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There are many people who consider S-Corporation election when forming their new corporation.  An S-Corporation offers both advantages and disadvantages that regular C-Corporations do not, and may be beneficial depending on what type of business you run and how you would like to run that business.  S-Corporations operate similarly to regular corporations, but are taxed in a manner that is similar to a Limited Liability Company.

For example, the main difference between an S-Corporation and a regular C-Corporation is that the profits and losses of the S-Corporation are passed on to the various shareholders in the corporation.  The shareholders are then taxed on their individual share of the corporation’s profits or losses and report this on their individual tax returns.

All S-Corporations start out their lives as regular C-Corporations.  To become an S-Corporation, the corporation must meet certain requirements and file Form 2553 with the IRS.  To qualify as an S-Corporation, the following requirements must be met:

·        Must have less than 100 shareholders

·        Shareholders must be U.S. citizens or resident aliens

·        Shareholders must be individuals, estates, certain exempt organizations, and certain types of trusts

·        Must have only one class of stock

If these requirements are met, then the shareholder can file Form 2553 to become an S-Corporation.  For new corporations, the deadline is 75 days after conducting business, acquiring assets, or issuing stock (whichever is earlier) to file Form 2553 and become an S-Corporation.  Existing corporations must file Form 2553 by March 15 of the year they wish to make the election.

Once a business is formed on the state level, most jurisdictions require corporations or Limited Liability Companies to designate a registered agent to receive documentation on behalf of the company.   Very simply, a registered agent is an individual or entity upon whom documents relating to the corporation may be served.  
To remain in compliance with state law, a Registered Agent must be designated to receive correspondence on behalf of the company. A Registered Agent will typically receive business and legal documents from county, state, and U.S. agencies on behalf of the corporation and/or LLC. These documents include such things as notice of litigation (service of process), franchise tax forms and annual report forms.

The Registered Agent must have a physical (street) address in the state in which the company is formed.  This means no P.O. Boxes.  In addition, the Registered Agent must be available during regular business hours to receive service of process. The Registered Agent’s name and address are listed on the formation documents of the business and that information is kept on record as the official contact for the company.  In fact, Registered Agent information is considered a matter of public record.

The failure, to register and designate a registered agent may hinder the company’s ability to

• legally enter into contracts and gain access to the state court system. Moreover, it may;
• subject the company to monetary, civil, and possibly criminal sanctions.
• Also, failure to maintain a registered agent may cause a company to fall out of “good standing” with the state or;
• may cause a jurisdiction to revoke a business’s corporate or LLC legal status.

An officer or owner of the business can serve as a Registered Agent; however, many entities find it easier and more reliable to select a third-party Registered Agent Service skilled in providing such services. Even if you are located in the state in which you are incorporated, there are many benefits to using a Registered Agent Service. One such benefit is that the Registered Agent Service’s information is listed on the formation documents and becomes a matter of public concern. In essence, the Registered Agent Service can put a layer of privacy between your business and the public and may reduce the amount of solicitations your company receives.

If a document must be served on the company, it will be served to the independent third party, as opposed to serving you with legal and/or personal business documents in the presence of customers, clients, vendors, employees, and/or neighbors.

Another benefit of selecting a Registered Agent Service is that you do not have to be concerned with being continuously available to accept important business and tax documents or dealing with difficult and often annoying process servers.  This will be handled by the Registered Agent Service on your behalf.

It is far more safe and efficient to select a reliable third party that has experience as a Registered Agent. It is important that businesses select a highly reliable company that has been approved by the appropriate state agency to serve as a Registered Agent.  Using a Registered Agent Service provides business owners with timely and efficient service as well as peace-of-mind regarding important business documents.

When working with MyCorporation, you have the benefit of Intuit, Inc’s backing, and the knowledge and security that MyCorporation has been providing exceptional Registered Agent services to customers for years.
  

Designate MyCorporation as your Registered Agent today!

