How to Incorporate or Form an LLC

Reference Guide

Guiding You Every Step of the Way

LLC

S-Corporation

C-Corporation

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Table of Contents
Why The Company Corporation............................................................................................................................................1 How to Incorporate or Form a LLC ...................................................................................................................................... 2 Step 1: Assess Your Needs ...................................................................................................................................................... 3 Step 2: Choose a Business Name ......................................................................................................................................... 4 Step 3: Choose the State Where You Will Incorporate or Form Your LLC ............................................................... 5 Step 4: Decide What Type of Company to Form (LLC or Corporation) ....................................................................7 Step 5: For LLCs Only .................................................................................................................................................................8 Step 6: For Corporations Only ................................................................................................................................................9 Step 7: Let The Company Corporation Handle it for You .......................................................................................... 11 Other Services The Company Corporation Can Help You With .............................................................................. 13

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Why The Company Corporation

For more than 100 years, companies big and small have trusted The Company Corporation and its parent company, Corporation Service Company, to meet their business compliance needs. We have o ces in all 50 states and the District of Columbia. We can prepare and le your formation and regulatory documents faster than anyone in the business. The Company Corporation doesnt just help businesses incorporate - we also specialize in helping customers meet their compliance needs after theyve incorporated. By working with thousands of customers over the years, weve learned the ins and outs of compliance management. Our services allow our customers to focus on growing their business, while we focus on their compliance requirements and the formalities of running a business. For more information on The Company Corporation and how we can help you with any of the items in this guide, contact us at any time using one of the following methods: Website: www.incorporate.com Phone: 866-963-7593 Email: compliancehelp@incorporate.com

***DISCLAIMER The services and related information provided by The Company Corporation (TCC) do not constitute legal advice, but rather serve as general information to help you manage your business. TCC is not a law rm and our services and information are not a substitute for the assistance of an attorney or nancial advisor.

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How to Incorporate or Form a LLC

Dear Business Owner, Congratulations! By requesting this guide from The Company Corporation, youve taken the rst step toward incorporating your business. As you may know, thousands of business owners around the country each day put their personal assets at risk by operating as sole proprietorships. Incorporating or forming a limited liability company (LLC) is an easy, fail-safe way to separate your personal assets from your business assets. When we refer to incorporating, we mean the act of creating a new corporation or the formation of a Limited Liability Company (LLC) under the laws of a particular state. This guide will help you understand the bene ts of incorporating, the di erences between corporations and LLCs, and the process for forming your own business. We promise to make that process as smooth as possible. Weve helped hundreds of thousands of business owners just like you reach their goals. Visit us online at www.incorporate.com or call 1-800-209-0128 to speak with a Business Specialist over the phone for more personalized service. Lets get started. Sincerely, David Gilardi P.S. Keep in mind that The Company Corporation is a service company and does not provide legal or nancial advice.

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Step 1: Assess Your Needs

Youve come up with a great idea for a business, and written a solid business plan. Now what? Its time to choose the legal form of your business. This choice matters from Day Oneselecting the right form of business can protect you from tax liabilities and potential legal problems. This may sound easy, but the most obvious form of business isnt always the right one for you. For example, even if youre a solo business owner with no partners or employees, forming a sole proprietorship isnt necessarily the wisest decision. Before you investigate the business entity options available to you, whether sole proprietorship, general partnership, corporation or LLC, here are some things to think about.

Issues to Consider
1. Do you want to protect your personal assets (your home, car, savings, etc.)? 2. Does your business sell goods or services to the public and/or other businesses? 3. Does your business bring customers into your store, o ce or home o ce? 4. Are you entering into a business with family or friends? 5. Do or will you have employees? 6. Do or will you have business partners? 7. Do or will you have investors and shareholders? 8. What kinds of shareholders do you want in your business? Will they have decision-making power? 9. Would you like the option to raise capital through the sale of stock? 10. Do you want to be able to deduct business expenses?

