FAQ
You’ve got questions, we’ve got answers. Below are answers to some of the most common
questions regarding business incorporation. Scroll through our Business Incorporation
FAQ below, or click on any of the questions to jump directly to its answer. Or,
if you’re having any trouble with the terminology presented here, try taking a look
at our Corporate Definitions page.
General FAQ:
Corporations FAQ:
LLCs FAQ:
General FAQ
I want to start a business. What do I do now?
Congratulations! You’re one of a growing number of entrepreneurs who are tired of
the corporate status quo and have decided to take their future into their own hands.
You’re fulfilling the dream of owning your own business, you’re enthusiastic and
motivated, and you believe wholeheartedly that people out there will benefit from
what you have to offer. You’re doing your part to make the world a better place
for businesses and consumers alike. We salute you!
Now that you’ve made your decision, the next step is to familiarize yourself with
the kinds of businesses out there. If you don’t already know what kind of business
you want to form, you might want to head over to our page about starting
a business. Here you’ll learn some of the basics about C corporations, S
corporations, nonprofit corporations (including 501c3 nonprofits), limited liability
companies (LLCs), and DBAs. You can also check out our growing collection of
business startup information by state.
When you’ve decided on the entity type that works best for you, you’ll have a good
idea of the rest of the information you’ll need in order to form your business.
And if you’re ever confused about anything that isn’t covered under in the tabs
at the top of the page, our live support is available in real time
to help you out.
How do I determine the best kind of business to form?
There’s no one “best” kind of business; the best business for you is the one that
meets your specific, unique needs. For example, some kinds of businesses, such as
single-person DBAs (called sole proprietorships), have a low startup cost relative
to other kinds of businesses, but they offer no personal liability whatsoever—there’s
no legal separation between the business and the owner like there is with a corporation
or LLC, so if your sole proprietorship gets in legal trouble, you get in legal trouble.
Even between LLCs and the different types of corporations, liability and tax structure
varies; take a look at this comparison chart to get an idea of the
differences.
Why should I incorporate?
There are two primary reasons for incorporating your business. One is to limit your
personal liability for obligations and debts of the business—providing that you
follow the requirements that will keep your corporate veil intact.
To retain this corporate veil, you must run your corporation like a business, not
co-mingle your personal and business funds and not engage in criminal acts. By incorporating,
you generally can limit your potential loss to whatever you've invested in the business
and/or the businesses assets.
The second primary reason for incorporating your business is that incorporating
gives you a more professional image. Often investors, lenders, customers, and suppliers
may prefer to deal with a corporation or LLC because it seems better organized and
more substantial than an unincorporated business.
Other benefits of incorporation can include greater tax deductions for health insurance
and medical expenses, lower payments for social security and Medicare taxes, and
greater opportunity to raise capital for the business through the issuance of stock.
Do I need an attorney in order to incorporate?
No. By cutting the legal advice out of the typical incorporation service offered
by lawyers, we’re able to knock up to 90% off of the typical fee for incorporation.
Of course, it’s very important that you consult with a lawyer or legal advisor with
any questions about what is best for your specific situation. But once you know
what it is you need, just let us know and we’ll get it done quickly and affordably!
Visit our page on incorporating without a lawyer for more information
about this unique, money-saving approach.
Can I name my business anything I want?
There are a few factors you should be aware of when determining how to name
your business. For instance, the name you wish to use must be available
for use in your jurisdiction—it can’t be the name of another business already registered
in your state. But don’t worry—we’ll help you out. And while a name search for availability
is always the very first step when we begin processing a new order, we’re happy
to do a business name search for you on its own if you’d like to
know whether your name is available in your jurisdiction but you’re not quite ready
to register your business.
What’s an EIN? Do I need one?
An EIN stands for Employer Identification Number. Sometimes called a FEIN or Federal
Tax ID Number, this number will be used to identify your company with the IRS. Your
employees will need it in order to file their tax returns, and your company will
need it for a variety of situations, not the least of which being dealing with IRS
filings.
What’s a registered agent? Do I need one?
While you’re not required to be physically present in the state you wish to incorporate
in, the state does need someone on file who is physically located within the state.
Why? The registered agent is the point person for your company, and the contact
info is usually a matter of public record; your registered agent will receive correspondence
from the state, inquiries from the public, and service of process.
Do I have to live in the state I incorporate in?
Not at all—you may incorporate in any state of your choosing.
While an in-state registered agent is required, that registered agent does not need
to be an individual otherwise connected to the company. In fact, it doesn’t even
have to be an individual. Another incorporated business (other than the one you’re
in the process of forming) can act as your business’s registered agent, as long
as it has already been incorporated in that state. You can nominate your own, or
we can obtain a registered agent in any state you like on your behalf.
How do you know when you are doing business as a foreign corporation?
A corporation formed in one state will nearly always be subject to another state's
laws, including all taxes, if it is determined to be doing business in that other
state. If you have any uncertainty at all with regard to whether you are considered
to be “doing business” in another state, you should consult an attorney and/or contact
the Secretary of State's office of the state in question as early as possible. Most
states have a very short grace period, and if you are later determined to have been
doing business in another state after that grace period, you will likely be subject
to a late foreign filing fee—even, possibly, an annual late fee—that might over
time add up to hundreds of dollars.
Here are a few general examples to give you an idea of what might constitute doing
business in a state:
- A Minnesota corporation with an employee, warehouse, and office or mailing address
in Pennsylvania will generally have sufficient association with Pennsylvania to
bring it under Pennsylvania's jurisdiction.
