GENERAL INCORPORATION FAQ

Which business type is best for tax purposes?

There are two kinds of business entities LLCs and INCs – S-Corporation, and C-Corporation. Both C-corp and S-corp are corporations and are filed the same way. When a corporation is formed, it is considered to be a C-corp. You can then elect to be taxed as an S-Corp. Each kind of business entity and their taxes have been shared below:

• A corporation is taxed normally at both the corporate level and the personal level. This means that the profits of the company are first taxed at source and then the dividends given out to the shareholders are taxed in their personal income tax returns. This is called double taxation.
• Corporate taxes are much lower than personal taxes which is why some business owners tend to choose this kind of business entity.

• The S-Corporation has its profits flow directly to the shareholders of the company, which is then taxed at the personal level. This is called pass-through taxation. This allows the profits of the company to be taxed only once.
• S-corps offer the ability to limit the self-employment tax which can result in considerable self-employment tax savings.

• By default, a single-member LLC is taxed as a sole-proprietorship (owner is taxed for the profits earned in his/her personal return) while the multiple-member LLC is taxed as a partnership.
• LLCs are just like S-corporations and offer pass-through taxation, which means that the profits of an LLC are taxed just once.
• The LLC can choose to be taxed as a C-Corporation or an S-Corporation. This means it has multiple options in terms of taxation.
• It is extremely flexible in how it distributes profits and how they are taxed.

What type of business entity is best for me?

Choosing an entity type is very important because it depends on three main factors: record-keeping, taxation, and liability. Your selection would however be based on your company goal as every type has its own advantages. Here are the common forms of business entities:

• Sole Proprietorship: This is the most common kind of business organization. It is easy to form and provides complete managerial control to the owner. But there is no limited liability protection and so it is not a credible business entity form.
• Partnership: This involves two or more people who agree to share in the losses and profits of a business. All the profits are divided and then are taxed through the individual income tax returns. And just like the sole proprietorship, the partnerships have no limited liability protection and so this is also not a credible business entity form.
• Corporation: This is a legal entity that is created to conduct business and is separate from the owner unlike the partnerships or sole proprietorships. The main benefit of this business entity is that it offers personal liability protection. But it also comes with complex requirements to keep the business running. Based on the way it can be taxed, there are two kinds of corporations:
  • C-Corporation: the profits are taxed at the corporate level and when the dividends are given out, it is again taxed at the individual level, causing double taxation.
  • S-Corporation: You can elect to be taxed as an S-corporation where the profits are taxed at the individual level only.
• Limited Liability Corporation (LLC): It offers liability protection and fewer complexities as compared to the corporation. And it can easily mimic the tax status of the s-corp and c-corp, where you just need to notify the IRS on how you want to be taxed. This makes it highly popular amongst small businesses

Making your choice here would be entirely based on your business goals. So, do take the help of a professional if you are confused. Contact us today!

How do I keep my LLC and Corporation compliant?

It is very important to keep your LLC and corporation compliant to the rules since if you fail to do so, you will lose all the benefits it has to offer including the protection of personal assets and tax-deductible benefits. There are both external and internal ongoing requirements that need to be met by the company to stay compliant based on the type of business structure you have. Each has been explained below.

Internal Requirements

• Corporations: Both the C corporations and S corporations have the strictest internal requirements, which include holding initial and annual director and shareholder meetings, adopting and maintaining updated bylaws, issuing stock to shareholders, and recording all stock transfers.
• LLCs: Even though it is not required for the LLC, it is highly recommended that you maintain an updated operating agreement, issue membership shares, record all membership interest transfers and hold annual meetings of members and also of managers, if the LLC is manager-managed.

• Annual reports: This is used by states to track formed or qualified corporations and LLCs. You will have to file the annual report with the state and pay the required fee which is different for every state. Visit your state’s Secretary website to get details on it.
• Franchise tax: A few states need you to pay a franchise tax for getting the privilege of operating as a corporation or LLC in that state. Each state has a different way of calculating the tax, check the state’s official website to know more. You can also read more about Delaware Franchise Tax in our article.

Which state is best to form my LLC or Corporation?

Unless and until you plan on having a large, multi-state operation, it is always better to have your company formed in the state in which you are located. But if you still decide to open your company in another state, Delaware is a great choice especially if you are planning to make your company go public in the future. Delaware allows you to expand and grow into a huge empire.

Do I’ve to put “LLC” or “Inc” in my company name?

Yes, it is important to add an “LLC” or “Inc” after your company name if it is a limited liability company or a corporation respectively. However, no state requires a corporation or an LLC to use a comma in separating the business name from the business designation. As a business owner, you will have to register your company with the state, rather than with the federal agencies.

What documents do I require to open my business bank account?

Every bank will need documents that verify the owners and the company’s registration with the government. Here is the list of documents that you will have to present for each kind of business for which you want to open a business account:

Sole Proprietorship Business Bank Account Requirements

• Personal identification: Social Security number (SSN) & two forms of personal ID (valid forms include a driver’s license, passport, and Social Security card.)
• Fictitious business name certificate: This certificate is also known as the “doing business as” certificate (DBA certificate), if your business operates under a different name from your own.

Partnership Business Bank Account Requirements

• Business identification: You federal employer identification number (EIN) and a copy of your articles of organization.
• Organization documents: This includes your business partnership agreement and any other organization documents that you have.
• A signed declaration of unincorporated business and any required business licenses.

Corporations Business Bank Account Requirements

• Business identification: Your federal EIN.
• Articles of incorporation and corporate charter
• Corporate resolution signed by all of your officers as well as a signed signature card by the account signers.
• Business licenses, if any.

Limited Liability Company (LLC) Business Bank Account Requirements

• Business identification: You federal employer identification number (EIN) and a copy of your articles of organization.
• Organization documents: This includes your business partnership agreement and any other organization documents that you have.
• A signed declaration of unincorporated business and any required business licenses.

Note: Some banks can ask for extra documentation other than those mentioned here. So, be prepared and call us before time to know what documents you will need to get for the meeting to open your bank account.