/Incorporating a Business

Foreign Qualifying your Business – FAQs

Happy February! With winter now in full swing, we will be talking about a way to get away from the cold with Foreign Qualifying! This month, we discuss the opportunities of Foreign Qualification into another state and what the requirements are for those states.

 

Q: What is foreign qualification?

A: A corporation or LLC transacting business in a state(s) outside of their state of incorporation is typically required to foreign qualify in those other states.

 

Q: What constitutes transacting business in another state and when do I need to foreign qualify?

A: As examples, your company is considered to be transacting business in an additional state if…

  • You have a physical presence in the state
  • You have employees in the state
  • You accept orders in the state
  • You have a bank account in the state

State rules vary and this isn’t a complete list. If you have any questions about whether you need to foreign qualify in a state, you can speak with an attorney.

 

Q: If I incorporated in Delaware or Nevada (but don’t live/work there), does this mean I need to foreign qualify in my own state?

A: Delaware is often chosen as the state of incorporation, especially by larger companies, because it has the most developed and flexible corporate statutes in the country and is considered pro-business.  Nevada has also become popular because of its lack of state corporate income tax, franchise tax and personal income tax.  It also has relatively low fees.

However, if you incorporate out-of-state, such as in Delaware or in Nevada, but do much of your business in your home state, you will most likely need to foreign qualify in your own state. You will then be subject to the same fees, taxes and regulations as if you had incorporated there in the first place, and you will have paid filing fees (and, perhaps franchise taxes) to more than one state.

Example: If you have a small business and are going to be conducting a substantial amount of your business in California, it will likely be beneficial to incorporate in the state of California. If you incorporate out-of-state, such as in Delaware or in Nevada, but do much of your business in California, you will have to foreign qualify in the state of California. You will then be subject to the same fees, taxes and regulations as if you had incorporated in the California in the first place, and you will have paid state filing fees (and, perhaps franchise taxes) not only in the state of California but also to the state of Delaware or Nevada as well.

 

Q: What is the process to foreign qualify?

A: You will need to file a Certificate of Authority, which grants a foreign corporation/LLC permission to transact business in a state. In most cases, you will need to show a Certificate of Good Standing from your state of incorporation/formation in order to get a Certificate of Authority.

 

Do you have a question regarding Foreign Qualifications? Call the CorpNet.com team today for a free business consultation at: 888.449.2638

 

 

What Every Small Business Should Know About 1099s

Every year when tax time rolls around, I field questions from business owners about whether or not they need to send 1099s to their vendors. As common as 1099 forms are, they remain one of the most misunderstood Internal Revenue Service (IRS) requirements.

To make sure you understand the circumstances under which the IRS requires issuing 1099-MISC forms to vendors, I’m going to provide some basic “must-know” information here.

What Is A Form 1099-MISC?

You must issue an IRS Form 1099-MISC to each person you’ve paid $600 or more in services (including parts and materials), prizes and awards, rents or other income payments. The 1099-MISC only applies to payments you made in doing business; it does not apply to payments made for personal purposes.

To Whom Do You Need To Send A Form 1099-MISC?

If your business paid more than $600 to a vendor or sub-contractor [individual, partnership, Limited Liability Company (LLC), Limited Partnership (LP), or estate], you are required to send a Form 1099-MISC to document what you paid them throughout the year. In general, anyone who worked for you—other than your employees—will need a 1099 from you.

Also, unless an exception applies to them, you need to issue a 1099 to your landlord if you are paying rent for business purposes. You must also issue a 1099-MISC to your attorney if you paid for legal services that amounted to more than $600 during the year.

Are There Any Exceptions?

There are. The list is rather long, but most commonly these types of vendors do not get 1099-MISC forms:

Also, you don’t have to send 1099-MISC forms to vendors to whom you made your payments via a credit card, debit card, gift card, or a payment network like PayPal. The onus to report vendor compensation is on those payment companies.

How Do You Figure Out If A Vendor Needs A 1099 From You?

I recommend before you request vendors to do any work for you, ask them for a completed W-9 form. The W-9 will give you all the information you need for filing taxes. It supplies a vendor’s mailing information, Tax ID numbers, and business structure (so you’ll know if the vendor is incorporated or not and does or does not need a 1099).

