Forming a corporation requires compliance with state laws and regulations. Incorporation formalities and regulations vary in each state. Refer to your state’s laws and regulations for forming a corporation. Basically all states require articles of incorporation to be filed with the state authority dealing with business registrations. In some states it is called a Certificate of Incorporation or Charter. The articles or certificate of incorporation must contain all the critical information regarding the promoters and purpose of the corporation. An article or certificate typically contain
- Name of the Corporation.
The proposed corporation’s name is the first article. The name must not be identical or closely resembling an existing business name in the state. You may have to consult multiple databases to ensure this. States maintain business registers of all registered names and trademarks. The name must include a term such as ‘Company’ or ‘Corporation’ or abbreviations suggested by the state laws.
- Registered Address.
The corporation must have a local address as it registered office or principal place of business
- Duration:
Some corporations may be formed for specific purpose and duration. Generally corporations are “perpetual”
- Business purpose.
The purpose for which the corporation is formed, the business it proposes to conduct. You may state that “all lawful business permitted by state law”. There are some restrictions on the types of business a corporation can engage in.
- Authorized Capital:
The number and class of shares the corporation is authorized to issue and the par value of a share should be stated.
- Registered agent:
The Corporation should have a registered agent with a local address for process serving and his consent to act as registered agent should be included.
- Name and Addresses of Incorporators.
- Name and Addresses of Directors
The above articles may not be in the same sequence in every state and some states may require more or less articles from the above. For example, Connecticut state certificate of incorporation require that the class of shares and it specifics like voting rights, transferability etc be stated. DC requires that the business articles be stated in detail. Publication of notice of intent to incorporate is part of some states incorporation requirement.
Limited Liability Companies or LLCs also provide personal liability protection to business owners. Forming LLC also requires legal and procedural formalities to be complied with. In an LLC, the charter to operate is in the form of Articles or Certificate of Organisation which will state the purpose and essential information about the promoters. Some states require a LLC operating agreement to be filed with the state.
Every business form has inherent advantages and disadvantages in operation and maintenance. If you are operating as a sole proprietorship or a partnership, the advantages lie in its operational flexibility and taxation procedures. Sole proprietorship or partnership requires few formalities to be complied with for formation or maintenance. The main disadvantage is that the business owners are personally liable for all the business debts and obligations. In a partnership, all the partners are personally liable to the partnership activities and if one partner is unable to meet his or her part of the obligations the other partners have to make good for it.
Limited Liability Companies and Corporations offer personal liability protection to its business owners. The disadvantage in these business forms is that the formation and maintenance entails compliance with state laws. The business owners have to pay yearly taxes for operating these entities and are required to file various returns to Federal and State governments. As the state statutes govern the formation and operations of LLC and Corporation and the rules vary in each state, you have to refer to the respective state statute on how to form a corporation or LLC.
Changing your business form from a sole proprietorship to a Corporation offers many advantages. The foremost as to why incorporate is the limited liability protection it offers. A corporation is a separate legal entity in the eyes of law and the corporation’s business deals do not affect its shareholders or officers personally with some exceptions. Incorporation is governed by state rules and regulations like that of all other business entities. Incorporation rules may vary in each state. To start a corporation in any state the basic requirement is to file Articles of Incorporation with the state. Each state has its own stipulations as to the information to be stated in the Articles (or Certificate as called in some states). The name of the corporation, main purpose for which the corporation is formed, the authorized share capital and class of shares, voting rights and preferences of each class of shares, names and address of the incorporators and directors, the registered address which must be a local address, a registered agent or officer for process service with a local address and the person’s consent to act as agent etc. are some of the critical information required by states to be stated in the Articles. Filing an article and obtaining a certificate of incorporation does not authorize the corporation to start business. All the business permits and licenses required by Federal and State laws have to be obtained.
Internet and online activities have changed our life in unimaginable ways. You can do most of your work sitting at home or office without stepping out. The cost of getting things done have come down because of this. Forming a corporation used to involve a lot of visits to the lawyer’s offices and state agencies and fees and expenses used to be considerable. Now online cheap incorporations are possible. You can bypass using a lawyer and incorporate online swiftly for reasonable cost. Online incorporation services are prolific on the internet and you can choose one according to your budget. You may still have to consult a lawyer for drafting the bylaws, share holders agreement or other legal documents.
Certain formalities are to be complied with for forming a corporation. Before opting for cheap incorporation online, it will be advisable to understand what you are getting into by incorporating your business. If you have decided to incorporate out of state in one of those tax haven states, have you thought about what will be needed to operate the business in your state? Or, is the corporation the right business structure for you and why not an LLC? Consulting a lawyer for your incorporation will provide you with the right answers and advises. But that does not necessarily mean that you have to consult a lawyer for forming a corporation. You may opt for online cheap incorporation if you have the confidence that all angles regarding the incorporation have been covered.
