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Corporations FAQ
What is a Corporation?
A corporation is a distinct and independent entity that is separate from its
owner. It is legally endowed with rights and responsibilities and has a life of
its own independent of the owners (shareholders). It has been defined by the
United States Supreme Court as “an artificial being, invisible, intangible and
existing only in contemplation of the law.” In essence, a corporation can do
almost anything an individual can. Own property, open a bank account, establish
credit, obtain a social security number (called a tax identification
number), “have children” by setting up subsidiaries, and even “get married” by
merging with other corporations and taking their name. The owners of the
corporation are called stock or share holders. Unlike a sole proprietorship, the
owners are not liable for the corporation’s debts. If a corporation files for
bankruptcy protection, its creditors cannot force the shareholders to pay back
the corporation’s debts.
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What are the advantages of forming a corporation?
Limited Liability - the owners are not personally liable for debts and
obligations of the corporation. They can personally lose only to the extent of
their investment in the corporation from purchasing stock.
Capital can be raised more easily than under other forms of business entities
through the sale of stock.
Ownership in a corporation is more easily transferable than other business
entities. Under most circumstances, shares of stock can be sold without
restriction to a third party without having to obtain consent from the
corporation itself.
Unlike a sole proprietorship, partnership, or limited liability company, the
corporation continues to exist even if an owner (shareholder) dies or sells his
shares of the business. Since the corporation is an independent legal entity, it
has a continuous existence. It does not cease simply because one of the owners
dies or retires.
Corporations are the most well known and widely recognized type of entity.
Corporations often have an easier time setting up insurance, retirement
funds, defined - contribution plans, money-purchase plans, and other
profit-sharing, pension and stock option plans than other business entities.
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Are there any disadvantages?
Corporations are the most expensive form of business to organize.
Record-keeping and filing requirements can be more extensive with a Corporation
than any other business entity.
There is double taxation; since both the corporate entity and the individual
owners have to file tax returns. (This may be avoided with a “Sub chapter S”
corporation.)
Dissolving the corporate existence or changing the structure of the
organization, can be more complicated and
expensive than for partnerships, limited liability companies and sole
proprietorships.
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How do I decide if I should form a C “general stock” or Sub chapter S
corporation?
Generally most people form C corporations that plan on publicly trading the
corporation’s stock and intend to have 76 shareholders or more. A C corporation
can have multiple classes of stock such as preferred and common shares. A C
corporation will be double taxed since both the corporate entity and the
individual owners have to file tax returns. For this reason alone, many will
find S corporations desirable. However, an S corporation can only be owned by
individuals that are U.S. citizens or registered aliens, issue only one type of
stock, and is limited to no more then 75 shareholders.
An S corporation eliminates double taxation as the corporation general does
not file a tax return. On their tax returns, the S corporation's shareholders
include their share of the corporation's separately stated items of income,
deduction, loss, and credit, and their share of non-separately stated income or
loss.
Still can't decide?
Click here to view
our business entity comparison table for more information.
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Where should I form my corporation?
It often makes the most financial sense to incorporate in the state you are
doing business in. Some states offer lower incorporation fees or have flexible
laws that are favorable to business like Delaware. Keep in mind that if you
Incorporate in a state other than the one you are doing business in, you will be
required qualify to do business in your home state. In a nut shell, this means
that you will have to pay two initial filing fees, pay two Registered Agent
fees, file two annual reports, and in some states pay two state tax fees.
Although we cannot give legal advice, we do suggest that if you are primarily
doing business in California, then you should form a California corporation or
form a California LLC.
There are some instances when it may be beneficial to incorporate in another
state instead of in your home state. If you have the hope that your corporation
will some day become a publicly traded company, it is often recommended that you
incorporate in Delaware first and then qualify to do business in your home
state.
If you have decided to conduct business in more than one state, you will be
required to qualify “register” to do business in each state. Sun Document
Filings can assist you by incorporating your business in the state of your
choice and then qualify your corporation to do business in your home state.
Please contact us for further information and pricing.
Where can I view state rules for
a Delaware Corporation?
