Toll-Free: +1 800 803 6190
Telephone:
+1 415 295 4939
FAX:+1 800 747 9412
E-mail: info@GoRiskFree.com
E-mail: info@GoRiskFree.com
Most smart business owners today are protecting themselves by Incorporating or forming an LLC. Our advisors can assist you in selecting the correct structure to meet your needs and protect your interests.
Some of the Benefits of Incorporating:
- Liability Protection
- Tax Savings
- Business Credibility
- Ease of Raising Capital
- Prestige for the Corporate Officers
- Perpetual Duration
- Simple Transfer of Ownership
- Centralized Management
- Privacy (The “Corporate Veil”)
Corporate Formalities
Operating Formalities
Corporate Formalities are formal actions that must be performed by a Corporation's director, officers, or shareholders in order to maintain the protection afforded by the formation of the Corporation. These are essential procedures that serve to protect the personal assets of a Corporation's directors, officers, and shareholders. The Primary Formalities are:
- Corporate Funds must be maintained separate and apart from Personal Funds.
The corporate entity should have it's own banking accounts (to include checking, lines of credit, etc.). Not keeping these funds separate, also known as "co-mingling," can lead to increased scrutiny and potentially serious liability in the event of audit by the IRS and the endangerment of personal assets. It is a best practices procedure not to co-mingle funds.
- Meetings of the Board of Directors' must be held at least annually, usually following closely behind Shareholder meetings (also known as "Special Meetings"). All 50 states mandate a meeting being held at least once a year.
These annual meetings should be used to approve transactions entered into by the Corporation.
In lieu of attendance by any given Director, written consent must be provided by said Director (either in the form of a waiver in the absence of proper notice, or in the form of a proxy vote given proper notice) for any decisions made at these meetings.
Meetings of the Shareholders, also known as "Special Meetings" can be held at any time.
The Corporation's Secretary is responsible for giving proper legal notice of these meetings, and for maintaining the necessary waivers, proxies, minutes, etc.
- Corporate Minutes, or "notes of the meetings of the Board of Director's or Special Meetings" are essential and are the official, legal record of such meetings.
The Corporate Minutes are to be maintained in date order in the Corporate Minute Book, and can be a valuable asset in the protection of the Corporation's directors', officers' and shareholders' assets. Proper, timely maintenance of these minutes is essential in defending against audits by IRS and alter ego claims.
Directors and Corporate Officers will at times seek legal counsel during annual meetings, and any discussions during these sessions are considered privileged conversations and protected by the legal doctrine of Attorney-Client Privilege. However, minutes taken of these conversations are considered part of the Corporate record and hence care must be taken, by the Corporate Secretary, to note when these communications occur by citing them in the Corporate Minutes as "Conversations by the members of the board of directors and legal counsel engaged in legally-privileged conversation at this point" instead of noting the actual conversation verbatim.
- Written Agreements for all transactions should be executed and maintained.
All transactions that involve real estate leases, loans (whether internal or external), employment agreements, benefit plans, etc. that are entered into by or on behalf of the Corporation must be in written agreement form.
Improper or untimely documentation of internal loans from a Shareholder to the Corporation, for example, may lead to IRS re-classification of repayment of the principal on said loan as a dividend, with the commensurate tax liabilities incurred by the Shareholder
It is imperative that executive compensation, capital asset acquisitions, etc. be timely and properly documented in these minutes. Failure t properly and timely documents these can potentially lead to tax liabilities on the part of the Directors, Officers, or Shareholders as a result of IRS "reclassification." For example, the IRS may classify what they deem as "excessive, undocumented executive compensation" as a dividend by the corporation to the recipient, and hence not tax deductible by the corporation--this will lead to increased, unpaid tax liabilities.
We cannot stress highly enough that failure to observe and implement these formalities will serve to diminish and mitigate the protections offered by the formation of the Corporation and will allow outside entities (the IRS, creditors, claimants/plaintiffs, potential adverse litigants, etc.) to "pierce the corporate veil" and peer into the inner workings and assets of the Corporation, it's Officers, Directors and Shareholders.