When Is the Deadline To Send 1099s?

By January 31, 2017, you must do two things to comply with your 2016 tax year 1099 obligations:

  • Submit Form 1099 to each vendor (reflecting what you paid that vendor in 2016).
  • Submit a copy of the Forms 1099 you sent to each vendor, along with a Form 1096 that discloses in total what you paid to all vendors who received 1099s from you.

Make sure you check on your state’s rules, too. Some states require they also receive your 1099s.

What Happens If You Miss The Deadline? 

Sending the required 1099-MISC forms late (or not at all) could cost you. The penalties vary depending on how far past the deadline you wait to issue the forms. If your business had gross receipts of $5 million or less, the amount you’re smacked with could range anywhere $50 to $260 per form (for tax years 2016 and 2017). If you’re caught intentionally not providing a payee with a correct statement for tax year 2016, you could face a fine of $520 for each form not submitted (that amount will increase to $530 for tax year 2017).

Where Can You Get 1099 Forms?

Unfortunately, you cannot download 1099 Forms from the IRS website. You can, however, order them from the IRS site and have them mailed to you, or you can pick them up at an IRS service center, post office, or another location that supplies them.

Eliminate Headaches—Do It Right From The Start!

Whether you’re in the early stages of launching a startup or already running a small business, I recommend you talk with a tax professional who can share more details about 1099s and the other aspects of filing your tax returns.

Starting a business or ready to change your current business structure? Contact us about making the registration process hassle-free and as fast as possible. We’re here to handle all of your legal document filing needs!

Should You Buy A Business Or Start One From Scratch?

Hope your New Year is off to a great start! As you’re looking to make 2017 a year of prosperity, have you set your sights on becoming a business owner? If so, you’re probably wondering whether buying an existing business or starting your own company will offer the best chances of success.

Both have their advantages and challenges, so how do you choose? I wish there were an easy answer, but I’m afraid you’ll need to do some research and put some serious thought into your decision. As you explore your options, consider the following pros and cons of starting a business from scratch and buying an established one.

Pros Of Starting From Scratch
• You begin with a squeaky clean slate, establishing and building your brand reputation from Day 1.
• You build your team fresh and new, selecting the right people for the right positions.
• You create your workflows to maximize productivity, without having any inefficient past processes to “fix.”
• You choose and develop the products, services, and packages you’ll offer to your customers.
• You establish your pricing to ensure profitability from the start.
• You choose your business’s legal structure to ensure the degree of liability protection you need and the most favorable tax situation.

Pros Of Buying A Business
• You have customers and incoming revenue immediately.
• You have employees who already know how to do their jobs and don’t need training.
• You have built-in processes and systems to operate your business efficiently.
• Your services and products are already to market, and you have established sales channels to get them into customers’ hands.
• Your business is already registered and has the necessary permits and licenses to operate legally in your state.

Cons Of Starting From Scratch
• You do all the legwork, including researching the registration requirements to form an LLC or incorporate your business and filing your state, federal, and local paperwork to operate legally.
• You don’t know for certain that your business idea will be viable and sustainable.
• You have to develop and put into place all the internal systems and processes needed to operate your business.

Cons Of Buying A Business
• Existing employees may be resistant to accept your leadership.
• If you find processes aren’t working efficiently, it may be difficult to initiate change because everyone is used to doing things a certain way.
• You may discover the legal business structure the former owners selected isn’t ideal.
• You may find your brand’s reputation isn’t as positive as you’d like it to be—that might be difficult to turn around.

As you can see, there’s a lot to think about as you weigh the options of starting your own business or purchasing one that is already up and running. I advise you to do your homework before deciding which route to travel. And consider seeking the guidance of respected and reputable professionals (attorneys, accountants, business consultants, etc.) who can help you understand the financial and legal aspects of what’s involved.

Remember, whether you’re starting a business or opt to buy and run one that’s already established, CorpNet is here to assist you with all your business registration and compliance obligations. Contact us today to help you take care of your filings so you can take care of business!

 

 

Business Information Zone (B.I.Z) – FAQs

Welcome January and 2017! With the holidays behind us and a bright new year ahead of us, it is a great time to start a business.  This month, we discuss the ways CorpNet can assist with our Business Information Zone or B.I.Z. in keeping your company in compliance!