Cheap incorporation or costly, you still have to pay the fees for filing your articles and other permits and licenses. You need a resident agent with a local address if you are incorporating out of state and you have to file annual corporate returns, pay corporation tax every year till you decide on dissolution. All this cost money and before starting on incorporation it will do good to think about all this.
Online cheap incorporations does not mean that they are cheap as in substandard. If you have done your homework and comply with the incorporation formalities correctly, online incorporations will not only save you money but also time. Online incorporation if properly executed will provide faster results due to the ease of operations for the state agency handling incorporations and other business formalities. Most states nowadays encourage online activities for this reason and some states insist on filing your papers online.
The legal structure you choose for your business should be in consideration of the risks and benefits it offers. Simply because a business structure has a few advantages over another, it is not prudent to adopt a business structure without weighing the pros and cons carefully. Likewise, choosing between an LLC or an S Corp depend on your business activities. Both the legal forms LLC or S Corp offers limited liability protection to its business owners, members in LLC and share holders in S Corp. Basically the holding structure is significant in adoption of LLC or S Corp for your business.
Limited Liability Company or LLC can be constituted with a single or multiple members under state statute. LLC is a relatively new form of business structure. Internal Revenue Service has not created a new tax classification for LLC. A LLC is still classified as a Sole Proprietorship, Partnership or Corporation for taxation purposes and the choice to elect the tax classification is left to the members. LLC members can be natural persons, other business entities and even aliens. In most of the states there are no restrictions on ownership. LLC provides the benefit of limited liability as a corporation with the flexibility of management and operations as a Partnership. LLC can elect to have pass-through taxation as in a partnership or sole proprietorship. Members can report their pro rata share of the LLC profit or loss in their personal tax returns and pay tax if applicable. Unless otherwise restricted in the Articles or Organization or Operating agreement, the membership in a LLC is easily transferable.
An S Corporation is no different from a C Corporation in form and structure. S Corporations are constituted by shares, which are easily transferable unless otherwise restricted in the Articles of Incorporation. The ownership has a few restrictions. S Corporations cannot have more than 100 shareholders; all shareholders must resident citizens and natural persons. There can only be one class of shares and dividend has to be distributed in proportion to the share holding. The main difference between a C and S is in taxation. C Corporations are subject to corporate taxes and have to pay tax on its profits. When the profits are distributed as dividend to share holders, they have to pay income tax on that which essentially is double taxation. S Corporations do not pay corporate tax but the shareholders report the profit in proportion to their share holding in their personal tax returns and pay tax. In LLC Vs. Corporation, the major advantages of LLC lie in its unrestricted ownership and flexibility in management. Corporations are subject to many formalities in incorporation and operations.
If you are thinking of incorporating your business in Hawaii, you might want to think about buying a corporate seal, especially if you are going to incorporate as a c corp and do business in other countries. If you plan to do business in other countries, you want to buy corporate seals because they are required in order for you to do business in foreign countries. You can also buy corporate seals when doing business in the United States because they can be useful. For example, corporate seals are great for opening business bank accounts because they prove that the business exists, you can also use them when issuing stock.
When choosing your corporation’s name you must make sure that, it ends with corporation, incorporated, or an abbreviation of those two words, so that people can easily identify it as a corporation. The other requirement that you must meet when incorporating your business is that the name cannot be the same as or similar to any other business that is registered to do business in the state of Hawaii.
When you begin to fill out your articles of incorporation the first thing that you need to include is the physical address of your corporation. You will also need to include the directors’ information. In Hawaii you will need to have at least three directors, the only way that you can have less than three directors is if you have less than three shareholders. If that is the case, you will need to have the same number of directors and shareholders. While there is no age requirement for the directors, there is a residence requirement. At least one of the listed directors has to be a resident of the state of Hawaii so that they can receive any court filings for the business. Officers are not required to be listed in the articles of incorporation, but you must include stock information.
Once you have filled out the articles of incorporation you will need to file the articles of incorporation with the Department of Commerce and Consumer Affairs. When filing your articles of incorporation with the department you will need to pay the appropriate filing fee, which if you decide to add additional stock or par value there will not be any additional fees. Once you have paid the filing fees for the articles of incorporation, the state will process your paperwork. Once the request has been processed and approved, you will receive your certificate of incorporation for your corporation, which makes everything official.
Once you have gotten your certificate of incorporation you will need to hold your corporations annual meeting. At the first meeting, you will want to adopt your corporation’s bylaws, but you will also want to elect your board of directors. You will also need to research any yearly requirements for your corporation so you can maintain your corporation in good standing. Currently the state of Hawaii requires your corporation to file annual statements with the Department of Commerce and Consumer Affairs by March 31 each year.
If you are incorporating in Hawaii, you need to be aware of the income tax rate that they charge. Currently Hawaii is charging 4.4% of the first $25,000 of taxable income, if you have taxable income between $25,001 and $100,000 you will be charged a rate of 5.4%, and if you make over $100,000 you will have to pay an income tax rate of 6.4%.
