Frequently asked questions about U.S. incorporations
Why do businesses incorporate?
Businesses incorporate primarily for protection: protection of the owners of the company from the liabilities of the business. Both corporations and limited liability companies legally separate the owners/investors of a company from their company's liabilities. Further, incorporation of either a corporation or an LLC may provide tax benefits, prestige and/or name protection,as well as possibly making it easier to set up health insurance, retirement plans and other benefits to owners and employees.
What is a Corporation?
A corporation is a legal entity that exists separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation (called a charter or certificate of incorporation in some states) are filed with the proper state authority, and all fees are paid.
What is a Limited Liability Company?
The LLC is not a partnership or a corporation. It is a distinct business entity that offers an alternative to partnerships and corporations by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation.
What is a non-profit corporation?
A nonprofit corporation is a corporation that is formed pursuant to a different law than a standard for-profit corporation. The corporation must be formed for a religious, charitable, educational, literary, scientific or other non-business purpose. While a standard business corporation is designed to benefit and generate a profit for its shareholders, nonprofit do not have the profit motive. Nonprofit corporations are allowed to apply for tax-exempt status at both the federal and state level.
Which type of business entity is better?
Each entity has its advantages and disadvantages, so which entity to choose depends on what the company intends to do.
Should I incorporate in Delaware?
Whether a company should incorporate in depends on the size and intended activities of the company. A small business that will only transact business from a single location will likely want to incorporate in its own State. This way, there is only set of tax rules to worry about, no extra registered agent fees to pay, etc. A company that intends to transact business in several States, or wants to prevent others from incorporating with the same name or that are large and want to take advantage of the pro-business Delaware Court of Chancery, may prefer to incorporate in Delaware.
Should I incorporate in my own State or somewhere else?
Generally, if a company is located in a single office in a single State, it is better off simply incorporating in that State, and avoiding some of the extra complications of being incorporated elsewhere. As a company grows, it may need a more complex structure. Good legal assistance is definitely recommended at that point.
If I trademark a name, can someone still incorporate with that name?
Since trade- and service-marks are kept on separate databases, owning a mark does not stop someone from incorporating under that name. However, if someone does incorporate using a name that has been trademarked, then there may be a basis for legal action to compel an infringing company to change its name.
How much does it cost to set up a corporation or LLC?
See our list of fees for our most popular packages. If your needs are different, call, email or fax to us for our fees.
How long does it take to incorporate?
The length of time to incorporate, and afterward to receive your corporate package, depends on the State and the level of service requested. Many States do not provide for expedited service or make it prohibitively expensive, so there is no way of honestly knowing in those States how long it will take to process.
How do I get a Federal tax ID number?
In order to open a bank account, hire employees or otherwise do business, you will need a Federal Employer tax identification number. The tax number is obtained by filing a form SS-4 with the Internal Revenue Service center for your district. We can obtain a number on your behalf for an additional fee.
What is an S corporation? a C corporation?
All corporations are "born" as C corporations, and can only become an S corporation by filing a form 2553 Election to S Corporation Status with the Internal Revenue Service. The difference between the 2 types is that C Corporations file corporate returns and are taxable on their worldwide income without regard to their shareholders. When profits after taxes are distributed to the shareholders, the shareholders are subject to income tax on the dividends received. An S corporation does not pay taxes itself: profits (or losses) are passed on to the shareholders directly; the shareholders then add profits or subtract losses on their personal income tax returns.