Q: What is B.I.Z.?
A: Think of B.I.Z. as your business’ personal concierge service. Once you sign up, you’ll receive email reminders on tax and compliance alerts. You can also use B.I.Z. to store your business documents, and keep a personalized business profile that tracks important data about your company — such as formation date, Federal Tax ID number, business licenses and permits, and more.

Q: I didn’t use CorpNet to form my business, can I still use B.I.Z.?
A: Absolutely. Any Corporation, LLC, nonprofit, or professional company can use B.I.Z. to stay on top of their yearly compliance requirements. It doesn’t matter if you formed your company through CorpNet or not.

Q: It states that B.I.Z. is free. Is there a catch?
A: No. B.I.Z. is completely free, no strings attached. We know how challenging it can be to run a small business – and sometimes all the tedious state filing and fees can fall through the cracks. Small business owners don’t always know when their annual report is due or why their business fell into bad standing with the state. We created B.I.Z. to help small businesses keep track of all these filings, so they don’t have to pay an extra dime in fees or risk falling into bad standing just because they missed a deadline.

Q: What information do I need to create an account for free compliance monitoring on B.I.Z.?
A: You will need the following information: your business type (e.g. C Corporation or LLC), your filing state (where you filed your corporation/LLC paperwork), and your filing date (the registration date of your corporation/LLC with the state).

Q: Why do you need to know my filing date for B.I.Z.?
A: Each state has its own rules regarding when and how often corporations and LLCs are required to file their annual report. By knowing when you formed your LLC/corporation, we can send you an email alert before your annual report is due.

Q: What particular deadlines does B.I.Z. track?
A: B.I.Z. will track and notify you of upcoming compliance deadlines with the state, such as your Annual Report (if required in your state). It will also alert you of upcoming tax deadlines based on your business type. In addition, if you provide information about your business licenses and permits, B.I.Z. will alert you when they’re coming up for renewal.

Q: Can I keep track of multiple businesses with B.I.Z.?
A: Yes, you can monitor multiple businesses from a single B.I.Z. dashboard. It’s an ideal for attorneys and CPAs to keep track of their clients’ businesses.

Do you need help registering a business or have questions regarding the process? Call the CorpNet.com team today for a free business consultation at: 888.449.2638

Will Your Business Need Financing in the New Year?

As you plan and set goals for your small business in 2017, one area to look at is financing. Will you need additional funding at some point in the New Year? If the answer is yes, how will you raise the money? Take a closer look at the two primary means of raising capital — equity financing and debt financing — and what you need to know about each.

Equity Financing

In equity financing, you give up a piece of your business (equity) in return for an investment of capital. Equity investors may be private investors, venture capital companies or even your friends and family.

Angel investors are the most realistic source of investment capital for most small business owners. Angels are private investors; some invest individually, while others form angel groups to pool their money. Generally, angels are experienced business people, former business owners or professionals. In addition to the capital they can provide, they can also offer much needed business guidance and expertise.

If your small business has strong growth potential in an industry such as technology or healthcare, you may be able to get venture capital. Venture capital firms tend to focus on businesses with a track record of success and potential for rapid growth with a high return on investment. They make large investments, but in return, will want to have a strong say in your business and possibly even take over management.

If you plan to seek capital from investors, it’s important to make sure the business structure you chose will allow what you want to do. For example, if you operate as a sole proprietor, you won’t be able to take on equity investors, since there is no separate “company” to invest in.

A general partnership, C corporation or limited liability company (LLC) form of business all enable you to sell shares in your business. However, if you have an S corporation, the number of shareholders you can have is limited to 100, which could be a problem. In addition, the S corporation form limits what type of person or entity can be a shareholder or owner, which could cause problems either in raising capital or transferring ownership of shares down the line.

While taking on investors may seem like an easy solution to getting the money you need, you should think carefully before giving away equity in your business. Depending on the amount of equity they control, investors can make it more difficult for you to make decisions about your business without their input. Your relationships with investors, even those you are currently close to, may change in the future, leading to unforeseen difficulties. If you give up too large a stake in your business, you may eventually lose control of it altogether.

