Frequently Asked Questions

  What is a Corporation?
A Corporation is a common form of business entity that is recognized by a state government. It is granted with legal rights as an entity, separate from the owners of the Corporation. A Corporation is distinguished by limiting the liability of its owner(s), issuing shares of stock that can be transferred from one individual to another, and its ability to have perpetual existence. Since a Corporation is separate from its owner(s), it can protect the owner(s) from being personally liable when the company is being sued, also known as Limited Liability. In addition to Limited Liability, there are tax benefits available to Corporations that are not available to other business entities.
  What is the structure of a Corporation?
A Corporation is owned by Stockholders. While stockholders do not directly manage the corporation, they have an impact in the Corporation by making corporate decisions through indirect means, such as electing and removing Directors, approving or disapproving Amendments in the Articles of Incorporation, and taking votes on important corporate issues. The Stockholders of a Corporation may also serve on the Board of Directors and also serve as Officers of a Corporation. In most states, one individual can perform multiple tasks by forming a Corporation, being the sole Shareholder, Director, and Officer.

The members of the Board of Directors, also known as Directors, are responsible for managing the affairs of a Corporation, and are typically elected by the Stockholders of a Corporation. Typically, Directors of a Corporation make major business decisions and they supervise and appoint Officers who make everyday business decisions of the Corporation.

The Officers of a Corporation are responsible for everyday management of a Corporation. The following are a list of roles that Officers of a Corporation can take.
  1. President - responsible for executing instructions of the Board of Directors.
  2. Secretary- responsible for the maintenance of a Corporation’s records.
  3. Treasurer- responsible for the management of a Corporation’s bank accounts and funds.
  What are the advantages of Incorporating?
The advantages of forming a Corporation are as follows:
  1. One of the primary advantages of Incorporating is the Limited Liability given to its shareholders. Typically, shareholders and directors of a Corporation are protected from the debts and obligations of the Corporation, whereas, in a Partnership or a Sole Proprietorship, the owner’s personal assets may be used to pay debts of the business entity. In order to maintain the Limited Liability of a Corporation, the shareholders and directors must follow all rules and regulations that the state requires, such as holding Annual Meetings and maintaining Meeting Minutes.
  2. A Corporation has the advantage of perpetual existence. If the shareholders of a Corporation die or sell their ownership, the Corporation will continue to exist and do business, since a Corporation’s life is not dependent on its shareholders.
  3. Insurance, retirement funds and qualified retirement plans, such as 401K, may be set up more easily setup for a Corporation than other business entities.
  4. The ownership of a Corporation is easily sold or transferred.
  5. Capital can be raised more easily through the sale of stock shares.
  6. A Corporation is run by a central management system, which may remain in place even after the sale or transfer of ownership.
In order to help our clients comply with the rules and regulations, our Corporate Package includes Corporate Forms Disks and Corporate Kits as part of our complete Incorporating Package.
  What are the disadvantages of Incorporation?
The disadvantages of forming a Corporation are as follows:
  1. The primary disadvantage of Incorporating is Double Taxation. Double Taxation occurs when the profits of a Corporation are taxed twice when the profits are distributed to its shareholders as dividends. The first taxation occurs at the corporate level, as corporate tax, then, the second taxation occurs at the individual level, as income tax of the individual shareholder. However, business expenses, such as employee salaries are considered deductions against corporate income and can minimize the amount of Double Taxation. Furthermore, the Double Taxation of a Corporation can be eliminated by electing an S Corporation status.
  2. Forming a Corporation is more complex and expensive compared to forming other business entities.
  3. A Corporation requires that extensive records are kept.
  4. Performing business across state lines often require that a Corporation be qualified to conduct business in other states.
  Is obtaining an attorney necessary to form a Corporation?
An attorney is not a legal requirement to form a Corporation. However, in certain cases, an attorney or a financial advisor may be necessary to receive vital information or for consultation depending on the situation of your business entity, or when you need legal or financial advice on which business entity would best suit your business or industry. However, for most cases, you can use our guaranteed services to form a Corporation, and save a substantial amount of money you would otherwise pay an attorney.
  What are the steps to form a Corporation?
The first step in forming a Corporation is to file the Articles of Incorporation with the proper state agency, along with the payment of their initial fees. After the Articles of Incorporation are filed and accepted by the designated state, your Corporation must hold an organizational meeting, where the bylaws adopted by the Corporation Director are approved and recorded, the corporate seal is approved, the shares of stock are distributed, and the transactions are recorded in the stock ledger.

