Incorporating Corporations

A corporation is basically the most universally accepted form of establishing a different entity from you to start and run a business under. A corporation is formed by filing articles of incorporation or a certificate of incorporation with the Secretary of State, Corporation commission, or Corporation division of the state of your choice. This process is what makes the corporation a completely separate entity from the people who run it. Corporations are owned by shareholders.

Corporations issue a number of shares of stock when they file articles of incorporation with the state the shareholders would like to incorporate in. The shares are how the corporation is initially funded.

A Corporation can be formed in any state. Most of the time if you’re operating the corporation in the state in which you reside, it will be best to incorporate in your home state. If you’re going to be a national company, it will be beneficial to incorporate in tax friendly states like Wyoming, South Dakota, Delaware, or Nevada. If you live in a state with high income tax, you might find it advantageous to form a corporation in a tax free state and keep it as a C corporation.

A corporation has shareholders:

The shareholders are given an amount of shares either physically or by just writing it down in a corporate journal according to how much money they invest in the company. Not all of the shares have to be issued or given out initially or at any specific time.

The shareholders then have a right to vote in the corporate meetings because of the shares they own for investing their money in the corporation. If you’ve owned shares of publicly traded companies on Wall Street, your votes are basically worthless because there are so many shares issued and owned. In private companies, it’s totally different because you’re usually talking about a few shareholders and the main founder of the corporation usually will always maintain at least 51% of the shares to control the company.

Shareholders or the initial incorporator elect the directors. The directors then elect the officers like a President, Vice President, CEO, CFO, Secretary, or Treasurer. Most states require you have at least a director, president, secretary, and treasurer. Some states allow Close corporations which can operate without the appointment of a director.

In theory, each year the shareholders hold an annual meeting, where they elect their director(s) and then the directors elect their officers. Most states have language in their laws that basically say it’s ok if the shareholders fail to have and hold an annual meeting, and that the current or initial directors and officers can maintain their office until a special or annual meeting is held, regardless of if a new meeting never gets held.

When we incorporate your corporation, we file custom drafted articles of incorporation according to your needs, make the initial resolution appointing directors and officers, complete everything with the state, do it correctly to minimize your exposure, and provide you corporate bylaws. All this for only our $100 Incorporation service fee.
To incorporate in most states with our service fee and registered agent service will usually be about $250 – $400.

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Incorporation Information By State:

 

Alabama Hawaii Michigan North Carolina Utah
Alaska Idaho Minnesota North Dakota Vermont
Arizona Illinois Mississippi Ohio Virginia
Arkansas Iowa Missouri Oklahoma Washington
California Indiana Montana Oregon West Virginia
Colorado Kansas Nebraska Pennsylvania Wisconsin
Connecticut Kentucky Nevada Rhode Island Wyoming
Delaware Louisiana New Hampshire South Carolina Guam
District of Columbia Maine New Jersey South Dakota Non-US resident Corporation
Florida Maryland New Mexico Tennessee Professional Corporations
Georgia Massachusetts New York Texas Benefit Corps

HOW DO I INCORPORATE A CORPORATION?

You form the corporation by filing articles of incorporation with the Secretary of State you want to incorporate in. There are a few states where the Secretary of State does not cover corporations. In these states, they will have something like a Corporation Division.

WHAT DO I NEED TO BE AWARE OF TO KEEP THE CORPORATION GOING?

Corporations will have to file annual reports with the Secretary of State in the state you incorporate in. We have full step-by-step instructions on filing annual reports.
Corporations are also supposed to hold annual meetings where you go over the business for the year and elect directors and officers. Most states have language in their laws that will try to say that failure to hold these meetings is not a basis to pierce the corporate veil.

Most small private corporations fail to do this.

Helpful legal forms for new corporations

All free corporate legal forms
Corporation bylaws template
First shareholder meeting

First board of directors meeting
How to issue corporate stock

HOW TO FUND THE CAPITAL OR THE CORPORATION?

You basically buy shares of the stock the corporation issues in the articles of incorporation. Just the same as you would on a stock broker site or buy shares of a mutual fund you invest in for your retirement account. Just as you would with a mutual fund, you don’t actually get paper certificates. You could make them up if you wanted to, but usually people just have it written down in their corporate journal how many shares they own. We do offer a free stock certificate template you can print off and fill out. Or you can buy a corporate book and seal when you sign up for incorporation service.

Usually when people open up a business bank account under their new corporation, the first check is from them personally.

CAN ONE PERSON BE ALL THE ROLES OF THE CORPORATION?

Yes.

WHERE IS THE BEST STATE TO INCORPORATE IN?

If you’re doing business in your home state, the best place to incorporate in will always be where you live. If you’re doing things on the internet or using the company as a holding company for assets, incorporating in a tax friendly state like South Dakota, Wyoming, Nevada, Montana, or Delaware are nice options.

Why incorporate in Delaware?
Why incorporate in Wyoming?