Debt Financing

As the name implies, debt financing means taking on debt that you need to repay at some point. Typically, this means a bank loan. However, debt financing can also take the form of loans from friends and family, credit unions, or alternative financing sources or even taking credit cards advances.

Business loans can be secured or unsecured. Secured loans require you to put up some collateral, such as business equipment or your house, to obtain the loan. Unsecured loans don’t require collateral, but are often more difficult to get and have higher interest rates and fees.

If you’re seeking a bank loan, the best place to start is with a bank that makes Small Business Administration (SBA) loans. SBA loans are partly guaranteed by the SBA, which makes banks more willing to lend to small businesses they otherwise might consider risky borrowers.

Other sources of debt financing include:

  • Equipment financing: If you are purchasing business equipment, the company that makes the equipment may have financing options available.
  • Invoice financing: Invoice financing companies advance you money based on the amount of your outstanding invoices.
  • Factoring companies: Similar to invoice financing, factors purchase your outstanding invoices for a percentage of their value, and then take over collecting on the unpaid invoices for you.
  • Merchant cash advances: If your business makes most of its sales via credit cards, such as an e-commerce business or retail business, you may be able to get a merchant advance based on the amount of your average credit sales.

The Right Choice

To make sure you’ve selected the right form of business for your financing needs, it’s best to discuss it with your attorney and accountant before making any decisions. If you need to make changes to your business structure before seeking financing, start now so you’ll be ready to go after the capital you want in 2017.

Should I Incorporate Now or At The Beginning Of The Year?

So you want to change your business structure from a sole proprietorship to an LLC or a corporation? Great! But you might be wondering if you should make it effective now, or wait to file your paperwork until the New Year.

If you’re one of those hyper-organized people, like me, you probably love the idea of having a neat and tidy January 1 effective date. After all, who wants to deal with filing two sets of tax forms—one for the period of time in this year when you operated as a sole proprietor and another for the part of the year the new structure was in place? But at the same time, I’ll bet you want to have all your ducks in a row right now, so you don’t risk filing too late and facing the same situation next year.

Sigh. What’s an entrepreneur to do?

Delayed Filing To The Rescue
Guess what? Most states offer a Delayed Filing option. It provides you a way to perfectly time the effective date of when your business officially changes to your new structure of choice.

Delayed Filing enables you to submit your application for whichever business structure you’ve chosen, but delay the actual incorporation date until a specific date in the future. In short, it lets you control your effective date of incorporation or LLC formation.

Whether you want to make a clean break with a January 1 start date or you have reason to schedule your new structure to take effect on some other date next year, you can get the paperwork out of the way now. That leaves you with one less task to take care when you need to be focused on marketing strategy, customer service, and all else.

Nice, right?

When To Submit Your Delayed Filing
You can use the Delayed Filing option at any time of the year. Check with your state to find out how far in advance you need to file. The requirements vary from state to state. Typically, you would need to file between 30 to 90 days before your requested effective date.
What To Do
When filling out the online forms to form an LLC or incorporate, indicate the number of days after filing that you want your business structure to be effective. When registering your business structure for a delayed start date, your Articles of Incorporation (or Articles of Organization) will need to reflect that effective date, as well.

Final Words of Insight
Even though the end of the year is near, you still have time to submit a delayed filing for January 1, 2017. You will, however, need to use the fast track service to expedite review and approval by your Secretary of State department in time for your intended start date.

Worried you won’t be able to handle the filing details with the busy holiday season upon you? Contact us! We’ll be happy to help you file your paperwork now, so you can get right down to business in the New Year.

 

Setting Up a Corporation – FAQ

Happy November! We are excited to bring you another post in our monthly FAQ series!

When starting a business, one of the first questions an entrepreneur must ask themselves is, “What entity type should I register?” Here at CorpNet, we are often asked to explain the differences between a C Corporation and an S Corporation, how to file a corporation, and even, “What is a corporation?” In this month’s FAQ post, our CEO Nellie Akalp answers all your burning questions about corporations!

Q: What is a C Corporation

A: A C Corporation is a standard corporation. It is considered a separate entity from its owners. This means that the corporation is responsible for any of its debts and liabilities. This is often called the “corporate shield” as it protects the owner’s personal assets from debts and liabilities of the business.