If you decide to incorporate with INCFilings.com, all the administrative processes will be completed and all the necessary record keeping material, corporate seal, and stock certificates will be included in our Corporation Kit. All you have to do is complete our online ordering process!
  What are the requirements to form a Corporation?
A Corporation must be formed according to the laws and governance of the state of incorporation. This usually requires the filing of the Articles of Incorporation with the appropriate state agencies, usually the Secretary of State, and the payment of the required state fees and taxes. A Corporation is also required to create and to maintain a Board of Directors, Corporate Officers, annual shareholder meetings and keeping of records. However, many states allow Corporations to have only one shareholder to act as the director and all officer positions.
  How much time will it take to form a Corporation?
The time it takes to form a Corporation varies by each state and the number of filings being processed at that state. Please feel free to contact one of our Customer Service Representatives to inquire about the current processing times of the state you are interested in.
  Where should I incorporate my business?
A Corporation is not required to incorporate in the state of its operation. Generally, it is preferable to incorporate in the state of operation. To determine which state is best suited to incorporate your business, you need to consider the costs of incorporating at the state of operation versus the costs in qualifying the Corporation as a foreign Corporation when incorporating in another state. If your Corporation is a closely held Corporation and does business primarily within a single state, incorporating in the local state is preferable. The cost of incorporating locally will usually cost less than incorporating in another state and qualifying it to do business as a Foreign Corporation. A Foreign Corporation that is qualified to do business in another state is subject to taxes and annual report fees from the local state of the Corporation and the qualifying state. Another disadvantage of Foreign Incorporation is the possibility of having to defend a law suit in another state. In addition, you must determine the advantages and disadvantages of a state’s corporate laws and tax structure to make a better choice for your Corporation.

For advice regarding which state is best suited for your Corporation, please consult your financial advisor. Also, if you need to qualify your Corporation to conduct business in a foreign state, INCFilings.com will assist you with the process.
  What should I name my Corporation?
The name of your Corporation should be carefully selected. It is very important that the name portray the image you want for your business. Legally, the name you select must not be "deceptively similar" to any existing company or must be "distinguishable on the record" of your state. For example, if a business entity named 2 Brothers, Corp. exists in your state; you would probably not be allowed to name your business Two Brothers, Inc. It is also possible that the name you select will not be available. Therefore, please have a second name choice prepared in case your first choice has already been taken.

Additionally, most states require that the name you select show the type of your business entity. For example, if your business is a Corporation, the name of the business should include the words "Corporation", “Incorporated”, “Corp.”, or “Inc.”.

INCFilings.com will perform a non-binding name check for name availability within the state of incorporation. The name check is preformed by us at no additional charge where available. However, please remember that the final determination is made by the state officials and only a copy of the approved “Articles of Incorporation” will finalize the naming process.

Also, most states allow telephone inquiries to determine whether a corporate name is available, or if it is in use by another company and some states may charge a telephone inquiry of $15 ~ $20. Many states also have made inquiries available on the Internet. Some states, however, may not offer any telephone or Online name checks and require you to physically enter the state office to complete a form with the required information before the state performs a name check.
  Do I have to file a D.B.A. (“Doing Business As”) Name?
Generally, individual and unincorporated business entities conduct their business using a D.B.A., which stands for “Doing Business As”. A Corporation, however, does not need to file for a DBA. Filing a D.B.A. does not change the name of your company, but allows your company to operate under one or more names in addition to its corporate name. If a Corporation would like to do business with a different name from their organizational documents, it must file the D.B.A. name certificates with the Secretary of State and the county where the registered office and the principal offices are located.
  Can other business entities use the name of my Corporation?
Generally, incorporating a business entity will prevent other business entities from incorporating, using the same name, or a name that may confuse the identity of the two separate business entities in the same state. In order to protect the name of a business entity from being used by other business entities in another state in the same industry, obtaining a trademark is recommended. However, please note that there is no national registration of trade names and obtaining a trademark will only be possible if the name of a Corporation also serves as a trademark. Please consult your attorney or financial advisor for more details on how to protect your corporate name.
  What are the Articles of Incorporation?
The Articles of Incorporation is a main filing document which brings a Corporation into legal existence. Once the Articles of Incorporation has been filed and approved, a Corporation comes into existence.

The level of complexity for a Corporation’s Articles of Incorporation can range from simple to complex. Generally, most states require at minimum, that the contents of the Articles of Incorporation include information such as the Corporate Name, Registered Agent, and the Corporation’s business address. Please note that the content requirements of the Article of Incorporation vary by state. Please feel free to contact one of our Customer Service Representatives to determine the requirements for your Corporation.
  What is a Corporate Kit?
After a Corporation has been legally formed, it requires a "Corporation Kit" to complete the process and to maintain its required records, and to facilitate the distribution of its stock certificates.

