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What is a corporation?
A corporation is a legal entity that can exist separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation (called a charter or certificate of incorporation in some states) are filed with the proper state authority, and all fees are paid.

What paper work is required to incorporate?
Articles of incorporation conforming to state law must be prepared and filed with the proper state authorities and filing fees, initial franchise taxes, and other initial fees must be paid.

Do I need an attorney to incorporate?
No, an attorney is not a legal requirement to incorporate. You can prepare and file the articles of incorporation yourself; however, you should understand the requirements of your intended state of formation.

You can use our service to incorporate and save money on attorney fees. However, if you are unsure if incorporation will benefit your business, consult an attorney or accountant.

What should I name my corporation?
Choose the name of your corporation carefully. It is very important that you portray the image you want for your new corporation. Legally, the name you select must not be "deceptively similar" to any existing corporation or must be "distinguishable on the record" of your state. For example, if a corporation named The Stationery Corp. exists in your state, you probably would not be allowed to name your business The Stationary Corp. It is possible that the name you select will not be available; therefore, we ask for a second choice on the incorporation order form.

Additionally, the name you choose must show your business is incorporated. Most states require that the corporate name be followed by some type of indicator, such as Corporation, Incorporated, or an abbreviation.

What are the advantages of incorporation?
One of the primary advantages of incorporation is the limited liability the corporate entity affords its shareholders. Typically, shareholders and directors are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder or director to pay debts of the corporation. In a partnership or sole proprietorship the owner's personal assets may be used to pay debts of the business. Maintaining the limited liability of a corporation requires that the shareholders and directors follow all the rules of governance, including holding annual meetings and maintaining meeting minutes, which is why we offer corporate forms disks and corporate kits as part of our complete incorporation package.
Other advantages of incorporation
  • A corporation's life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business.
  • Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.
  • Ownership of a corporation is easily transferable.
  • Capital can be raised more easily through the sale of stock.
  • A corporation possesses centralized management.
What are the disadvantages of incorporation?
The primary disadvantage to a corporation is double taxation. Profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. They are taxed first as income to the corporation, then as income to the shareholder. All reasonable business expenses such as salaries are deductions against corporate income and can minimize the double tax. Further, the double tax can be eliminated by making an S corporation election.
Other Disadvantages of incorporation
  • There is more complexity and expense with forming a corporation.
  • There are more extensive record keeping requirements.
  • Operating a corporation across state lines often requires the corporation to qualify to do business in the other states.
What is an S corporation?
Standard business corporations or C corporations are required to pay income tax on taxable income generated by the corporation. Making a subchapter S election by completing and filing federal Form 2553 with the IRS is a way to avoid having your corporation treated as a separately taxable entity.

An S corporation is a standard business corporation that has elected a special tax status with the IRS. This tax treatment allows the corporation not to be a separately taxable entity. Instead, the income of the corporation is treated like the income of a partnership or sole proprietorship; the income is "passed-through" to the shareholders. Thus, shareholders’ individual tax returns report the income or loss generated by an S corporation.

To be classified as an S corporation, a corporation must make a timely filing of Form 2553 with the IRS. IRS instructions indicate you must complete and file this form:

  • at any time before the 16th day of the 3rd month of the tax year if filed during the tax year the election is to take effect, or
  • at any time during the preceding tax year. An election made no later than 2 months and 15 days after the beginning of a tax year that is less than 2 ½ months long is treated as timely made for that tax year.

An election made after the 15th day of the 3rd month but before the end of the tax year is effective for the next year. For example, if a calendar tax year corporation makes the election in April 2005, it is effective for the corporation’s 2006 calendar tax year.

In order to qualify for S corporation status, the corporation can have no more than 75 shareholders, who must all consent in writing to the election to be an S corporation. The shareholders cannot be non-resident aliens. Also, an S corporation can have only one class of stock (disregarding voting rights). Other restrictions apply and can be found within the IRS instructions for filing Form 2553.

What is the organizational structure of a corporation?
The organizational structure of a corporation relies on three basic groups: shareholders, directors, and officers.

A corporation is owned by shareholders; however, they do not directly manage the corporation. Instead, they influence corporate decisions through indirect methods such as electing and removing directors, approving or disapproving amendments to the articles of incorporation and voting on major corporate issues.

The directors, who comprise the "board of directors," are responsible for managing the affairs of the corporation. Usually, directors make only the major business decisions and supervise and appoint the officers who make the day-to-day business decisions of the corporation.

Officers are responsible for the everyday management of the corporation. Typically, officers are appointed directly by the board of directors.

It is important to note that a shareholder may serve on the board of directors and as an officer. In fact, in most states one person is enough to form a corporation.

How many directors do I need?
Only one director is required in most states although you can elect to have more. Some states use the number of shareholders in the corporation to determine the minimum number of directors. If the number of shareholders is three or more, then the corporation must have three directors. If the corporation has less than three shareholders, then the number of directors may equal the number of shareholders.
Where should I incorporate my business?
One of the first decisions a business must make after deciding to incorporate involves selecting the proper state of incorporation. A corporation is not required to incorporate in the state of its operations; however, often the best decision may be to incorporate in your home state.

Two issues must be weighed to determine the proper state: (1) a dollars and cents analysis comparing the costs of incorporating in the state of operation versus qualifying to do business as a foreign corporation in the state under consideration and (2) determining the advantages and disadvantages of each state's corporate laws and tax structure. The decision usually falls between the state in which the business is located or Nevada.

If the corporation is a closely held corporation and does business primarily within a single state, local incorporation is often preferable. The cost of local incorporation will usually be less than incorporating in another state and qualifying to do business as a foreign corporation in the state. A foreign corporation that qualifies to do business in another state is subject to taxes and annual report fees from both the state of incorporation and the qualifying state. Another disadvantage of incorporating outside of your home state is the possibility of having to defend a law suit in another state.

For advice regarding which state is optimal for your particular business situation, consult an attorney or an accountant.

During the life of your business, if you find that your company needs to foreign qualify to transact business in another state, contact AZBusiness Corp to learn about our Foreign Qualification service.

What is a publication requirement?
A few states require notice to be published in a newspaper that a corporation or LLC has been formed. States with this requirement include: Pennsylvania (corps only), Georgia (corps only), Arizona (corps and LLCs), Nebraska (corps and LLCs), and New York (LLCs only). Contact AZBusiness Corp by phone, fax or email.
How do I get started with the incorporation process?
If you choose to incorporate, call, fax or email us because articles of incorporation must be filed with that state and initial fees must be paid. AZBusiness Corp will complete these administrative tasks quickly and effectively.

After your articles are filed, your corporation must hold an organizational meeting where bylaws are adopted and the incorporation process is completed. Share certificates should be distributed to shareholders and these transactions should be recorded on the corporation's stock ledger. All of this information should be kept in a corporate record book.

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