A corporation has a formal structure consisting of shareholders, directors, officers and employees. Every corporation must select at least one person to serve on its board of directors and officers are required to manage the day-to-day activities of the company.

As a separate business entity, a corporation files its own tax returns. As a C corporation owner, you’ll need to file both a personal tax return and a business tax return. In some cases, this can result in a “double taxation” burden for small business owners (see the question on double taxation below for more details).

Q: How do I create a C Corporation? 

A: To create a C Corporation, you’ll need to file the proper formation documents, typically called the Articles of Incorporation or Certificate of Incorporation, with your state’s secretary of state agency. You will also need to pay the necessary state filing fees. If you incorporate with CorpNet, you simply need to complete the online order form (or give us a call!). We’ll prepare the necessary paperwork and file it with the state.

Q: Who can form a C Corporation? 

A: There really aren’t any restrictions on who can form a C Corporation. Some states do require that the directors of a corporation are 18 and older, but there aren’t any age, residency, or other legal requirements for who can form a C Corporation. Keep in mind that the IRS places several restrictions on who can elect S Corporation status.

Q: What organizational roles are required in a C Corporation?

A: C Corporations have three groups: shareholders, directors, and officers. Shareholders own the C Corporation (via their shares of stock), yet the shareholders typically don’t manage the company. Shareholders do elect and remove directors, and can vote on major corporate issues.

The board of directors manages the affairs of the C Corporation, and can appoint and oversee officers. It’s the officers who are responsible for the day to day management of the corporation.

It’s possible to be a shareholder, director, and officer. In fact, in most states, you can be the sole shareholder, director, and officer for your C Corporation.

Q: What’s the minimum number of directors required for my C Corporation?

A: Most states allow just one director for a C Corporation, but you can have more. In some states, the minimum number of directors depends on the number of shareholders.

Q: What is double taxation?

A: Income earned by a C corporation is typically taxed at corporate income tax rates. Then, after the corporate income tax is paid, any distributions made to stockholders are taxed again as dividends on the stockholders’ personal tax returns. This is often called “double taxation” since corporate profits are first taxed on the corporation and then dividends are reported on the individual stockholder’s return.

Q: What is the difference between a C Corporation and S Corporation?

A: C Corporations are subject to double taxation as described above. A C Corporation entity is required to pay tax at the corporate level. An S Corporation is considered a pass-through entity for tax purposes. This means that the company’s profits and loss are passed through to the individual shareholder’s tax return (and each shareholder is typically taxed on the company’s profits based on their share of stock ownership).

Q: What are the benefits to forming a C Corporation compared with an S Corporation?

A: A C Corporation can offer greater tax flexibility. In addition, if you’ll be keeping the profits within company (as opposed to distributing dividends to shareholders), then the C Corporation can shield shareholders from direct tax liability.

Q: Can I form a Corporation with just one person?

A: Yes. A Corporation can have just one shareholder. Keep in mind that even if you’re the sole shareholder, you will still need to comply with corporate formalities such as director and shareholder meetings, and keeping meeting minutes.

Q: If I have multiple businesses, what’s the best way to legally structure them?

A: There are three different ways to structure multiple businesses. There are advantages and disadvantages for each approach – and the best structure will depend on your personal situation.

  • You can file an LLC or corporation for each of your businesses. This approach isolates the risk to each individual business, but involves maintenance fees and paperwork for each of the LLCs/corporations.
  • You can file one LLC or corporation, and then set up multiple DBAs (Doing Business As) for each of the other businesses. With this approach, you just need to pay your annual LLC/corporation maintenance fees for the LLC/corporation (and not each individual DBA). However, each DBA isn’t protected from the other DBAs. So if one DBA is sued, all the other DBAs under the main LLC/corporation are liable.
  • In the third approach, you can create individual Corporations/LLCs for each of your businesses and put them under one main holding Corporation/LLC.

Q: What is your Express Filing Service?

A: It’s a way to reduce your formation filing timeframe and get your corporation set up faster – sometimes as fast as 24 hours or even the same day! To understand the express filing timeline, it’s important to understand there are two different processing times: CorpNet and the state.