Yes

No

Take notes as you consider these questions. This will make it easier to start the process of incorporating or forming an LLC by calling a Business Specialist at 1-800-209-0128 or visiting us online at www.incorporate.com.

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Step 2: Choose a Business Name

The name of your business can mean the di erence between success and failure. In todays global market, where Internet searches and social media are key to a companys marketing strategy, a business name thats hard to remember, say or spell can cripple your new company before it ever gets o the ground.. As you evaluate possible business names, ask yourself: t
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Does this name convey what my company does? Will this name appeal to my target customers? Does this name re ect the brand image Im seeking to create? Will the name carry my company through the years if I decide to expand or shift focus? (Planning ahead is why Je Bezos called his company Amazon.com, and didnt include the word book in his company name.)

Once you have a name in mind, the next step is making sure no one else is already using it. Todays customers go online rst when looking for a businessand thats what you need to do, too. Ideally, you want to own your business name as your domain name (or URL). Visit GoDaddy.com to see if your chosen business name has already been registered or if its available. If the domain name is not available, you may want to consider a di erent business name that is available. After purchasing your URL, its time to register your business name with your state. Every state has its own set of procedures to follow; visit your states Secretary of State website to learn more. You will probably need to le a DBA (Doing Business As), too. DBAs are used by sole proprietors and general partners who want to do business using a name other than the owners personal name. Even if you plan to incorporate your business or form an LLC, most banks require a DBA in order to open a business bank account. The Company Corporation can help register your name in your state and complete DBA registrations for corporations, limited liability companies (LLCs), and some sole proprietorships and partnerships. Call our Business Specialists at 1-800-209-0128 or visit us online at www.incorporate.com for assistance. Registering your business in your state is not enough to protect your business name. You must also trademark your name with the U.S. Patent and Trademark O ce before someone else does. If you dont and someone else trademarks or begins using the same business name, you could lose the rights to your name. That means youll have to change your business name and start all over with your branding process. The Company Corporation can also guide you through a trademark search. Simply call a Business Specialist at 1-800-209-0128 or visit us online at www.incorporate.com for help.

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Step 3: Choose the State Where You Will Incorporate or Form Your LLC
The state where your business is physically located (or headquartered, if you will have locations in multiple states) is your home state. However, some business owners choose to form a corporation or LLC in a state other than their home state, such as Nevada or Delaware. You may want to incorporate outside your home state in order to enjoy lower corporate tax rates or a simpler incorporation process, for instance. However, incorporating or forming your LLC in another state doesnt release you from meeting your tax and legal obligations in the state in which you do business. To be sure you dont land in hot water, become familiar with your home states tax laws. Consult the Business Specialists at The Company Corporation for help; simply call 1-800-209-0128. Once youve chosen the state where you will incorporate or form your LLC, here are some additional documents you may need: Business License: Just about every business needs a city or county business license to conduct business legally. There may also be state or federal licensing requirements, depending on your type of business. Fees vary depending on your location, so check with your city or countys business license department to see what licenses are required. If youre running your business from home, you also need to make sure your neighborhood is zoned for a home business. Even if customers wont visit your business and you use a post o ce box as your business address, youll need to register a street address and pay the licensing fees for that city. State License: State licenses are usually required for personal or professional service businesses like accounting, contracting or cosmetology that have speci c industry standards. Depending on the nature of your business, you may need to register with the state to collect and pay sales or use taxes. Check with your states Secretary of State website to see what state licenses your business needs. Federal License: Federal licenses are required for businesses that are highly regulated by the federal government, such as ground transportation, preparing meat products, manufacturing alcohol or tobacco or providing investment advice. Contact your industry association or visit the Small Business Administration website at www.sba.gov for more information on federal business licenses. DBA: If youve chosen to have an alternate business name, called a Doing Business As (DBA), youll need to register the DBA with your state and local government. You need to le the DBA so you can legally conduct business under a di erent name than whats on your original incorporation documents.