INCFiling’s "Corporation Kit" includes:
  1. Corporate Seal – is a small press into which a document can be placed to be embossed. The imprint made by the seal indicates the Corporation’s name, state of the Corporation, and the date of the Incorporation. Corporate seals used to be required by all states, but are now optional in some states. However, a corporate seal gives a mark of authority on business documents.
  2. Stock Certificates – are printed documents used to indicate the ownership of a Corporation.
  3. Stock Transfer Ledger – is a record of the number of shares which have been issued by Corporation, along with the date of the stock share issued, stock certificate numbers, and the name of the individual or business entity the shares were issued to.
  4. Sample Minutes and By-Laws – are to be used as a guide or reference for proper record keeping. Minutes are written records of meetings of the Board of Directors or stockholders which document what has transpired during such meetings. Bylaws are the internal operating guidelines by which a Corporation is to operate. The bylaws contain details on the responsibilities, rights, and duties of the Corporation’s Directors, Shareholders, and Officers. The bylaws also may contain details on how the Corporation may enter into contracts, transfer shares, hold meetings, pay dividends and make amendments to corporate documents. The bylaws may also specify a fiscal year, how the corporate seal is to be used and which offices are required. It is extremely important for the corporation to maintain these records in order to prove the existence and validity of the corporate entity.
  5. Minute Book/Binder.
  6. Miscellaneous Forms.
  What are Bylaws?
The bylaws of a Corporation are the internal operating guidelines by which a Corporation is to operate. The bylaws contain details on the responsibilities, rights, and duties of the Corporation’s Directors, Shareholders, and Officers. The bylaws also may contain details on how the Corporation may enter into contracts, transfer shares, hold meetings, pay dividends and make amendments to corporate documents. The bylaws may also specify a fiscal year, how the corporate seal is to be used and which offices are required. Generally, most states do not require bylaws to be filed with the state office.
  What is a Corporate Seal?
A Corporate Seal is a small press into which a document can be placed to be embossed. The imprint made by the seal indicates the Corporation’s name, state of the Corporation, and the date of the Incorporation. Corporate seals used to be required by all states, but are now optional in some states. However, a corporate seal gives a mark of authority on business documents.
  Must Corporations issue stock certificates?
Stock certificates represent the ownership of a Corporation. Where no shares are issued, no individual owns the corporation. Therefore, stock shares must be issued to individuals owning the Corporation, otherwise, no individual owns the Corporation.

Please consult your financial advisor for more information regarding this issue.
  What is Par Value?
Par value is the minimum dollar amount for which a corporate share of stock may be sold when a Corporation needs to raise capital. In a Corporation with shares of "No Par Value," the Board of Directors sets the minimum value for which the stock shares may be sold. The sale of stock shares raise capital for the Corporation, allowing corporate funds to remain separate from the individual shareholder’s or directors’ funds, protecting the Shareholders from personal liability. There is no minimum number of shares that must be authorized in the Articles of Incorporation. However, a Corporation may not sell more stock shares than it is authorized to issue and it must receive consideration in exchange.
  What is a Publication Requirement?
A Publication Requirement is when a state requires a notice to be published in a newspaper that a Corporation or LLC has been formed. The following states enforce the Publication Requirement: Arizona (Both Corp. and LLC), Georgia (Corp.Only), Nebraska (Both Corp. and LLC), Pennsylvania (Corp.Only), and New York (LLC Only).

If you decide to file with INCFilings.com, we will fulfill the Publication Requirement for all states except the State of New York. Also, please keep in mind that there may be extra fees to fulfill the Publication Requirement for some states.
  What is a Registered Agent?
In most states, a “Registered Agent” is required to be responsible for receiving and forwarding important legal and tax documents. This service is provided by an "Agent" of the business entity who is "Registered" with the state of the business. The “Registered Agent” must have a valid street address (Post Office Boxes or Mail Service Addresses are not allowed) within the state of formation, and be available during normal business hours to receive documents. Please note that INCFilings, Inc. also provides “Registered Agent” services for your business entity. Please ask one of our service associate for more details.
  What happens if my company fails to register or designate and maintain a Registered Agent?
When a business entity fails to designate and maintain a registered agent, the failure may foreclose or hinder the business entity’s ability to legally enter into contracts and gain access to state courts. Additionally, the business entity may also be subjected to monetary, civil, and criminal sanctions. Also, the failure to maintain a registered agent may cause your company to fall out of "good standing" within the state. This will subject your license to do business within a state to forfeiture, with monetary penalties assessed to reinstate your company to a "good standing" again.
  How is a corporation taxed?
A state-registered CORPORATION can be taxed for federal income tax purposes as a partnership. Under the “Check-the-Box” rules, an CORPORATION can elect partnership status to avoid taxation at the entity level as an "Association Taxed as a Corporation." If an CORPORATION is not taxed as a partnership, it will be taxed at the entity level similar to a “Standard” or a “C Corporation”.

The state income tax treatment of CORPORATION profits and losses may or may not mirror the IRS tax treatment depending on the state. For specific information on your state tax rules, please visit your state’s Web Site or consult your accountant.

*Please note: California CORPORATIONs are subject to an annual minimum franchise tax of $800 per year. The first payment must be made within 3 months of forming your CORPORATION. The state of California will send out an invoice to help businesses to remember to make this payment on time.
  What is a Federal Employer Identification Number?
A Federal Tax Identification Number, also known as an Employer Identification Number (EIN), is basically a social security number for businesses. It is the number the IRS uses to identify a business entity. Businesses can apply for an EIN by preparing IRS Form SS-4 and filing it with the IRS. Please note that INCFilings, Inc. provides services in preparation of and/or obtainment of your businesses’ EIN.

Also, certain states also require a State Tax Identification Number. To learn if your state requires a State Tax ID Number, please contact your state’s taxation authority or your accountant. Please note, INCFilings, Inc. do not provide services in preparation of and/or obtainment of your businesses’ State Tax ID Number. We apologize for this inconvenience.