One of the most common questions for entities wishing to incorporate is – “Where should I incorporate?” In fact, an entity can choose from any of the 50 states or the District of Columbia. There has been a great deal of hype about incorporating in certain states that happen to be well-known for having favorable laws for corporations. When an entity elects to incorporate outside its “home” state, the most common states in which the entities incorporate include Delaware and Nevada. However, even taking account of favorable laws in certain states, an entity’s “home” state (i.e., the state in which the corporation conducts a majority of its business) may often be the best state to incorporate.

Due in large part to their liberal incorporation laws and favorable tax policies, the most “incorporation friendly” states are Delaware and Nevada. And here’s why…

Should I incorporate in Delaware?

Delaware’s advantages as a place of incorporation range from the Delaware General Corporation Law to the flexibility built into the corporate formation process.

Incorporating in Delaware is generally less expensive than most other states. The initial charge for incorporating in Delaware can be as low as $89.00; the annual franchise tax can be as low as $65.00 in many cases; and the cost of continuing operations is low as well. There is no Delaware corporate income tax for corporations that are formed in Delaware so long as they do not transact business in Delaware.

Another benefit of Delaware incorporation is Delaware’s extensive and often easily interpretable law. Delaware has a separate Court of Chancery (a business court) that does not use juries, but instead utilizes merit-based (not elected) judges. Because there are no juries, decisions from the Chancery Court are issued as written opinions, and as such, Delaware has a large body of written legal precedent to rely upon.

Delaware law also allows for a version of the Limited Liability Company called a Serial LLC. Traditionally, an LLC is relatively simple to form and maintain. It is similar to the formation of a sole proprietorship or a partnership, but also provides a layer of protection (the corporate shield) as a limitation of liability. Unlike regular LLCs, Delaware’s “Serial” LLC allows different lines of business to be treated separately from each other from a liability standpoint.

Incorporate a Business or Form a Limited Liability Company in the State of Delaware.

Come tax time next year, you’ll be glad you did!

What about Nevada?

Nevada began with corporate statutes based on Delaware, and went further to establish a corporate structure that allows investors and owners of Nevada corporations to remain completely private. The Supreme Court of Nevada has consistently taken a very strong stand in the protection of corporate privacy, even when a corporation fails to adhere to basic corporate formalities.

Since the implementation of these privacy statutes in 1991, the number of new incorporations in Nevada has exploded. Unlike most other states, Nevada does not require corporate stockowners to disclose their information. In fact, the information is not kept on file with the state.

Additionally, to ensure privacy, Nevada allows its corporations to use bearer stock certificates, which make it virtually impossible to prove the ownership of a Nevada corporation. Accordingly, owners or investors utilizing bearer shares can have complete control and ownership while remaining anonymous.

Nevada also does not tax the income of its corporations or its state’s citizens. A Nevada corporation is also not subject to any other hidden taxes such as franchise taxes, capital stock taxes, or inventory taxes. Sales tax applies only to products sold within the state.

Incorporate a Business or Form a Limited Liability Company in the State of Nevada.

Come tax time next year, you’ll be glad you did!

Incorporating in Your Home State May be BEST!

For most small businesses, however, it may still be best to incorporate in the state where your business is based. Many legal and business professionals advise that you incorporate in the state in which your corporation intends to conduct the majority of its business, and, if you intend to do business in only one state, you should incorporate in that state.

If you incorporate in a state that is traditionally considered to be “corporation friendly,” but then conduct business outside your state of incorporation, you will likely have to qualify to do business in the state in which you are conducting business. Qualifying to do business outside your state of incorporation is called “foreign qualifying” or “foreign qualification.” Qualifying as a foreign corporation involves: (1) filing the appropriate foreign qualification documentation with the relevant Secretary of State; and (2) paying additional filing and maintenance fees. For some entities it may be worth the additional time and money associated with foreign qualification, but for many corporations, it simply creates an additional, unnecessary headache.

When determining the appropriate state of incorporation, you should undertake the following considerations:

1. What are the tax implications/benefits of incorporating outside your home state vs. incorporating inside your home state?
2. What are the additional costs of incorporating outside your home state and where, if anywhere, must you foreign qualify?
3. Are the corporate laws in one state favorable to the type of business entity you are forming, and how do they affect the obligations of the principals and/or shareholders of the corporation?

Even though some factors favor incorporating in the “friendly” states of Delaware or Nevada, it may be more expensive and more complicated to incorporate out of state. For this reason, it is important to consult with your attorney or accountant about the pros and cons of incorporating out of state before making your final decision.

Incorporate a Business or Form a Limited Liability Company in your home state.

Come tax time next year, you’ll be glad you did!

You’ve already incorporated, so you are aware of the importance of corporate protection, including maximizing tax benefits and limiting your personal liability. There are other things that should also be considered now that you are a corporation. One of the most important things to consider is obtaining an Employer Identification Number (aka “EIN”).

What is an EIN?

An Employer Identification Number or “EIN” is also known as a federal tax identification number. The EIN is a number (like a corporate Social Security Number) assigned to your corporation by the Federal Government. It is a nine-digit number assigned to sole proprietors, corporations, partnerships, estates, trusts, and other entities for filing and reporting purposes. As the name implies this number is used for tax purposes. You need your Federal Tax ID Number to fill out payroll reports, pay federal taxes, and even open a corporate bank account. An EIN is used to identify a business entity. Consequently, most businesses need an EIN.

Why Do I Need an EIN?

Legally, you are required to identify your business with one of two numbers: either your Social Security number or an EIN (employer identification number). A Social Security number can be used on all your government forms and other official documents, if you are a sole proprietor, but most small business advisors recommend that you apply for an EIN and use that number instead.

When do I need to obtain a Federal Tax ID Number (EIN)?

You should obtain a Federal Tax ID:

1. If you have a corporation;
2. If have employees;
3. To open a business bank account;
4. If you want to build corporate business credit; or
5. You are establishing a pension, profit sharing, or retirement plan.

If you pay wages to one or more employees, you must obtain an EIN. In addition, you should obtain an EIN if your business is a corporation and you are an employee of the corporation.

You will need a new EIN if:

In addition to the discussion points above, even if you have an EIN, you will need a new EIN under the following circumstances:

• If you file bankruptcy under Chapter 7 (liquidation) or Chapter 11 (reorganization) of the Bankruptcy Code or filed Form 8832 to elect corporate status for your Limited Liability Company (LLC), you will need to obtain an EIN;
• If you sell or transfer your business, you will need a new EIN. It is important to note that you may not transfer your EIN if you sell or otherwise transfer your business. The new operator may not use your EIN. In addition, you cannot use the EIN of a former owner, even if it is your spouse.
• If you are a Sole Proprietor and take in partners and operate as a partnership, you will need a new EIN.

See, IRS Publication 1635

You may not need a new EIN if:

• You change the name of your business (but everything else remains the same).
• You change your location or add locations (stores, plants, enterprises or branches of the entity).
• You operate multiple businesses (including stores, plants, enterprises or branches of the entity).

It is important to note that you may not transfer your EIN if you sell or otherwise transfer your business. The new operator may not use your EIN and you cannot use the EIN of the former owner. Note also, a Sole Proprietor who conducts business as a Limited Liability Corporation (LLC) may not need a separate EIN for the LLC. See, IRS Publication 1635.

Legally, you are required to identify your business with one of two numbers: either your Social Security number or an EIN (employer identification number). Therefore, most businesses need an EIN. However, as with all important business and legal decisions, it is important to consult with your attorney or accountant about the pros and cons of incorporating, and the need for an Employer Identification Number before making your final decision.

Incorporate a Business or Form a Limited Liability Company in your home state. Come tax time next year, you’ll be glad you did!

Obtain your Employer Identification Number (”EIN”) today!

How Can MyCorporation.com Help You?