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EIN or Tax ID: Think of an EIN (Employer Identi cation Number) or Tax ID number as your businesss Social Security number. It identi es your business on government documents and is necessary if you have (or plan to hire) employees, operate as a corporation or partnership, le tax returns or o er any sort of retirement plan. In addition, other businesses will often require that you have an EIN in order to do business with them. Certi cate of Good Standing: Also known as a Certi cate of Existence or a Certi cate of Authorization, this document is proof your company is authorized to transact business in its home state, is in compliance with state laws and regulations, is up to date on all payments owed to the state and has led all required documents with the state. Find out how to apply by visiting your Secretary of States website or searching online for the Department of Corporations in your state. The Company Corporation can help you obtain all the documentation your business needs, including business licenses, a Certi cate of Good Standing, and an EIN or Tax ID. Simply contact our Business Specialists at 1-800-209-0128 or visit www.incorporate.com and sign up to have The Company Corporation le the proper forms and applications for you.

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Step 4: Decide What Type of Company to Form (LLC or Corporation)

Selecting the right legal structure from the beginning of your business can save you headaches and nancial hassles down the road, so choose wisely. Both corporations and LLCs o er protection from personal liability in case of business bankruptcy or judgments against your company, but there are some signi cant di erences. Corporations and LLCs provide tax savings as well. Consult with your tax adviser to determine how your tax liability may improve. Here are some key points to know. A corporation must le articles of incorporation with the state. The owner and shareholders are not personally or nancially responsible for the debts or responsibilities of the corporation. The shareholder is responsible only for his or her investment; however, if there are any dividends, the shareholder may be taxed on pro ts received. The corporation pays taxes on its pro ts and can claim business losses on its tax returns. Corporations can take tax deductions for o ering bene ts such as health insurance, life insurance and retirement plans, as well as for business travel and entertainment. As a separate legal entity, the corporation will continue to exist even after the death of a shareholder or transfer of the shareholders shares. Because the corporation is a permanent structure, incorporating adds credibility to your new company, especially when youre trying to woo investors or lenders. The corporate structure also protects any shareholders from personal liability, which can make investing more attractive to them. A Limited Liability Company (LLC) must le similar articles of organization with the state, but o ers a more exible management structure than does a corporation. Unlike a corporation, pro ts and losses pass through the LLC and are reported on each owners individual tax return. Since outside shareholders may not appreciate this taxation, especially if they are not realizing any dividends from the business, the LLC is better suited to a business where all shareholders are actively involved in operations. If there is only one owner, the companys income can be reported on the individuals Schedule C. If there is more than one owner, the individuals are treated as a partnership for tax purposes and le Form 1065.

At a Glance: LLC vs. Corporation

Advantages of a LLC No limit on the number of owners. Pro t and loss are passed through to the owners individual tax returns. No annual meeting or minute book requirements. Disadvantages of a LLC Cannot engage in corporate income splitting to lower tax liability. Cannot issue stock. Disadvantages of a Corporation Double taxation of corporate pro ts and shareholder dividends. Must hold annual meetings and record minutes. S Corporations have restrictions on number of owners. Advantages of a Corporation May issue shares of stock to attract investors. Corporate income splitting may help lower overall tax liability.

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Step 5: For LLCs Only

After comparing business entity options, many business owners choose to form a limited liability company (LLC). Like a corporation, an LLC is a good way to wall o your personal assets from your companys liabilities, o ering protection for your personal assets in the event of a judgment against your business. For this reason, its a better t for many one- or two-person businesses than a sole proprietorship or a general partnership. In addition to the tax advantages mentioned earlier, an LLC also o ers more operating exibility than a corporation. In many states, LLCs can be organized and operated however the business owners wish. You can decide which corporate characteristics you want, which tax structure you want to use, and which rules and regulations to follow in your business operations. Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no residency requirement, so owners/members need not be U.S. citizens or permanent residents. There is no maximum number of members, and most states also permit single member LLCs (those having only one owner). All of this can o er greater exibility if you are hoping to raise capital from investors. In addition, partners, suppliers and lenders tend to look more favorably on your business when youve formed an LLC. Use the Business Startup Wizard or call the Business Specialists at The Company Corporation can help you determine if an LLC is right for you. Just call 1-800-209-0128 or visit www.incorporate.com.