Forming a company in a tax free state like Wyoming usually won’t be of benefit to you if you live in a normal taxing state like New Mexico or anywhere with a normal tax burden. Living in a place like California, New York, New Jersey, or any state with high fees and high taxes, can present some nice options of forming a corporation out of state and trying to run some of the income through it that way. The corporation is automatically a C corporation. The C Corporation keeps the money from getting down onto you personally where you might need to pay a high personal income tax rate in a high taxed state. Declaring the corporation an S corporation with the IRS will pull the net income down to you personally. At the end of the day, it’s always simplest, and sometimes cheaper in the long run, to incorporate a corporation in your home state rather than playing the tax hide and seek game. We’ll be glad to help you no matter what you decide.

WHAT IF I WANT TO DO BUSINESS IN EVERY STATE?

We would recommend incorporating in a tax-free state like Wyoming, South Dakota, Nevada, Delaware, or Florida.

HOW DO I PAY MY TAXES TO THE IRS?

The IRS charges a percentage of your NET taxable income after you take your deductions off the money you made for the year. The Internal Revenue Service charges the percentages on a sliding scale, meaning you pay the percentage for each bracket. So if you made $20,000 net taxable income for the year, the first $8,350 would be taxed at the lowest bracket of 10% and the next $10,000 would be taxed at the 15% bracket, and up and up and up with more money.

IRS individual tax rates:

Single

0 – $8,350: 10%
$8350 – $33,950: 15%
$33,950 – $82,250: 25%
$82,250 – $171,550: 28%
$171,550 – $372,950: 33%
$372,950 and up: 35%

Married

0 – $16,700: 10%
$16,700 – $67,900: 15%
$67,900 – $137,050: 25%
$137,050 – $208,850: 28%
$208,850 – $372,950: 33%
$372,950 and up: 35%

As you can see, the middle class is who pays most of the taxes in America. The single person making a good wage over $34,000 a year gets stuck with a huge 25% tax and the married couple making over $68,000 a year also gets a big 25% tax. If the government really wants to limit the burden on the middle class they should drop both brackets down to 15%.

Corporate income tax rate:

0 – $50,000: 15%
$50,000 – $75,000: 25%
$75,000 – $100,000: 34%
$100,000 – $335,000: 39%
$335,000 – $10,000,000: 34%
$10,000,000 – $15,000,000: 35%
$15,000,000 – $18,333,333: 38%
$18,333,333 and up: 35%

Corporations are naturally classified as C corporations. In other words, a generic simple corporation. A C corporation files an 1120 corporate tax return at the end of the year and pays corporate income tax at the above levels. If you don’t want to pay corporate tax, you can declare your corporation an S corporation by filing a form 2553 S corporation election with the IRS. This will cause the income of the corporation to be taxed on you personally at the above personal income tax rates. In this scenario, you’ll file an 1120 S return. You’ll report your share of the income on a K1.

HOW DO I PAY MY TAXES TO THE STATE?

As the same with the IRS section above, you’ll either pay it corporately or personally. Most states recognize the same IRS election you have federally. There are a few states that don’t. We have provided each states personal and corporate income tax rates below on the state links.

SHOULD I DO AN LLC OR A CORPORATION?

The big benefit of a corporation as opposed to a LLC in my mind is the savings in the fees you’ll pay a tax professional at the end of the year to prepare your taxes. A CPA should charge you around $400- $500 for a 1120 return. And then they will probably charge you another $400 – $500 for your personal return and counsel. An LLC gets a 1065 return filed, unless it’s a total disregarded entity. Usually LLC tax returns will run $600 to $800 to get them done by a CPA. Every situation is different, but any CPA will tell you it’s simpler and quicker for them to file a 1120 return instead of a 1065.

Another benefit is just a stereotype. But with the popularity of the LLC now, it almost comes across a little more professional having an “INC” at the end of your name. This is just a trend, and don’t get me wrong. We operate in most states as Northwest Registered Agent LLC, except for the states where being a registered agent has a requirement of being an “INC”, we operate as Northwest Registered Agent Inc. When people see an “INC” behind the name of a business now, it kind of comes across as a little bigger, longer established company. In general, a corporation just doesn’t make sense for smaller start up businesses. The LLC is just simpler and easier to get going and deal with tax wise. The real trouble people see with corporations and taxes is they go through the year, formed the “INC” and then made a bunch of money and get stuck paying the higher corporate tax rate. Starting an “INC” and making it an S corporation, forces you to start paying yourself payroll, which is time consuming, more paperwork, and a general pain for a business startup where the only employee is the owner. An LLC allows you to just pay your taxes as a disregarded entity in your first year, without doing anything with the IRS. When you need money, you just pull it out, and have your accountant clean it up at the end of the year, so you can keep focusing on running your business and pulling in the money.

Learn more about Corporations Vs. LLCs.

We are a national registered agent and incorporation service. That means that we pay income tax to every state and operate in every state. We do incorporations for our clients every day. We’re not just a document filing company. We get hired by attorneys and individuals every day to not only incorporate their business, but get the business set up and registered with various state agencies to actually start doing business.

You can see the state filing fees for the state you would like to incorporate in by looking at the first couple questions on the sign up form below, or you can see more specific information on each of the states below. As an additional option, you can incorporate yourself, and just have us be your registered agent. When people sign up for registered agent service only, the correct forms and filing instructions are presented to you immediately after signing up for registered agent service.

More Corporation Resources: