Trademark Search is $350 which includes all costs. A Full Trademark
Search includes a search of the following:
1. Federal applications and registrations filed with the U.S. Trademark Office
2. State applications and registrations filed in all U.S. states
3. Yellow page listings in all U.S. states
4. Various databases that list common law trademarks
As a lower cost alternative to a Full Trademark Search, you may order a Federal Trademark
Search for $195, which includes only a search of federal applications and registrations
filed with the U.S. Trademark Office.
The Federal Trademark Application service is $295 plus the government filing fee of $335
per class. A licensed attorney will prepare the Federal Trademark Application within five
days of your request. When the federal registration is issued, you will be invoiced a total
of $180 for prosecution of the trademark application, which includes routine conferences and
correspondence between the licensed attorney and the trademark attorney who represents the
U.S. Patent and Trademark Office. For certain trademark office actions, opposition actions,
other trademark disputes, or international trademark applications, with your prior approval,
arrangements may be made with independent litigation counsel or local trademark counsel to
handle such matters at standard hourly rates.
Return to Top