Where can I view state rules for
a Nevada Corporation?
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What titles are allowed for Officers in a corporation?
Every corporation must have three officers:
• President
• Treasurer/CFO
• Secretary (or clerk)
One person may generally serve in all three capacities, although the person’s
responsibility and authority necessarily changes through the different offices
the person assumes. In addition to these statutory offices, there may be vice
presidents and/or assistant secretaries or clerks.
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How many directors are needed?
In most states including California, only one director is required. In some states, the amount of
directors a corporation is required to have is determined by the number of
shareholders.
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What does a director do?
A director sits on the Board of Directors. The Board of Directors is the
overall management body for the corporation. The board is responsible for
establishing all business policies and for approving major contracts and
undertakings. The board may also elect the president. Ordinary business
practices of the corporation are carried out by the officers—and employees—under
the directives and supervision of the directors.
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How is a corporation organized and managed?
There are three groups of individuals that are responsible for the
organization and management of a corporation; officers, directors, and
shareholders.
Ownership – Corporations are owned by its shareholders. Shareholders do not
manage or directly make decisions on behalf of the company. Typically, the more
stock a shareholder owns the more voting power he/she has. Often shareholders
vote on major corporate issues such as considering an amendment to the Articles
of Incorporation, Mergers, and electing or removing directors.
Overall management – Directors who are elected by the shareholders, are
responsible for making major decisions. They are the ones who propose amendments
and mergers. They also decide who the officers of the corporation will be.
Corporate Officers – Officers of the corporation are hired by the Board of
Directors. Officers such as the President/CEO, Treasurer/CFO, and Secretary are
responsible for managing the day to day operations of the corporation.
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How many people are required to form a corporation? Can I form a
corporation by myself?
Yes, in most states you can form a corporation by yourself provided you are
over the age of majority (18 in most states). For tax purposes, the IRS as well
as most states, recognizes and allows single person for profit corporations.
Corporation regulations vary so contact your accountant before forming you
corporation.
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Are there any restrictions on how I name my corporation?
Yes there is. Most states require that a corporation end with the words
Incorporation, corporation or limited or end with the abbreviation Inc., Corp.,
or Ltd.
Most states do not allow a corporate name to contain the words: cooperative,
bank, trust, trustee, insurance and insurer. However, if your corporation is
going to be a cooperative, bank or insurer, many states require that you obtain
written permission from the commissioner in charge of the institution that
controls and/or regulates that particular industry. Sun Document Filings
does not assist in obtaining permission from any state commissioner for the use
of a name. We request that our customers obtain written permission for use of
their name prior to starting incorporation services with Sun Document Filings.
In addition to the ending, most states will not allow you to register your
corporation if the name is exact or "likely to mislead the public or which is
the same as, or resembles so closely as to tend to deceive," the name of a
domestic or foreign (out-of-state or country) corporation. In addition, the
corporate name may not falsely imply governmental affiliation. Sun Document
Filings will check the name availability with the State filing agency prior
to submitting your documents.
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What is a Registered Agent or Agent for Service of Process and why is
it required?
A registered agent is typically an individual, business entity, or in some
states - a corporation that has filed additional paperwork with the state filing
agency so they can become a registered agent. If your corporation is ever
involved in a lawsuit, the plaintiff’s attorney and or the court, will serve
your corporation via a process server to inform you of the suit. Even though a
corporation is a separate entity, it can not answer the door and physically
accept the court document in its hand. Therefore, state filing agencies require
that a corporation designates a Registered Agent. The state filing agency
requires that the Registered Agent maintains a physical address (no P.O. Boxes
or PMB’s) in the state the company is doing business in. The Registered Agent is
also required to be available at the physical address Monday through Friday
during normal business hours to accept service of process. The name and address
of the Registered Agent will become public record that anybody can access. Sun
Document Filings can eliminate all of the above concerns. For a small annual
fee, Sun Document Filings will appoint a Registered Agent to act on your
company’s behalf. The Registered Agent will take the responsibility of
being served and forward all service of process to your company immediately. We
can act as a California Registered Agent, Delaware Registered Agent, Nevada
Registered Agent, and as Registered agent for your company located in any of the
50 states and the District of Columbia. For
more information, please click here.