Once the Corporation has been formed and is ready to do business, the Corporation should apply for an EIN in order to file tax returns, establish bank accounts, and etc.
  What are the Differences Between a S Corporation and an LLC?
Here are some of the differences between an LLC and an S Corporation:
  1. While the S Corporation status eliminates “Double Taxation", it lacks the flexibility of an LLC in allocating income to the owners.
  2. An LLC may offer several classes of membership interests while an S Corporation may have only one class of stock.
  3. Unlimited number of individuals or entities may own interests in an LLC. However, ownership interest in an S Corporation is limited to a maximum of 75 shareholders. Also, S Corporations cannot be owned by C Corporations, other S Corporations, certain types of Trusts, LLCs, Partnerships, and Non-Resident Aliens. Also, LLCs are allowed to have subsidiaries without restriction, while S Corporations are not allowed to own 80% or more of another corporation’s shares.
For more information on which business entity is best for your company, please contact your attorney or accountant.
  What is an S Corporation?
An S Corporation is a corporation that has elected a “Pass – Through” taxation status. To elect for an S Corporation status, a corporation needs to begin as a C Corporation, a default status when incorporating. After the formation of a C Corporation, the corporation needs to file the Form 2553 with the Internal Revenue Service (IRS). When the form is filed and approved, the corporation’s income “passes through” to the individual shareholders, and is taxed at the individual level. A C Corporation, however, will be taxed at the corporate level, and the individual income will also be taxed also. Any income or loss generated by the S corporation is reported on the individual tax returns of the shareholders. Electing for a subchapter S Corporation status with the IRS is a method of distributing the profits from the corporation to the shareholders without being taxed at the corporate level. Thus, the S corporation election is a popular choice for small businesses. However, there are some requirements to be met in order to elect for an S Corporation status. For example, an S Corporation cannot have more than 75 shareholders and there are restrictions on who may and may not own stock. The general rule is that non-resident aliens, trusts, other S corporations, and C corporations (with few exceptions) may not own stock of an S Corporation.
  Who Should File For an S Corporation?
Small business owners who want the continuity and liability protection of a corporation, but wish to be taxed as a sole proprietorship or partnership should file for an S Corporation status. Please consult your financial advisor for more details.
  Who Should Not File For an S Corporation?
Individuals that benefit from lower taxation rate paid by corporations should not file for S Corporation status. An S Corporation status has limitations on ownership of company stock, such as foreign ownership. If you are concerned about these limitations, please contact your financial advisor or an attorney to discuss other options. If you plan to reinvest the corporate profits back into the corporation and plan to draw a nominal salary, you may still have tax liability on the balance of the dividends that you have reinvested into the corporation.
  What Is An Electing A S Corporation & The Filing Deadline?
Electing S Corporation status has tax liability implications. An S Corporation status allows shareholders to apply company profits and losses to individual income tax returns. In order to elect for an S Corporation status, the business entity must first incorporate as a C Corporation and then file the IRS form 2553you’re your company has recently been incorporated, your corporation may file for S Corporation status anytime during the tax year within 75 days of your incorporation date. If, however, your company has been in effect for more than that time period, S Corporation election must be made by March 15, if the corporation is a calendar year taxpayer, in order for the S Corporation election to take effect for the current tax year. A corporation may decide to elect for an S corporation status, but this decision may not take effect until the following year.
  What Are The Requirements of an S Corporation?
There are the requirements to be met in order to elect an S Corporation status.
  1. The corporation must be formed first as a C Corporation.
  2. The corporation must have issued only one class of stock.
  3. All shareholders must be citizens or permanent residents of the United States.
  4. There can be no more than 75 shareholders.
  5. The corporation’s Passive Income cannot be over 25% of gross receipts.
  6. If the corporation pays taxes for fiscal year, rather than the calendar year, it must file for permission from the IRS.
Please consult your financial advisor for more details.
  What Are The Benefits Of Electing An S Corporation?
One of the major reasons people elect for an S Corporation status is because it allows the owner(s) or shareholder(s) to apply the corporation’s income and loss on the individual tax returns. The election of an S Corporation is favored under the following circumstances:
  1. The shareholder(s) earn less than maximum amount subjected to the Social Security tax ($90,000 for 2005).
  2. The shareholder(s) actively participate in the company.
  3. The corporation plans to distribute most of its annual profits to its shareholder(s).
The reasoning for above is that a corporation can pay the owner a reasonably small salary, which is subjected to Social Security and Medicare tax, and then the corporation can pay a large distribution of its profits, which are not subject to Social Security and Medicare tax (on the Schedule K-1 form. This may save the shareholder(s) up to 15.3% on Social Security and Medicare taxes.
  What Is Passive Income?
A Passive Income is income generated through investments. Examples of Passive Income would be stocks, bonds, equity-type investments, real estate, and et cetera. On the other hand, an Active Income is generated by services rendered, products sold, and et cetera. It is important that an S Corporation’s Passive Income does not exceed 25% of the corporation’s gross receipts over a consecutive three year period. Otherwise, the S Corporation can have the S Corporation status revoked by the IRS. If a corporation is expected to have substantial amount of Passive Income, an LLC may be a better choice. Please consult your financial advisor for more information.
  What Are The Differences Between S Corporation and LLC?
A Limited Liability Company (LLC) can be owned by corporations, other LLC’s, partnerships, trusts, and non-resident aliens. An S Corporation, however, can only be owned by citizens or permanent residents of United States. An LLC may offer different levels or classes of membership, while an S Corporation may only offer one class of stock. An LLC may have any number of members but an S Corporation is limited to a maximum of 75 shareholders. When a shareholder of an S Corporation is being sued for a personal matter, the shares of the shareholder can be seized, whereas an LLC shareholder’s shares are protected by provisions.
  What is a Limited Liability Company (LLC)?
A Limited Liability Company (LLC) is a separate legal 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 Kinds of Documents are Required to Form an LLC?
To form an LLC, the “Articles of Organization” must be prepared and filed with the state. You must also pay the filing fees, initial franchise taxes, and other initial fees must be paid to the state. After the "Articles of Organization" have been filed, your LLC should have an "Organizational Meeting" where a proper "Operating Agreement" is adopted, interest certificates are distributed, and other preliminary matters are completed.

