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Incorporating for US businesses

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PostPosted: Tue Nov 18, 2003 6:36 pm    Post subject: Incorporating for US businesses Reply with quote

I see that this is a world class forum and that there are people here from all over the world.

I am curious how many people have incorporated their US businesses. What are the advantages and disadvantages for you of being and "INC." verses a sole propriorship?
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PostPosted: Sun Dec 07, 2003 5:05 pm    Post subject: Reply with quote

There are numerous fine points and distinctions. However, here are a couple of the major ones. A sole proprietorship is taxed as an individual. You just file a normal tax return, + Schedule C (for Federal). Incorporating results in separate taxation for the corporation, and also protects your personal assets in the event you are ever sued (tort or otherwise). The record keeping and meeting requirements (if the corporation has 2 or more employees) are much more stringent than a sole proprietorship though.

Have you considered forming a Limited Liability Company (LLC)? It combines the best features of both -- simplicity of taxation and legal protections. An LLC can be a single person entity, or have multiple members. It has full recognition and legal status in all 50 states, and you do not have to file Articles of Organization in your own state. You will need to acquire an FEIN if you do not already have one, but that can be done on the phone -- just download and complete a Form SS4 from the IRS, then make the call.

The only "restriction" on an LLC is that it cannot exist forever. If you are planning on establishing a family dynasty that will be handed down from one generation to the next, then you should either incorporate or plan on converting the company to a corporation at some point in the future. However, you can pick a dissolution date well into the future if you like.

Check the IRS website (their search engine actually works fairly well) and consult a tax attorney/accountant for advice with any questions you might still have.
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PostPosted: Thu Feb 05, 2004 1:02 pm    Post subject: Reply with quote

Here are a number of the advantages:

Separate Legal Entity Status

A corporation is a separate legal entity existing under authority granted by state law. It has its own identity separate and apart from its shareholders/owners.
Broad Range of Powers

As a separate legal entity, a corporation has the power to act in any way permitted by law and by its own corporate charter. For example, a corporation can enter into contracts, buy and sell both real and personal property, sue and be sued, and can even be responsible for breaking the law (i.e. committing a crime).

Small Claims Court

In most jurisdictions, any officer or director or employee can appear in small claims court on behalf of the corporation.

Separate Liability for Corporate Debts

As a separate legal entity, a corporation is responsible for its own debts. Normally, shareholders, directors, and officers are not responsible for corporate liabilities. If the corporation suffers losses, the corporation itself must bear those losses to the extent of its own resources, and not the personal assets of the individual shareholders. In effect, however, shareholders indirectly bear these losses by a decline in the value of the stock they hold in the corporation.

Note however, that shareholders, directors, and/or officers may be held liable for the debts of the corporation where the court imposes "alter-ego liability" or where the individual as personally guaranteed the corporate debt.

Perpetual Duration

A corporation is capable of continuing indefinitely. Its existence is not affected by the death or incapacity of shareholders, directors, or officers of the corporation.
Duration of Corporation Compared to LLC

An LLC has a limited existence. Absent a contrary agreement, a limited liability company (LLC) is dissolved upon the death, withdrawal, or bankruptcy of a member unless the business is continued by unanimous vote of the remaining members. Although the operating agreement can be drafted to avoid such a result, the life of the LLC is still limited to the termination date in the Articles of Organization.

...and the disadvantages:

Corporate Formalities
A corporation can be created only by compliance with General Corporation Law of the state of incorporation. This usually requires filing of Articles of Incorporation with the appropriate state entity (usually the Secretary of State) and payment of the requisite state fees and taxes.

A corporation is required to have a board of directors, corporate officers, annual shareholders meetings, and to maintain separate books and records. Failure to observe such formalities may result in the personal liability of shareholders for corporate debts. However, where the corporation has only one shareholder, many states allow that one shareholder to act as director and all officers (President, Secretary, and Treasurer).

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PostPosted: Fri Feb 06, 2004 11:40 pm    Post subject: more incorp thoughts Reply with quote

Some people prefer an S-Corp which is filed for after forming your corporation. This allows for pass through taxation so it works sort of like a Sole Proprietorship.

One thing to also consider is how you will pay yourself. In most cases if you are a corpration you will have to be an employee with a paycheck w/ taxes taken out. As a sole prop it is much easier to pay yourself and all income is just reported on your personla income statement (Schedule C).

In regards to Int. Corps. I believe it can be very difficult and xpensive for a company in let's say Russia to try and form a corp.

There's a brief article about incorpration tips on my website.
Good luck!
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PostPosted: Thu Mar 11, 2004 6:36 pm    Post subject: Reply with quote

I don't know where you all get the idea that an LLC is not perpetual.

Here is a direct quote from the Nevada Revised Statutes:
"NRS 86.155Perpetual existence of company.Unless otherwise provided in its articles of organization or operating agreement, a limited-liability company has perpetual existence.
(Added to NRS by 1997, 714)"
You can read it yourself here:

Also here is a quote from "BARRON's Legal-Ease Corporations" book:
"The articlses must contain the name, purpose, duration, registered agent, and principal office of the LLC." Note the word duration which means that in the "Articles of Organization" and in the "operating agreement" you must state if the LLC will be "not perpetual" otherwise it will be perpetual. At least in "Nevada". Smile

Whatever way you go, be sure to read the applicable State Statutes in the state you are going to be doing business.

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PostPosted: Tue Apr 19, 2011 5:27 am    Post subject: Business consultants Reply with quote

You can seek the advice of business consultants to know the pros and cons of business incorporation.
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PostPosted: Mon Sep 05, 2011 7:33 pm    Post subject: Reply with quote

Depending on the size of your business, there are advantages to a Corporation. However, if you are a smaller business, it might be more beneficial to inquire about an LLC. I like the post above that talks about the legal protections and taxation simplicity. This might be more manageable for a smaller business.
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