• Form a NEW Corporation
• Form a NEW LLC
• Obtain your EIN

1. Creating a Business Structure
   The most common types of business entities include Sole Proprietor, Partnership, Corporation, and Limited Liability Company (LLC). When deciding on the entity type for your business, some things to consider include: formation costs, management structure, liability risk, and tax implications. For more information, please visit our Learning Center.
2. Selecting a Registered Agent
   Did you know that most states require businesses to have a registered agent? A registered agent must be available to accept service of process documents, such as any legal proceeding, legal notices, or official government correspondence presented to the company. No one wants to be sued. But in the unfortunate event that someone sues the business, who wants to be served papers in front of customers and employees? To get the much needed privacy any business deserves, select the reliable Registered Agent service from MyCorporation.
3. Obtaining Licenses and Permits
   Licensing and permit regulations vary depending on the type of business, its location, and where it conducts business (locally, regionally, or nationwide). To find out what licenses and permits your business may need, get a Business License Package from MyCorporation.

The standard “corporation” format used by businesses to protect personal assets and minimize personal liability can also include other types of business entities, including S-Corporations and Limited Liability Companies (“LLC”).  The corporation is America’s most popular and oldest form of business entity. However, with the tax advantages of Limited Liability Companies and S-Corporations, other types of business entities are quickly becoming more popular. 

 Limited Liability Companies 

An LLC combines the limited liability shield traditionally associated with corporations, the structural and financial flexibility of partnerships, and the tax benefits of “pass-through” taxation. As a pass-through entity, the LLC pays no income tax. Instead, items of taxable income, gain, loss, and deduction pass through the LLC to its owners, and are reported by them on their separate income tax returns. Similar to the corporation, an LLC is recognized as a separate legal entity from its “members.” Thus, an LLC can own property and commit itself to contractual obligations.

 IRS Treatment of the One-Member LLC 

An LLC with only one member/owner is automatically considered to be a sole proprietorship unless an election is made to be treated as a corporation via IRS Form 8832. Thus, the sole member of an LLC will file Form 1040  (U.S. Individual Income Tax Return), and will include Form 1040, SCHEDULE C (Profit or Loss from Business) with his/her tax returns.

Regardless of how many members the LLC has, the LLC may file an Election to be Treated as a Corporation for Purposes of Taxation (IRS Form 8832). If an election is made to be treated as a corporation, the LLC must file Form 1120 (U.S. Corporation Income Tax Return).

 IRS Treatment of the Multiple-Member LLC 

If your LLC has two or more owners, it will automatically be considered a partnership unless an election is made to be treated as a corporation as described above. A partnership that has not elected to be taxed as a corporation will file Form 1065 (U.S. Partnership Return of Income). Where an election is made to be treated as a corporation, Form 1120 (U.S. Corporation Income Tax Return) is filed.

In most cases, only the LLC is responsible for the company’s debts thus shielding its members from personal liability. However, there are some exceptions where individual members may be held liable.  Where an LLC member has personally guaranteed the obligations of the LLC, he or she will be liable. For example, where an LLC is relatively new and has no credit history, a prospective landlord about to lease office space to the LLC will most likely require a personal guarantee from the LLC members before executing such a lease.

To take advantage of all potential tax benefits, and if your accountant agrees, Form an LLC online today. Come tax time next year, you’ll be glad you did!

 Learn About LLCs Compare Business Structures Get a Price Quote General-For-Profit Corporations (C-Corporations)  

The term “C-Corporation” merely refers to a standard, general-for-profit, state-formed corporation. A Corporation is taxed as a separate entity under the tax laws. Income earned by a corporation is normally taxed at the corporate level, and the corporation must file a Form 1120 each year to report this income.

After the corporate income tax is paid on the business income, any distributions made to stockholders are taxed again at the stockholders’ tax rates as dividends. Because of these two levels of tax, a regular corporation may be a less desirable form of business than the other business entities (sole proprietorships, partnerships, limited liability companies, or S-Corporations).

Comparison with Partnerships or Sole Proprietorships:

Because the taxation of income to sole proprietorships and partnerships is determined by the tax bracket that applies to each individual owner, a comparison of tax rates that apply to corporations and to individuals can give you some idea of which form of business would save taxes at a particular income level.

Tax-related characteristics of the “C-Corporation” include the following:

• Separate Legal and Tax Life: A corporation which is properly formed and operated as a corporation assumes a separate legal and tax life distinct from its shareholders. A corporation pays taxes at its corporate income tax rates and files its corporate tax forms each year.  A corporation files an IRS Form 1120.