- A California corporation, with an independent contractor salesperson operating in
Texas, where orders are taken in Texas then sent to the corporate headquarters in
California for acceptance and delivery, will generally not be considered as doing
business in Texas.
- Merely having a bank account in Iowa will not, by itself, raise sufficient nexus
to establish that you are doing business in Iowa. You are generally evaluated by
your level of human resource, capital, and asset investment in that state.
- Generally, mail order sales from Kentucky, mailed to a corporation in Oregon, will
not be sufficient nexus (connection) to raise Kentucky jurisdictions.
If you are still in doubt, it's important that you consult with an attorney experienced
in foreign corporation operating procedures.
Can I own a corporation or LLC if I am not a U.S. citizen?
Generally, there are no restrictions on foreign ownership of a company formed in
the United States. The procedure for a foreign citizen to form a company in the
United States is the same as for a U.S. resident. It is not necessary to be a U.S.
citizen or to have a green card to own a C corporation or an LLC formed in the United
States—however, a foreign citizen is restricted from owning an S corporation. For
a further explanation on this topic, as well as important tax differences between
the various entity types, take a look at our entity comparison chart
and information.
A foreign citizen generally may be a corporate officer or director, but he or she
generally may not work in the United States or receive a salary or compensation
for services provided in the United States unless the foreign citizen has a work
permit (either a green card or a special visa) issued by the United States. Some
work permits allow a foreign citizen to work only for a sponsoring employer. We
cannot provide immigration advice; please contact the U.S. Citizenship and
Immigration Services for more information.
Do I need a corporate seal for my corporate documents?
Absolutely not. Gone are the days of a corporate seal rendering a document any more
legal than it was before. That said, many corporations enjoy continuing the tradition
of using a corporate seal on official documents—while no longer a legal requirement,
a seal can lend a touch of class to your corporate paperwork.
Corporation FAQ
What is a corporation?
A corporation is a type of business entity that is more complex than a sole proprietor,
and also affords more personal liability protection. A corporation, once filed,
is considered a legal entity—a new legal “person,” in fact—able to enter into contracts
and agreements just as any other legal person can.
What are corporate bylaws?
Corporate bylaws are important documents that govern the internal workings of the
company. These documents establish the ground rules for such matters as voting,
when meetings are held, how officers and directors are elected or removed, and how
the company’s owners may transfer their ownership interests. Corporate bylaws are
typically are not filed with the state and exist as a reference for the corporation
and its shareholders.
What do shareholders do?
The shareholders of a corporation are the individuals, or other entities, that have
an ownership interest in the company. In many cases these people invested money
in company stock or in an ownership interest, providing financial capital for the
company to operate. Shareholders and members elect the Board of Directors, for a
corporation, or Board of Governors, for an LLC. In smaller companies, it is possible
for shareholders to serve on the board of directors.
What do I need to know about shares of stock? What is par value?
Shares of stock represent the percentage of a corporation a shareholder owns. Shares
of stock are written articles that represent the amount of money invested in the
corporation by an individual shareholder. The corporation determines, at the outset
of incorporating, how many shares it shall issue and what classes of shares (no
par, par, common, preferred, participating, etc.) it will issue.
Each share represents ownership in the company, and it entitles the holder to certain
types of rights (voting rights, dividends, and so on). A stock certificate is the
document which indicates the number of shares a shareholder of a corporation owns.
Par value is the minimum amount of money for which a share of stock can be sold.
Shares can always be sold for an amount greater than the par value. Stock that has
no par value has no minimal value assigned to each share of the stock.
The stock price is set by the board of directors of a corporation. Prospective shareholders
can purchase shares for money or obtain them in exchange for goods or services provided
to the corporation.
What do directors do?
The board of directors manages the corporation and makes business decisions. They,
in turn, choose the officers (President, Vice President, Secretary, and Treasurer),
whose responsibility it is to run the day-to-day operations of the corporation.
After I form a corporation, what are my continuing requirements?
Your corporation will have to file an annual federal tax return (IRS Form 1120 or
1120S). Annual tax returns are also filed by sole proprietorships (Schedule C to
IRS Form 1040), limited liability companies (IRS Form 1065), and general partnerships
(IRS Form 1065).
Almost all states require all business entities to file an annual report each year,
which updates the address of the corporation, its officers and directors, and its
registered agent for service of process. In most cases there is a small fee.
Finally, Click and Inc suggests that you consult your accountant for any additional
information required for filling out corporate tax returns, quarterly tax payments,
employment payroll records, etc.
Limited Liability Company FAQ
What is an LLC?
An LLC is a relatively new type of business; it is an incorporated entity that provides
limited liability to its owners, or members, and it has the unique opportunity to
elect the tax structure that best fits the LLC’s specific needs. Please visit our
page on forming an LLC for further information about this entity
type.
How do I form an LLC?
An LLC is formed by filing Articles of Organization with the Secretary of State’s
office. Certain information, such as the name of the LLC, the registered agent of
the LLC, and whether the entity is to be member-managed or manager-managed, will
be included in these Articles of Organization, and that information will be made
available, typically, to the public.
What do members do?
The members of a limited liability company are the individuals (or other business
entities) that have an ownership interest in the company—they are comparable to
the shareholders of a corporation. In many cases, these people invested money in
an ownership interest, providing financial capital for the LLC to operate.
Members may manage an LLC, or they may be simply financial contributors who have
no real control over the company.
What is an Operating and Member Control Agreement?
An Operating and Member Control Agreement, sometimes called simply the Operating
Agreement or LLC Operating Agreement, is the LLC version of corporate bylaws—an
internal document that lays out procedural information for the company.