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Do I need an attorney to form my corporation?
Legally it is not required. Sun Document
Filings can draft, sign as
Incorporator, and file your documents with the State filing agency. We can also
provide your corporation with Registered Agent services, prepare general
corporate bylaws, and provide you with a corporate kit to keep and maintain your
records. We are able to provide all these services at a fraction of the price an
attorney would charge. In fact, many attorneys rely on Sun Document Filings to provide them with formation services for their clients. We have been
trusted in the legal community for over five years to competently handle
incorporation services for attorneys and accountants.
However, if you have particular questions about how the laws in your state
will affect your corporation, we recommend that you speak to a competent
attorney to answer your legal questions.
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What is a publication requirement and are there publication
requirements for a corporation?
Some states require new corporations or newly qualified corporations to
publish in a widely circulated newspaper some information about their business.
Currently, the only states that require corporations to publish are Arizona,
Georgia, Nebraska and Pennsylvania. Sun Document Filings can help your
company meet its filing requirements in all four states for an additional
service fee or you can make arrangements on your own. Please contact us for
further questions regarding publication.
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Where can I view an entity
comparison table?
Where can I view a glossary of
corporate terms?
What about an LLC? Where can I view FAQ's
about an LLC?
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How is a corporation taxed?
C-Corporation
At the federal level
In forming a corporation, prospective shareholders transfer money, property,
or both, for the corporation's capital stock. A corporation generally takes the
same deductions as a sole proprietorship to compute its taxable income. A
corporation can also take special deductions.
The profit of a corporation is taxed to both the corporation and to the
shareholders when the profit is distributed as dividends. However, shareholders
cannot deduct any loss of the corporation.
At the state level
Depending upon the state, your corporation may be required to pay an annual
tax or franchise tax. In California, the Franchise Tax Board imposes an $800.00
minimum tax that is due in the beginning of the fourth month of the second year.
In addition, the corporation will be required to pay the minimum tax every year
for the life of the corporation. Since each state is different, we recommend
that you speak to your accountant or tax preparer for specific tax questions.
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S-Corporation
At the federal level
An eligible domestic corporation can avoid double taxation (once to the
shareholders and again to the corporation) by electing to be treated as an S
corporation. Generally, an S corporation is exempt from federal income tax other
than tax on certain capital gains and passive income. On their tax returns, the
S corporation's shareholders include their share of the corporation's separately
stated items of income, deduction, loss, and credit, and their share of
non-separately stated income or loss.
At the state level
Depending upon the state, most S corporations have to pay the same annual tax or
franchise tax as C Corporations. In California, the Franchise Tax Board imposes
an $800.00 minimum tax that is due in the beginning of the fourth month of the
second year. In addition, the corporation will be required to pay the minimum
tax every year for the life of the corporation. Since each state is different, we recommend
that you speak to your accountant or tax preparer for specific tax questions.
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How do I start the incorporation process?
Please click on a link below for forms, fees, and further information.
Form a
California Corporation - Profit - Form a California Corporation
Form a California Corporation
- Nonprofit
Form a Delaware Corporation
Form a Nevada Corporation
Sun Document Filings suggests that you seek the advice of an attorney or accountant to answer any legal or tax questions you may
have.
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NOTE: We hope you find our corporate
FAQ's helpful. Nothing contained in our FAQ's should be construed as giving
legal or financial advice. Our intended audience is attorneys and accountants.
Therefore, if you are not an attorney or accountant, you should contact an
attorney or accountant for specific legal or tax questions regarding your
corporation. Please be aware that the Franchise Tax Board and Secretary of State
are government agencies and can change their fees/procedures/forms/turnaround
times without notification. Although we do our best to update our steps and stay
current, we shall not be held liable for any omissions or errors contained. We
do not profess to be giving legal or financial advice to the general public as
we are a typing and filing agency.
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