With the Express Filing Service, we’ll process your documents the same day (if submitted, Monday through Friday, before 4 pm PST). Depending on your state, we’ll hand deliver, fax, or send your documents via courier – whatever your particular state/county allows as the fastest option.

Then, the state office is instructed to process your filing as an expedited filing. State processing time estimates vary by state, and not all states support expedited filings. When you fill out your incorporation package online, you will see if the expedited service is available in your state and what the state’s estimated processing times are.

Do you need help registering a corporation or have a questions regarding the process? Call the CorpNet.com team today for a free business consultation at: 888.449.2638

                               

Back to Basics: LLC or Corporation? Which Is The Better Choice For Your Business?

Both forming an LLC and incorporating your business safeguard you by protecting your personal assets if legal action is taken against your business. They also give your business a boost of credibility by having either “LLC” or “Inc.” behind your company name. But there are differences that could make one or the other the better choice for you.

I can’t emphasize enough the importance of knowing the pros and cons of the legal structures available to you before you decide which will serve your business most effectively.

 
The Low-down On LLCs

Many owner-managed businesses opt to form as LLCs.

LLC owners are referred to as “members,” who each own a certain percentage of the business. Single-member LLCs are uncomplicated from a compliance and management standpoint. When you have multiple members, however, you should have an operating agreement that documents who can make decisions and how transferring membership interests should happen if a member leaves, dies, or files bankruptcy. Some states require that the remaining members dissolve the LLC under the circumstance of a member’s leaving, death, or bankruptcy.

From a tax standpoint, you can choose to have your LLC treated in one of two ways.

  • As a pass-through entity, with the profits and losses of your business passed to your LLC members’ personal tax returns. If your business isn’t profitable, that will lower your personal tax obl
  • As an S Corporation, whereby only salaries and wages are subject to self-employment taxes (FICA and Medicare), not company profits taken as distributions to members.

Because there are notably less formation paperwork and compliance requirements with an LLC than there are with a corporation, business owners who want legal protection and tax flexibility without a lot of complexity find the LLC structure an attractive option.

One potential disadvantage of forming an LLC, however, is that you cannot sell stock to raise capital for your business. And if you seek funding from venture capitalists, you may get turned down because many will only invest in corporations.

 
Insight About Incorporating

Whether S Corporation or C Corporation, the owners of corporations are called shareholders. Their percentage of ownership corresponds to their percentage of shares in the business. Unlike with an LLC, it’s typically simple to transfer shares (ownership) from one person to another. That means the business can continue onward when shareholders leave, die, or sell their shares.

S Corporation

With an S Corporation, a business’s income, losses, and deductions pass through to its shareholders. Typically, the shareholders report corporate income on their personal income tax returns.

Unlike LLCs and C Corporations, S Corporations are limited to 100 members/shareholders. So while they can sell stock, their potential to raise capital in that way is somewhat limited.

While S Corporations require more paperwork and ongoing compliance than LLCs, they don’t come with as much formality as C Corporations.

C Corporation

Tax treatment of C Corporations involves what is often called “double taxation.” A C Corp pays corporate income tax on its profits, and then its shareholders pay personal income tax on the profits they receive as dividends.

C Corporations don’t have a limit on the number of shareholders that can invest in them, and they may be more attractive to outside investors.

Because C Corporations operate as separate legal entities from their owners, they provide more personal liability protection than other business structures.

Note that potential drawbacks to incorporating as a C Corporation are the higher formation costs, extra compliance requirements, and additional oversight they are subject to.

 
Do Your Due Diligence, Then Decide.

With both legal and financial aspects of your business affected by your choice of legal structure, make sure you carefully evaluate your options. I encourage you to seek professional expertise and guidance, so you fully understand the advantages and disadvantages of each structure.

In the meantime, you can get off to a great start by using the CorpNet Business Structure Wizard for gaining a better idea of the structure that might work best for you.

                               

Why You Need to Incorporate Your Business

When you think about incorporating your business, do you scoff, “Not me. I’m just a one-person/home-based/part-time business—incorporation is for the big guys”? If so, it’s time to rethink your attitude. You see, every small business—no matter how small or informal—needs to be incorporated.