Please note that INCFilings, Inc. provides services that can help your business with all necessary services to ensure that the administrative processes are complete.
  Do I Need an Attorney to Form an LLC?
An attorney is not a legal requirement to form an LLC. Anyone can prepare and file the “Articles of Organization”. However, professionals (like INCFilings, Inc.) are recommended since they have more knowledge in the requirements of your intended state of formation. However, if you are unsure of what type of business entity will best suit your business, please consult your accountant or attorney.
  What Should I Name My LLC?
The name of your business entity should be carefully selected. It is very important that the name portray the image you want for your business. Legally, the name you select must not be "deceptively similar" to any existing company or must be "distinguishable on the record" of your state. For example, if a business entity named 2 Brothers LLC exists in your state, you would probably not be allowed to name your business Two Brothers Limited Liability Company. It is also possible that the name you select will not be available. Therefore, please have a second name choice prepared in case your first choice has already been taken.

Additionally, most states require that the name you select show the type of your business entity. For example, if your business is a Limited Liability Company, the name of the business should include the words "Limited Liability Company," or LLC.
  How is an LLC Taxed?
A state-registered LLC can be taxed for federal income tax purposes as a partnership. Under the “Check-the-Box” rules, an LLC can elect partnership status to avoid taxation at the entity level as an "Association Taxed as a Corporation." If an LLC is not taxed as a partnership, it will be taxed at the entity level similar to a “Standard” or a “C Corporation”.

The state income tax treatment of LLC profits and losses may or may not mirror the IRS tax treatment depending on the state. For specific information on your state tax rules, please visit your state’s Web Site or consult your accountant.

*Please note: California LLCs are subject to an annual minimum franchise tax of $800 per year. The first payment must be made within 3 months of forming your LLC. The state of California will send out an invoice to help businesses to remember to make this payment on time.
  How Can an LLC Qualify for a “Pass-Through” Taxation?
If an LLC wants to qualify for a “Pass-Through” taxation, or an S Corporation status, it must meet certain requirements. To qualify, an LLC may not have more than two of the following characteristics.
  1. Limited Liability
  2. Perpetual Existence
  3. Free Transferability of Interest
  4. Centralized Management
An LLC will already have limited liability, and if the LLC is managed by manager(s), the LLC will have centralized management.
  What is the organizational structure of an LLC?
An LLC is owned by its member(s). The member(s) are similar to partners in a partnership or shareholders in a corporation, depending on how the LLC is managed. A member will more closely resemble shareholders if the LLC utilizes manager(s), since then the members will not participate in management. Member management is the normal default rule of state law.

This means that if managers are not selected in the "Articles of Organization", the member(s) will direct the affairs of the LLC since the member(s) will have a direct say in the decision making of the company. However, if the member(s) choose, they may elect a management policy to act in a capacity similar to a corporation’s board of directors. Thus, the manager(s) will be in charge of the affairs of the corporation. Also, the member ownership of an LLC is represented by their "interests," just as partners have "interest" in a partnership and shareholders have stock in a corporation.
  What are the Advantages of an LLC?
LLCs offer numerous advantages.
  • Pass-Through Taxation – which allows for “Pass-Through” taxation, which means that earnings of an LLC are taxed only once. The earnings of an LLC are taxed as earnings from a Partnership, Sole Proprietorships and most S Corporations.
  • Limited Liability – in which the liability of the member(s) is generally limited to the amount of money which each member has invested in the LLC. Thus, LLC members are offered the same limited liability protection as a corporation’s shareholders.
  • Flexible Management Structure and Flexible Ownership – which are similar to ordinary Partnerships, LLCs are generally free to establish any organizational structure agreed on by its member(s). Thus, profit interests may be separated from voting interests.
  What are the disadvantages of an LLC?
The disadvantages of an LLC are as follows:
  • Possibility of Losing “Pass-Through” Taxation status – is possible when the LLC is not properly structured
  • More Paperwork than Compared With Ordinary Partnership – since documents must be filed at the state level to create an LLC, which is not the case with a general partnership.
  • Dissolution Date – is required in some states to be listed in the “Articles of Organization”. The dissolution date may be amended later on if need arises. Furthermore, certain events, such as death of a member, a member leaving, bankruptcy, etc. can be a dissolution event.
  • LLCs as Newer Entity Type – the LLC is a newer type of business entity, and many people are not as familiar with the concept of an LLC compared to the concept of a Corporation.
  What is a Federal Tax ID Number?
A Federal Tax Identification Number, also known as an Employer Identification Number (EIN), is basically a social security number for businesses. It is the number the IRS uses to identify a business entity. Businesses can apply for an EIN by preparing IRS Form SS-4 and filing it with the IRS. Please note that INCFilings, Inc. provides services in preparation of and/or obtainment of your businesses’ EIN.

