Incorporation Services

There are two legal forms in which you can operate your business. The first and simplest form is that of a sole proprietor. The next, form is that of a corporation, either a C Corporation or an S Corporation. Both the sole proprietor and corporation have legal, accounting and tax issues associated with them. Although many tax issues may be similar, they are unique to each entity.

Business corporations are legal entities or "persons" created by state law that are separate from their owners. Corporations have the right to do business under their own name and own property just as people do. The purpose for having a corporation is to protect an owner`s personal assets from the business’s debts and liabilities. If a business fails, the owners will usually only lose the initial money they invested in it. Corporations can also offer the advantage of certain tax benefits, the ease of transfer of ownership, and an unlimited existence beyond the death of its owners.

A sole proprietorship is an unincorporated business that is owned by one individual. It is the simplest form of business organization to start and maintain. The business has no existence apart from you, the owner. Its liabilities are your personal liabilities and you undertake the risks of the business for all assets owned, whether used in the business or personally owned. You include the income and expenses of the business on your own tax return.

There are several reasons for incorporating your business;

Protection of Owners - With a corporation, there is a corporate shield between the owners and the corporations activities

Tax Advantages - With proper planning, there can be opportunities for tax savings. The largest tax planning area is the determination of salaries and distribution of profits to the owners.

If S corp election is not made, in many cases corporate tax rates are more favorable than those rates for individuals.

Appearance to Public - Many consumers perceive that dealing with an incorporated business demonstrates greater business stability to the work conducted or services provided.

Financing - In certain circumstances, an incorporated business may be able to secure preferential financing which may not be available to average consumers, or a sole proprietor.

An S corporation operates much like a partnership; no taxes are paid by the partnership or the S corporation. Income and loses are passed through to the shareholders on a current basis and shareholders report on their personal income tax returns, as income, their pro-rata share of profits and losses (except losses are limited to the shareholder's basis in his or her stock or debt). Generally, the corporation pays no tax; however in some states an S corporation tax may be assessed on its taxable income. A C corporation is a separate tax paying entity with its own tax rates. The C corporation files a tax return and pays the tax on its profits. If the C corporation then distributes its earnings to its shareholders, the shareholders take that amount into income as dividends, creating a double taxation.

Startup corporations generally have losses in the first few years of operation and by electing S Corporations status the shareholders will receive those losses as individuals. Those losses can then be claimed on the individual's tax return. By contrast, a C Corporation may never be in a position to utilize its losses unless it turns a profit in the future.

If retained by my office, I will walk you through the steps of incorporation, which would include:

Selecting a name for the corporation
Performing a search of corporate names
Preparation of Articles of Incorporation
Filing Articles of Incorporation with the State of Florida
Obtaining Federal Employer Identification Number
Set up of Corporate Records Book
Preparation of Bylaws
Electing the Initial Directors and Hold the Organizational Meeting
Preparation of Shareholder`s Representations Letters

10. Issuance of Stock of Corporation

Planning: Consider filing Form 2553, Election to become an S Corporation

Setting up your business as a limited liabilty company is now a growing trend. A limited liability company can be a good decision if your small business desires to have the legal protection of a corporation, but still be taxed as a sole proprietor or partnership.

If at a later date, you which to change your tax structure to corporation, it can be done by filing a few simple forms.

The limited liability company is a good alternative to setting up a corporation, in that tax structure can change as your business grows. If you initially set up your business as a corporation, you may face a great deal of needless paperwork, tax filings and other documents that a sole proprietor does not. This could be costly to a small business just starting out.