That’s because no matter how small or informal your business is, you could be sued. Suppose your business isn’t doing well, you can’t pay a business debt and the creditor takes you to court to get their money back. Perhaps you are a children’s party planner, a child is injured during a birthday party you organize at a local park, and the parents decide to sue you. Or maybe you own a one-person accounting firm and, after you make a mistake on a client’s taxes that costs them a lot of money, they sue you for the damages.

In any of these cases, unless your business is incorporated, all of your personal assets could be at risk—including your savings, possessions and even your family home. And even if the lawsuit is baseless, you still have the legal costs involved in defending yourself in court.

If you haven’t done anything to determine a legal form for your business, and you are the only person in your business, by default you’re considered a sole proprietor. Even if you have a partner and the two of you have formed a general partnership, your personal assets still are not protected.

Why does incorporating provide so much protection? When you incorporate your business, you are creating a new legal entity that’s separate from its owners. If your corporation owes a debt or if it is sued, the business—not you personally—is liable.

Incorporating has several other advantages:
• It makes it easier to separate your business and personal finances, which has tax advantages.
• It helps you establish a credit score for your business so you don’t have to rely on your personal credit score.
• If you think you might ever need to get a business loan or look for investors to help finance your business, being incorporated will help there, too.
• Being able to put “Inc.” or “LLC” after your business name just looks more professional, which can make customers and clients feel more confident doing business with you.

There are several different forms your business can take when incorporating: a C corporation, an S corporation, or an LLC (limited liability company). Here’s a quick overview of the differences:
• C corporation: A C corporation pays federal income taxes. However, any dividends paid to the owner (or other shareholders) are also taxed. This is sometimes called “double taxation,” and the S corporation form was created to help avoid it.
• S corporation: An S corporation doesn’t pay federal income taxes. Any income or financial losses pass through to the owner and get reported on his or her personal tax returns.
• LLC: Limited Liability Companies have a more flexible management structure than C or S corporations, while still protecting your personal assets. Any profits or losses from the business will be reported on your personal tax return.

There are some costs associated with incorporation, as well as some paperwork you’ll need to complete every year. However, when you consider the risk to your personal finances that could arise from not incorporating, the cost is well worth it.

Find out more about corporation business structures.

To take advantage of all these perks, incorporate your business with CorpNet today! Call us for a

                               

Legal Steps to Start a Business & Special Offer

image002So you have an idea and want to get that business off the ground – congratulations!!

When planning the steps to start your business, there are some legal aspects you don’t want to overlook. These steps may not be the most glamorous parts of starting a business, but you want to make sure the business is set up properly from the start to avoid issues down the road.

Here are my must-do steps to legally start a business followed by a special offer on CorpNet.com services:

1 – Choose a business name

Have an ideal name in mind for your business? That’s a great start, but before you get too attached and order those business cards you’ll want to make sure it’s legally available for use. You can do a corporate name search and/or check with your state’s Secretary of State database to see if the name is registered by someone else. I also recommend running a trademark search to see if someone has already filed for a trademark. If you search both places and the result is clear – great job! You should move forward with that name. If you find that the name is already in use – you may want to go back to the drawing board and brainstorm some other options.

2 – Choose a business structure

If you don’t officially form a business structure your default is to operate as a sole proprietor. A sole proprietorship does not separate your personal and business finances so if down the line your business is sued, your personal assets can be threatened.

Forming an LLC or Corporation will protect your personal assets from any liabilities of the company.

Forming an LLC, otherwise known as the Limited Liability Company, is a great option for businesses that want legal protection without a lot of paperwork.

The C Corporation requires more paperwork and formalities, which can be a headache for small business owners. However, this structure is ideal for businesses that plan to reinvest their profits back into the company, seek venture capital funding or plan to go public.

Another popular structure is the S Corporation. The S Corp does not file its own taxes but is treated as a pass-through entity. It is a great structure for a small business owner who can qualify as the IRS places limited both on the number of owners and who can be an owner.

Not sure what structure is best for you? Try the CorpNet Business Structure Wizard that can help you decide!

3 – Register your business name

If you are forming an LLC or corporation, this step automatically registers your name with the state. However, if you choose to operate as a sole proprietorship or general partnership, then you will need to register your business name by filing a Doing Business As (DBA).

Registering your business name ensures that you are legally able to operate your business under that name in the state and also ensures hat no one else can use the name in your state.

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