LLC Terms to Know

Articles of organization: Also known as articles of formation, this is the document you must le
in many states to register a limited liability company (LLC).

Domestic limited liability company: A limited liability company organized under the laws of
the state in which the LLC plans to conduct business. See foreign limited liability company.

Foreign limited liability company: A limited liability company organized under the laws of a state
other than the state where it plans to conduct business. See domestic limited liability company.

Member: The owner(s) of a LLC. Operating agreement: The contract among the members of the LLC that guides the companys
membership, how the business is managed and operated, and how income is distributed.

Single member LLC: A LLC owned by one person or entity. The Internal Revenue Service treats a
single member LLC as a disregarded entity, meaning the entity does not le a return and all pro ts and losses are reported on the LLC members return.

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Step 6: For Corporations Only C Corporation

The most common type of corporation in the U.S. is the C Corporation. By forming a C Corporation, business owners create a separate legal entity that helps shield their personal assets from judgments against the company. The C Corporation structure includes shareholders, directors and o cers. The advantages of a C Corporation include: t
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Limited liability for directors, o cers, shareholders and employees Perpetual existence, even if the owner leaves the company More credibility among suppliers and lenders Unlimited growth potential through the sale of stock No limit on the number of shareholders, although once the company has $10 million in assets and 500 shareholders, it is required to register with the SEC under the Securities Exchange Act t
Certain tax advantages, including tax-deductible business expenses The C Corporation structure does have some drawbacks. For instance, a C Corporations pro ts are taxed when earned and taxed again when distributed as shareholders dividends; this is known as double taxation. Shareholders in a C Corporation cant deduct any corporate losses. If you want those deductions, you may prefer to form an S Corporation instead.

S Corporation
An S corporation pays no federal income taxes; instead, the businesss income and losses are passed through to shareholders, who must then report the income and losses on their personal tax returns. This method is considered single taxation. While it may sound smarter to form an S Corporation so you are taxed only once, S Corporation shareholders are taxed for any income the company has, even if they did not receive a portion of that income. (A C Corporation shareholder, in contrast, is taxed only if dividends are issued.) Also, S Corporation o cers must be paid a reasonable salary even if the company is not making a pro t. An S Corporation may pay owner/employees dividends as well as a reasonable salary which may lower the owner/employees payroll taxes. Not every business can register as an S corporation. Here are some requirements: t
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The company must have a minimum of one shareholder and a maximum of 100 shareholders. The company can have only one class of stock. All shareholders must be U.S. citizens. The company must incorporate as a regular corporation in its home state, then le IRS Form 2553 to choose status as an S Corporation for federal tax purposes.
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Need more help determining whether an S or C Corporation is right for you? Call a Business Specialist at 1-800-209-0128 or visit www.incorporate.com.

Corporation Terms to Know

Articles of Incorporation: Also called the certi cate of incorporation or corporate charter, this is
the document you must le in many states to incorporate.

Bylaws: The rules adopted by the corporation that govern its actions and the rights and duties of
corporate members and o cers.

Foreign corporation: A corporation that is formed in one state or country but does business in
another state or country.

Minutes: Corporate minutes are written records of actions taken or authorized by a corporations
shareholders or board of directors.

Shareholders: Shareholders (also known as stockholders) are the owners of a corporation based
on their holdings. They own an interest in the corporation rather than speci c corporate property.

