Incorporation Setup
Setting Up Corporations
Corporations are a lot like shoes: Not everyone can wear the same size and not everyone wants the same style for different occasions. And sometimes it's better to go barefoot.
A corporation has been defined by the courts as a person created by the law. It can sue or be sued, hold property, hire or fire people who work for it or represent it, pay taxes, be fined, have contracts in it's name, and create articles of incorporation and bylaws which make it legal in the eyes of the law and which control how the company is run.
There are different kinds of corporations. You should find the one that's best suited to your business.
- (S) Sub Chapter S Corporations
An S Corporation is a corporation that meets certain federal tax guidelines. Chapter 1, Subchapter S, of the Internal Revenue Code permits smaller companies to avoid paying income taxes. In an S Corporation, the owners of the company (the shareholders) pay taxes on the income individually and may deduct losses the company has suffered individually. The U.S. Government limits the size and structure of an S Corporation.
A close corporation is owned by a few people, not a wider collection of shareholders. Close corporations are often used for family run businesses. Depending on state law, corporate decisions can be made informally, without having a meeting of the board of directors.
- (LLC) Limited Liability Company
A limited liability company with one member may be treated as a disregarded entity and one with multiple members may choose to be treeated as a partnership or a C corp. Such companies have the advantage of being able to have disparate ownership and to allocate disparate losses which do not have to match.
How do I form a corporation?
The easiest way is to call Greenberg & Lieberman. We will ask you the necessary questions and setup the entity without any hassle to you.
Corporations are formed under state law and each state has it's own way of doing things. Usually, a group of people get together and complete and file a form called a Certificate of Incorporation. They also have to draft Articles of Incorporation which explain what the company does and how it will be structured. They will have to determine how it will be financed, what kind of shares will be issued, and what those shares will be worth. They will have to decide what will happen to the assets or debts of the corporation if the corporation fails. The incorporators must then file the paperwork and a filing fee with the state.
What if I want to go barefoot?
In some cases, a corporation is not the best way to do business.
A person may elect to operate as a sole proprietor, making all the decisions and carrying all the liability and responsibility alone.
A few people may get together and form a partnership. In a partnership, a small group of people agree via contract to run a business. They each contribute property, knowledge, skills or "sweat equity" to the business, and they each gain the benefits (or suffer the losses) of business.
A limited liability company (LLC) is also an option. In an LLC, the owners have many of the same liability protections that officers of a regular corporation have, including protection of their personal assets from debts and taxes. An LLC may be treated like a partnership or like a corporation by the IRS.
Confused yet?
The thumbnail descriptions above only scratch the surface of corporations. Unlike buying shoes, you have to do more than find the best fit. You have to know the tax and liability ramifications, state requirements and much more.
When in doubt, trust the experts.
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