Many people have the same questions. Here are 18 answers to your FAQs:
Business credit is a separate track of financing independent of your personal credit. Using Business credit strategies wisely can greatly assist you with your growth objectives.
An entity is a business organized according to state law to limit the liability of the owners. Entities can be corporations, limited liability companies (LLCs) and limited partnerships (LPs). All provide much greater asset protection when compared to a sole proprietorship or general partnership.
A corporation is a separate legal entity formed by individuals and/or other business entities for the benefit of limited liability, asset protection, tax savings and ease of ownership. The owners of a corporation are shareholders, the managers are known as officers and directors.
A limited liability company (LLC) is also a separate legal entity formed for limited liability and asset protection purposes. The owners of an LLC are called members and the management is referred to as managers. LLCs are frequently used for holding real estate and other personal assets.
A limited partnership (LP) is a separate legal entity formed for limited liability and asset protection purposes. The owners of an LP are known as general and limited partners. The management resides exclusively with the general partner. While the limited partners are limited in their liability, the general partners are personally liable for the LP activities. This unlimited liability can be resolved by forming a corporation or LLC to be the general partner.
If structured properly, the liability of the owner is limited to the amount of their investment in the entity. Thus, the personal assets of the owner will be protected against any business claimants.
There are many tax benefits to using a corporation, LLC or LP. Many business expenses are easily written off, and in the right structure, pre-tax dollars can be used for valuable benefits packages. As well, the risk of an IRS audit is lower with business entities.
A C corporation is a corporation that is taxed at two levels. First, the corporation pays corporation taxes on corporate profits. Then, with any money left over, the corporation may distribute profits to the shareholders. These profits, or dividends, are taxed to the shareholders. Thus, resulting in “double taxation”. The “C” refers to an IRS code section. Despite the double taxation, C Corporations offer many planning and benefit opportunities.
An S corporation is a corporation that has elected to be taxed as a flow though entity (similar to an LLC or LP). The “S” also refers to an IRS code section. Providing for this type of taxation, the S election allows the shareholders to be taxed only at the individual level instead of at both the corporate and individual level, thus avoiding the double taxation of a C corporation. The S corporation still provides limited liability protection and is a good entity for many business situations.
An EIN is like a Social Security Number for a business. The IRS assigns such a number to each newly formed entity. It is used as an identifier when opening bank accounts, hiring employees and the like. You will need an EIN to open a bank account.
In order to maintain the limited liability protection afforded corporate entities certain minimum formalities must be met. These include filing statements and paying annual fees, maintaining a registered agent (or resident agent) and keeping corporate minutes. Failure to follow these formalities can result in personal liability to officers, directors and shareholders. Many states now require LLCs to follow corporate formalities, and you are much better protected if you do so.
Each state requires that a registered agent (or resident agent) be identified and located in the state of incorporation and any states where business is conducted. The registered agent’s job (or resident agent) is to accept service of process (i.e., notice of a lawsuit) and other official notices. Because lawsuits are served on the registered agent (or resident agent) it is important to use a service that is professional, appreciates the importance of such notices and will be in business for the long-term. Our firms’ affiliate provides registered agent (or resident agent) services for $125 per year.
Most every state requires that the owners and managers of an entity meet once a year to Personal Attorney Injury Lawyers discuss the affairs of the business. To prove that this required meeting took place, minutes detailing decisions made at the meeting are written and kept with the corporate, LLC or LP records. Our firms affiliate provides minute preparation services for a modest fee of $150 per year.
An important element in using a corporation is providing the public with notice that they are doing business with a corporation. To that end, you will use Inc., LLC or LP, for example, on all of your brochures, contracts, checks, cards, and the like.
First, you cannot use the name of a corporation, LLC or LP that is already in use and registered with the state. While our affiliate will perform an initial name search to minimize this issue it is helpful to have several names in mind for possible use. Second, if you are going to organize in one state and qualify in another state the name should be available in both states. Third, a corporate name should not be confused with a trade name or trademark. While you may be able to incorporate using one name you will not automatically, without filing for trademark protection, be protected in using your corporate name as a trade name.
Many people will form an entity in Wyoming for the privacy and asset protection benefits and then qualify to do business in their home state, Colorado, for example. The qualification process involves providing a certificate of good standing for the Wyoming Corporation and then file with the Colorado Secretary of State for permission for the Wyoming Corporation to do business in Colorado. It is not an overly complicated process, but it is an important process to ensure that your entity’s limited liability protection follows you into the states in which you actively conduct business. (Please know that when the state of California is involved we must do a great deal of extra planning.) Others may want to have the in-state LLC (i.e., a Colorado LLC holding Colorado real estate) owned by a separate, independent Wyoming LLC. Feel free to call us and speak with an incorporating specialist to learn the strategy best for you.
Our firm provides affordable entity formation and maintenance services. Given the risks associated with doing business and holding real estate as well as the possible loss of personal assets, the benefits of limiting liability and protecting assets for a very affordable price are quite substantial.