Also, certain states also require a State Tax Identification Number. To learn if your state requires a State Tax ID Number, please contact your state’s taxation authority or your accountant. Please note, INCFilings, Inc. do not provide services in preparation of and/or obtainment of your businesses’ State Tax ID Number. We apologize for this inconvenience.

Once the LLC has been formed and is ready to do business, the LLC should apply for an EIN in order to file tax returns, establish bank accounts, and etc.
  What is a Federal Tax ID Number?
A Federal Tax Identification Number, also known as an Employer Identification Number (EIN), is basically a social security number for businesses. It is the number the IRS uses to identify a business entity. Businesses can apply for an EIN by preparing IRS Form SS-4 and filing it with the IRS. Please note that INCFilings, Inc. provides services in preparation of and/or obtainment of your businesses’ EIN.

Also, certain states also require a State Tax Identification Number. To learn if your state requires a State Tax ID Number, please contact your state’s taxation authority or your accountant. Please note, INCFilings, Inc. do not provide services in preparation of and/or obtainment of your businesses’ State Tax ID Number. We apologize for this inconvenience.

Once the LLC has been formed and is ready to do business, the LLC should apply for an EIN in order to file tax returns, establish bank accounts, and etc.
  What are some of the Differences Between an LLC and an S Corporation?
Here are some of the differences between an LLC and an S Corporation:
  1. While the S Corporation status eliminates “Double Taxation", it lacks the flexibility of an LLC in allocating income to the owners.
  2. An LLC may offer several classes of membership interests while an S Corporation may have only one class of stock.
  3. Unlimited number of individuals or entities may own interests in an LLC. However, ownership interest in an S Corporation is limited to a maximum of 75 shareholders. Also, S Corporations cannot be owned by C Corporations, other S Corporations, certain types of Trusts, LLCs, Partnerships, and Non-Resident Aliens. Also, LLCs are allowed to have subsidiaries without restriction, while S Corporations are not allowed to own 80% or more of another corporation’s shares.
For more information on which business entity is best for your company, please contact your attorney or accountant.
  What is a Publication Requirement?
Few states require that a Notice of Formation to be published in a newspaper that when a Corporation or an LLC has been formed. States with this requirement include: Pennsylvania (Corporations only), Georgia (Corporations only), Arizona (Corporations and LLCs), Nebraska (Corporations and LLCs), and New York (LLCs only). Please note that the incorporating services provided by INCFilings, Inc. include the publication requirement for each of the above states except for New York LLCs.

Also, in New York State, all LLCs and Foreign Qualified business entities are required to publish a Notice of Formation for six consecutive weeks in assigned newspapers. The publication is made at the county level in two newspapers as assigned by the local county recorder. The cost of this requirement varies greatly based upon the county where the business is located. To comply with this New York requirement, please contact your local county recorder’s office and they will assign the newspapers. The county recorder’s phone number is located in the blue pages of your local phone book.
  What is an LLC Kit?
After an LLC has been legally formed and is ready to complete its organization, it requires an "LLC Kit" to complete its Operating Agreement, maintain certain of its required records, and to facilitate distribution of membership certificates.