Voting Rights: The shareholders rights to vote their shares, which are governed by laws as well as
by the corporations bylaws and articles of incorporation.

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Step 7: Let The Company Corporation Handle It for You

Incorporating or forming an LLC can be complex, and lets face it, at startup, dont you have a lot of other challenges to worry about? Let The Company Corporation make it easy for you. Simply call our Business Specialists at 1-800-209-0128 or ll out the order form at www.incorporate.com. Well handle the rest. The Company Corporation will prepare all the documents you need to form a corporation or LLC, review them for accuracy and submit them to the state for you. When the state returns your o cial LLC or corporate documents to us, well review them for accuracy again before forwarding them to you. Its easy, fast and a ordable.

Get the $50,000 Corporate Veil Guarantee!*

The Company Corporation is the only company that provides a $50,000 Corporate Veil Guarantee.* Simply follow our step-by-step guide after you incorporate or form your LLC, and if your company is sued and your corporate veil is pierced, well reimburse you up to $50,000 in legal fees. Simply choose the package that is right for your needs and budget. Payment is easywe accept credit cards, checks and money orders.

Step 7: Choose a Package

Economy Package (starting at $9) We prepare and le the Articles of Formation for your new company. Expedited ling service, if applicable. Company Name Search and reservation. 6 months of Registered Agent service. Free subscription to our quarterly e-newsletter. $50,000 Corporate Veil Guarantee.TM 6 months access to Compliance Watch an online tool and e-mail alert system to help you manage government and legal requirements. Basic Package (starting at $79) Complete Package (starting at $99)

Includes Economy package contents plus:

1 full year of Registered Agent service. Expedited Shipping via FedEx (once documents are received back from the state. Free publications - The Corporate Minutes Book or LLC Handbook. Corporate Kit including: Leatherette Zipper Binder Digital Media Holder Business Card Holder Custom Brass Nameplate on Face Custom Mark Maker Embosser 10 Custom Stock Certi cates Custom Cover Sheets Set of 12 Tab Dividers Mylar-Reinforced Ledger Set 1 full year of access to our exclusive Compliance Watch service.

Includes Basic package contents plus:

TCC priority Handling. Obtain Federal Employee ID Number (EIN). Application for S-Corp Election Form 2553 (optional). 3-Book Legal & Tax Reference Library: Legal Forms for Starting & Running a Small Business (with 60+ forms & CD-ROM) Tax Savvy for Small Businesses (includes 18 forms) Legal Guide for starting & Running a Small Business

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If you have any questions, a Business Specialist will be happy to answer them for you. Just call 1-800-209-0128. *View Corporate Veil Guarantee details, terms and conditions at our website, www.incorporate.com. Congratulations! Youre ready to form a business entity. Simply put, youre ready to go through the process that enables you to legally add Inc. or LLC to your business name. Not only will this help strengthen the credibility of your new business, it will also help protect your personal assets and can provide tax advantages.

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Other Services The Company Corporation Can Help You With

After you form your corporation or LLC, there are many rules you must follow and documents you must le to remain in compliance and keep your corporation or LLC in good standing. The Company Corporation can guide you at every step of the way. Here are some of the services we can help you with as your company grows: t
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Obtaining an Employer Identi cation Number (EIN). Obtaining a Business License. Continuing Registered Agent Service. DBA/Fictitious Name. Trademark Search Registering your business with other states or a Foreign Quali cation Corporate and LLC Amendments Operating Agreements Bylaws Compliance Coaching to help you follow state rules and regulations Corporate kits and supplies for your existing corporation or LLC Certi ed copies of corporate and LLC documents and certi cates including: Certi cates of Good Standing Corporate or LLC Amendments Articles of Incorporation or Certi cate of LLC Formation Annual Reports Apostilles for Hague Convention countries Cancellation or Dissolution

For more information, or to order the services above: Visit us: www.incorporate.com Call: 1-800-209-0128

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