• Avoiding Double Taxation: Generally, the corporation is taxed for its own profits; then, any profits paid out in the form of dividends are taxed again to the recipient as dividend income at the individual shareholder’s tax rate. However, most small corporations rarely pay dividends. Rather, owner-employees are paid salaries and fringe benefits that are deductible to the corporation. The result is that only the employee-owners end up paying any income taxes on this business income and double taxation rarely occurs.

  S-Corporations Another alternative is to make an “S-Corporation Election.”  When choosing a corporate form, as discussed above, it is important to be aware that the profits of a C-Corporation are subject to double taxation, and therefore earnings are taxed twice, once at the corporate level, and again when profits are distributed as dividends to the shareholders. However, a corporation meeting certain requirements (set by the IRS) may file for Subchapter S Corporate status (aka “S-Corporation Election”). This corporate election allows owners of an S-Corporation to elect to be taxed only at the personal level, thus avoiding tax at the corporate level.  

An S-Corporation begins its existence the same way that a “C-Corporation” (discussed above) begins its existence – as a general, for-profit corporation upon filing the Articles of Incorporation at the state level. However, after the corporation has been formed, it may elect “S Corporation Status” by submitting IRS form 2553 to the Internal Revenue Service (in some cases a state filing is required as well).

Once this filing is complete, the corporation is taxed like a partnership or sole proprietorship rather than as a separate entity. Thus, the income is “passed-through” to the shareholders for purposes of computing tax liability. Therefore, a shareholder’s individual tax returns will report the income or loss generated by an S-Corporation.

 Qualifying for S-Corporation Status  

To qualify as an S-Corporation, a corporation must timely file IRS Form 2553 with the IRS. To take effect for the current tax year, the S-Corporation Election must be made by March 15 of the current year if the corporation is a calendar-year taxpayer. However, a “new” corporation may make the filing at anytime during its tax year so long as the filing is made no later than 75 days after the corporation has begun conducting business as a corporation, acquired assets, or issued stock to shareholders (whichever is earlier).

To qualify for S-Corporation status, the corporation must:

• Be filed as a U.S. corporation (i.e. filed with any “state” office within the U.S.).
• Maintain only one class of stock.
• Maintain a maximum of 100 shareholders.
• Be comprised SOLELY of shareholders who are individuals, estates or certain qualified trusts, who consent in writing to the S-Corporation election.
• NOT have a shareholder who is a non-resident alien.

Failure to observe ANY of the above requirements could revoke S-Corporation status at any time. An S-Corporation that loses its status as such may not re-elect S-Corporation status for a minimum of five years.

 Who Should Elect S-Corporation Status?  

Owners who want the limited liability of a corporation and the “pass-through” tax-treatment of a partnership will often make the S-Corporation election. In most cases, corporations that would benefit from S-Corporation status are those who plan to distribute the majority of earnings to its shareholders in the year those earnings are derived. Corporations who plan on retaining earnings for future investments in future tax years often choose the C-Corporation because under the S-Corporation, earnings will be taxed as if they were distributed to shareholders regardless of whether a distribution actually occurred or whether the corporation retained the earnings for future investment.

As stated above, an S-Corporation is a tax designation only. This type of corporation is typically for smaller companies. It provides the benefits of incorporation, while eliminating double taxation.

The above-mentioned tax benefits may or may not apply to you. In particular, some of the benefits described apply only to C-Corporations, whereas others apply only to S-Corporations. For this reason, it is important to consult your accountant or attorney about your particular situation. If, based on your current financial composition, he/she advises you to incorporate or form an LLC, visit mycorporation.com today.

Please consult an accountant or CPA who knows and understands the details of your business, as well as the federal and local tax rules, so that you can make the best decision regarding which form of business entity (C-Corporation, S-Corporation, or LLC) will suit your needs.

A tax calculator may be a great way for you to assess the type of entity and tax benefits associated with incorporating or forming an LLC.

 Learn About Incorporating Compare Business Structures Get a Price Quote C-CorporationsS-Corporations

Limited Liability Companies (LLC)

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