INCFiling’s “LLC Kit” includes:
  1. LLC Seal – is a small press into which a document is placed to be embossed. The imprint made by the Seal indicates the LLC’s name, state of formation and the date of formation. An impression made by an LLC seal gives a mark of authority upon business documents.
  2. Operating Agreement
  3. Membership Certificates – are printed documents used to indicate ownership interest of an LLC.
  4. Book/Binder
  5. Miscellaneous Forms
The reasoning for above is that a corporation can pay the owner a reasonably small salary, which is subjected to Social Security and Medicare tax, and then the corporation can pay a large distribution of its profits, which are not subject to Social Security and Medicare tax (on the Schedule K-1 form. This may save the shareholder(s) up to 15.3% on Social Security and Medicare taxes.
  How Many Members are Required in an LLC?
Unlike a Corporation, which can have few members as one shareholder, most states require that an LLC consist of two or more members (owners). Recently, however, more states are allowing Single-Member LLCs. However, please note that the IRS may tax a Single-Member LLC differently than an LLC with multiple members by disqualifying the business for “Pass-Through” taxation.
  Are Members Responsible for LLC Debts?
Ordinarily, only the LLC entity itself is responsible for all of the company’s debts, thus protecting its members from individual liability. However, there are some exceptions where the individual members may be held liable. The exceptions are as follows:
  1. Guarantor Liability – is where an LLC member has personally guaranteed the obligations of the LLC, he or she will be liable. For example, if an LLC entity is relatively new and has no credit history, a prospective landlord about to lease an office space to the LLC will most likely require a personal guarantee from the LLC members before executing such a lease.
  2. Alter Ego Liability – is very similar to the judicial doctrine applied to corporations where a court may hold the individual shareholders liable when a business entity is an "Alter Ego" of its shareholders. Members of an LLC may also be held liable for the LLC’s debts if the court imposes an "Alter Ego Liability" doctrine.
  Is It Mandatory to Hold LLC Meetings?
Although a Corporation can be held liable for its failure in holding shareholder’s or director’s meetings and may be subjected to the “Alter Ego Liability”, this is not the case for LLCs in many states. For example, in the state of California, a LLC’s failure to hold meetings of its members is not usually considered as valid grounds for imposing the “Alter Ego” doctrine when the LLC’s “Articles of Organization” or “Operating Agreement” do not expressly require such meetings.
  Who May Vote in an LLC?
Ordinarily, voting interests corresponds directly with interests in profits, unless the articles of organization or operating agreement provide otherwise. Therefore, the LLC’s members may participate in votes.
  Can Members Sell Their Shares?
The ability of selling of one’s shares is described as “Transferability”. In most jurisdictions, no one can become a member of an LLC (either by transfer of an existing membership or the issuance of a new one) without the consent of existing members having a majority in interest (excluding the person acquiring the membership interest) unless the articles of organization provide otherwise. Also, existing members may sell their shares to other existing members.
  What is the Lifespan of an LLC?
Although many states now allow an LLC to have perpetual existence, LLCs were traditionally required to specify the date of the LLC’s termination. In most cases, unless otherwise provided in the LLC’s “Articles of Organization” or a written “Operating Agreement”, an LLC is dissolved at the death, withdrawal, resignation, expulsion, or bankruptcy of a member (unless a majority in both the profits and capital interests vote within 90 days of the incident to continue the LLC).
  Does an LLC Require an Operating Agreement?
To complete the formation of an LLC, members must enter into an “Operating Agreement”. An “Operating Agreement” may be formed either before or after the “Articles of Organization” has been filed, and the “Operating Agreement” may take the form of a verbal or written agreement in many states. However, written agreements are recommended.
  What is a Registered Agent?
In most states, a “Registered Agent” is required to be responsible for receiving and forwarding important legal and tax documents. This service is provided by an "Agent" of the business entity who is "Registered" with the state of the business. The “Registered Agent” must have a valid street address (Post Office Boxes or Mail Service Addresses are not allowed) within the state of formation, and be available during normal business hours to receive documents. Please note that INCFilings, Inc. also provides “Registered Agent” services for your business entity. Please ask one of our service associate for more details.
  What is the Purpose of a Registered Agent?
A “Registered Agent” acts as a representative in accepting the “Service of Process” served upon the business entity within the jurisdiction of any state where a company conducts its business. The “Service of Process” is broadly construed to include any legal proceedings, legal notices, or official government communications presented to the business entity while it is within the jurisdiction of a state. Almost all business entity conducting a business within a state must register to do business in that state, and designate and maintain a “Registered Agent”, and in some cases, even a registered office of the “Registered Agent”.
  What Would Happen if a Business Fails to Designate and Maintain a Registered Agent?
When a business entity fails to designate and maintain a registered agent, the failure may foreclose or hinder the business entity’s ability to legally enter into contracts and gain access to state courts. Additionally, the business entity may also be subjected to monetary, civil, and criminal sanctions. Also, the failure to maintain a registered agent may cause your company to fall out of "good standing" within the state. This will subject your license to do business within a state to forfeiture, with monetary penalties assessed to reinstate your company to a "good standing" again.
  What happens if my company fails to register or designate and maintain a Registered Agent?
When a business entity fails to designate and maintain a registered agent, the failure may foreclose or hinder the business entity’s ability to legally enter into contracts and gain access to state courts. Additionally, the business entity may also be subjected to monetary, civil, and criminal sanctions. Also, the failure to maintain a registered agent may cause your company to fall out of "good standing" within the state. This will subject your license to do business within a state to forfeiture, with monetary penalties assessed to reinstate your company to a "good standing" again.
  What is a Non-Profit Corporation?
A Non-Profit Corporation is an organization formed as a Corporation for purposes other than generating profits for its directors or officers, but rather, it is an organization established to produce profits for a religious, charitable, educational, literary or scientific purpose. Non-Profit Corporations are formed pursuant to state law, often under the Revised Model Non-Profit Corporation Act (1986). A Non-Profit Corporation can be a church or a church association, school, charity, medical provider, legal aid society, volunteer service organization, professional association, research institute, museum, or in some cases a sports association. Being formed with the state as a Non-Profit Corporation does not automatically provide an organization with tax-exempt status. Non-Profit Corporations must apply for tax-exempt status at the federal and sometimes at the state level.
  What Are the Steps in Forming a Non-Profit Corporation?
To form a Non-Profit Corporation, “Articles of Incorporation” must be filed with the state of the Corporation. The “Articles of Incorporation” must contain specific paragraphs (clauses) in connection with the nature of the organization’s activities in order to qualify your organization for tax-exempt status. Then, the organization must apply for tax-exempt status at the federal level (using IRS Form 1023) and sometimes at the state level. A Non-Profit Corporation must follow certain corporate formalities, including the adoption of “By-Laws”.

