The following Quick-Guide was created to offer a brief overview of the formation process as well as some answers to the more common questions entrepreneurs ask with respect to forming their new companies. Note that this is merely a short summary and is in no way a substitute for legal advice.* While Natoli-Legal, LLC certainly welcomes the opportunity to work with you, we strongly encourage you to seek qualified advice and guidance with this process even if it is not provided by us.
The information offered in this guide should serve as a good first step in understanding the process. Note also that our “Start-Up” formation package comes with a customized and detailed Guide-Letter that walks you through some of the important operations and procedures, not addressed here, that you are required to adhere to in order to keep your company in good standing. Further, some information herein, such as state filing fees, etc., is subject to change and should be verified before relying on it. After you review this information, we encourage you to contact us to set up a brief consult so we can address any other questions or concerns you may have and to begin the process to create your new enterprise!
- Keep detailed records and proper minutes of meetings
- Appoint independent officers and directors
- Never comingle funds (keep separate bank accounts and accounting procedures)
- Always follow your own corporation’s bylaws or LLC’s operating agreement
- Owners of a corporation are obligated to pay creditors before distributing profits
- Courts may require companies to give back distributions of profits made to owners in lieu of paying creditors
- Sign all documents as a representative of your entity and NOT personally
- Make sure to identify your INC or LLC status on all your identifying materials (business cards, letterhead, advertisements, websites, etc.).
- Pay taxes, file reports, and make sure your Registered Agent account is current
- Seek help if you can, or at least make sure to follow your State’s procedures
- Failure to dissolve properly can result in debts being imputed to you personally
- Protection from personal liability for company debts and obligations
- Reliable body of legal precedent to guide owners and managers
- Corporations are the best vehicle for eventual public companies
- Easier to raise capital through the sale of securities
- Easier to transfer ownership through the transfer of securities
- Unlimited life
- Creation of tax benefits under certain circumstances
- Corporations require owners and directors to observe certain formalities
- More expensive to set up than partnerships and sole proprietorships
- Corporations require periodic filings with the state and much higher annual fees
- Some jurisdictions require a minimum capital investment in order to form
- DOUBLE TAXATION!
- LLCs do not require annual meetings and require few ongoing formalities
- Owners are protected from personal liability for company debts and obligations
- LLCs enjoy partnership-style, pass-through taxation, which is favorable to many small businesses
- LLC law is just becoming more reliable as time passes, but not as developed as Corporate Law
- Not recommended for businesses seeking to become public in the short-term, or to raise money in the capital markets
- Usually requires periodic filings with the state and annual fees
- Some states do not allow the organization of LLCs for certain professions
- Shareholders must number fewer than 100, and all shareholders must consent in writing to the S-Corporation election
- Shareholders must be individuals, estates, or certain qualified trusts (not other Corporations)
- Shareholders cannot be non-resident aliens
- S-Corporations can have only one class of stock (disregarding voting rights)
DELAWARE
Advantages Disadvantages Inexpensive corporate franchise tax - $35.00 for most companies Overly complicated franchise tax form – you will need to calculate using complicated formula DE law allows directors a shield from personal liability resulting from their actions as directors DE has yet to advance their website to include more user friendly features DE has the Court of Chancery and a very highly developed body of Corporate Law Corporations enjoy a great degree of anonymity No minimum capital investment required to form a DE corporationNEVADA
Advantages Disadvantages NV has no low corporate taxes; no corporate income tax; no tax on corporate shares and no franchise tax. While NV is lower than DE, there is an annual fee due with the report of officers NV requires that you to select and name your initial directors in your articles of incorporation thus mitigating privacy NV law allows a great deal of protection to corporate officers and directors from personal liability resulting from “lawful” corporate duties There is often an unpleasant stigma attached to NV corporations because it is often used as the state of choice for unscrupulous firms seeking to hide assets, etc. NV offers a great deal of anonymity and privacy NO information sharing with the IRS (for LLCs – this means no state required 1065 Forms (only required for federal income purposes)WYOMING
Advantages Disadvantages No information sharing with the IRS No Prestige – such as DE (at least not yet) Great privacy with minimal disclosure requirements for officers and directors Voted “the most business friendly tax system” by the not-for-profit: The Tax Foundation Tremendous flexibility with very low periodic fees and reporting burdens (which make it slightly more attractive than NV) Just a Quick Note on New York and California Both of these states are incredibly burdensome and expensive to organize in. New York requires a minimum franchise tax for LLCs of $335 up to $10,000 depending on the number of members. It also requires an absolutely draconian “publication” requirement for all newly formed LLCs. This requires new LLCs to post a notice in two local publications for six weeks and can cost up to $1,500. It must be done within (approximately) 4 months of filing. On the corporation side, NY poses a myriad of fees and taxes (maintenance, license, organization, etc.) making the environment very unfriendly for business. California is not much better, and it imposes the highest minimum tax in the nation for C-Corps, S-Corps and LLCs at $800. It also imposes its 1.5% franchise tax on LLCs as well as corporations. At present, this is being fought in court as unconstitutional as against LLCs. It is possible that it may be repealed. As a general rule, for smaller companies doing business in only one state, it is still recommended that if your state happens to be NY or CA that you still consider organizing there. But, for many new companies understand that you have options and you should explore them thoroughly before making a decision. This why we are here to help!Contact us for a free consultation
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Experience: Over 15 years of Entrepreneurial, International & Small Business Experience
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Support: Our clients enjoy a great amount of guidance and ongoing support