The organization also need to hold annual meetings of directors and officers. Please note that INCFilings, Inc. provides services in incorporating Non-Profit Corporations and our Non-Profit Corporation Kit contains all the necessary documents to assist your organization in complying with the corporate formalities. However, INCFilings, Inc. does not provide services in preparing IRS form 1023, but will provide the proper documents upon your request. Also, to file for tax-exempt status at the state level, please contact the state department responsible for taxation or contact your accountant.
  For What Purposes Can a Non-Profit Corporation Be Formed?
When a business entity fails to designate and maintain a registered agent, the failure may foreclose or hinder the business entity’s ability to legally enter into contracts and gain access to state courts. Additionally, the business entity may also be subjected to monetary, civil, and criminal sanctions. Also, the failure to maintain a registered agent may cause your company to fall out of "good standing" within the state. This will subject your license to do business within a state to forfeiture, with monetary penalties assessed to reinstate your company to a "good standing" again.
  • Religious
  • Educational
  • Charitable
  • Scientific
  • Literary
  • Testing for public safety
  • To foster national or international amateur sports competition
  • Prevention of cruelty to children or animals
  • Animal organization
A Non-Profit Corporation may also be formed for other purposes mentioned above, pursuant to different sections of the Internal Revenue Service Code. To qualify for federal tax-exempt status as a Non-Profit Corporation under a different section of the code, your organization must comply with the requirements of that federal tax code section.

Additionally, certain states require approvals from state departments prior to the formation of a Non-Profit Corporation. For example, in the State of New York it is often required to obtain one or several departmental approvals based on the business purpose of the prospective Non-Profit organization. There may also be additional time required to obtain these approvals, and additional fees charged in obtaining the approvals. Please note that INCFilings, Inc. provide services to obtain these approvals on behalf of your prospective Non-Profit Organization, and the fee is $100 per approval. Also, please contact your accountant to see whether your organization’s purpose is acceptable to be classified as a Non-Profit Corporation.
  How Many Directors and Officers Are Required For a Non-Profit Corporation?
Most of the states require a minimum of three directors. However, some states require only one director, including California, Colorado, Delaware, Iowa, Kansas, Michigan, Mississippi, New Hampshire, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia Washington, and West Virginia. Also, in the case of states like Louisiana, Massachusetts, Minnesota and Virginia, less than three directors are permitted if the Non-Profit Corporation has fewer than three members.
  When Should a Non-Profit Corporation Be Established?
A Non-Profit Corporation should be organized when the intent is to pursue a religious, charitable, educational, literary or scientific purpose permitted under 501(c)(3) of the tax code. The specific purpose of the Non-Profit Corporation must be properly set forth in its “Articles of Incorporation” so that the Non-Profit and tax-exempt status may be obtained.
  When Must the Form 1023 Be Filed?
IRS form 1023 should be filed within 15 months of the filing date of the Non-Profit Corporation. If the form is filed within this time period a Non-Profit status will be set retroactive to the original date of the incorporation.
  What Are Some of the Disadvantages of Forming a Non-Profit Corporation?
Here are some of the disadvantages of a Non-Profit Corporation:
  1. Increased number of paperwork is required.
  2. A limited number of purposes for which a non-profit may be established.
  3. Directors and officers are forbidden to receive financial gains.
  4. It is forbidden from participating in political campaigns or legislative activity.
Please consult your accountant or state agencies for more details.
  How Can a Non-Profit Corporation Apply for a Federal Tax-Exempt Status?
A Non-Profit Corporation must file for IRS form 1023 to qualify for 503(c)(3) federal tax-exempt status. The Form 1023 must be postmarked within 15 months after the end of the month of the date the “Articles of Incorporation” were filed. If it is approved, the tax-exempt status is effective retroactively to the date on which the “Articles of Incorporation” were filed.
  What Are Some of the Advantages of a Non-Profit Corporation?
Here are some of the advantages of a Non-Profit Corporation:
  1. Same Limited Liability protection as other For-Profit Corporations. Directors, Trustees, Officers, or members are typically not personally liable for the debts and liabilities of the Non-Profit Corporation.
  2. The Non-Profit Corporation’s life has perpetual existence.
  3. Retirement funds and qualified retirement plans (like 401k) can be more easily setup than For-Profit Corporations.
  4. Tax-Exempt status if filed and granted under 501 (c)(3) of the IRS Tax Code.
  5. Tax-Exempt Non-Profit Corporations may receive public and private grants.
  6. Individual donors can claim a federal income tax deduction of up to 50% of their donations made to 501(c)(3) Non-Profit Corporations.
  7. Savings on postal rates on certain bulk/mass mailings.
Please consult your accountant or state agencies for more details.