Toll-Free: +1 800 803 6190
Telephone:+1 415 295 4939
FAX:+1 800 747 9412
E-mail: info@GoRiskFree.com
I
Incorporate your business for:
- Liability Protection
- Tax Savings
- Business Credibility
- Ease of Raising Capital
- Prestige for the Corporate Officers
- Perpetual Duration
- Simple Transfer of Ownership
- Centralized Management
- Privacy (The “Corporate Veil”)
Liability Protection
Incorporate your business for increased protection. In order to enjoy maximum liability protection from lawsuits, the company or corporation must be established, operated, and maintained properly, with all of the “operating formalities” properly implemented and adhered to. Protection is not automatic. Legal protection is only enjoyed by a company that has been formed precisely according to legal statute. This liability protection provides a buffer between the legal obligations of the business, and the shareholder’s personal assets. Since the shareholders are not personally responsible for the corporation’s obligations (let’s remember that the corporation, once properly formed and run, is now considered a separate entity), they can be protected from corporate litigation. Thus, if the company is involved in a lawsuit, the shareholders’ personal homes or assets would not be at risk.
Let’s cite an example: John Smith owned a small construction company in Riverside, California. He was concerned about lawsuits stemming from construction liability, so he formed a corporation. Because John was advised that a corporation is a separate entity from the people who own it, the owners, or “shareholders” are shielded personally from business-related lawsuits. So when one of John’s employees was careless and fell from the roof and broke his arm, the liability was limited to the corporation. John’s personal assets, his home, cars, and savings, were safe and secure from any judgment or settlement rendered against his corporation. Without the benefit of the protection offered by the corporation, John's business liability potentially exposed his house, cars and life savings to a potential lawsuit.
Tax Savings
Incorporate your business for tax benefits. There are substantial advantages, and savings, available to an incorporated business. For example, Brian Smith., the owner of a web design company in Minneapolis, used to pay income tax on any profit that his company showed. This “post tax” income was then used to cover his expenses, to add to his savings account, and provide for his discretionary spending. He was spending a lot of “post-tax” money. After learning of the benefits of incorporating his business, he now socks away tens of thousands of dollars per year in his corporate pension fund. The money is contributed tax free and grows tax free until his retirement. This option was not available to him before he incorporated. He also writes off all of his medical expenses, including prescriptions, through his corporation, and he is able to write off 100% of his insurance premiums versus the mere 30% write-off available to partnerships or sole proprietorships. He even leases a company car and writes the check every month from his corporate bank account. These are just a glimpse of the types of advantages available by establishing your company as a corporation.
Another tax-saving strategy is called “income shifting.” Income shifting allows for the income of a company to be strategically divided between the shareholders and the company in a manner that allows the overall taxes to be minimized.
Additionally, a corporation with under $3 million in gross revenue is one of the least audited business types. Conversely, the most audited business form is the “Schedule C” self- employment income form.
Credibility
Credibility is another benefit afforded to a company that is incorporated. Customers and other businesses usually feel more secure engaging in transactions with a corporate legal entity because it instills a feeling of confidence in the company. For investors in and lenders to a business, it gives them knowledge that their investment assets are afforded better legal protections. A corporation can also have a credit rating of its own regardless of the credit ratings of the owners or shareholders. The steps and process by which a business must go through to incorporate shows the customer that the company that has secured the “Inc.” after their company name has demonstrated their desire to be a long-standing business in the marketplace.
Raising Capital
Incorporate your business for investment opportunities. Whereas sole proprietorships and standard partnerships are limited as to how they can raise capital for their business, a corporation can raise capital through the selling of corporate stock, or interest, in the company. Investors are more readily attracted to a business opportunity where their exposure to liability is at a minimum. Investors typically want a maximum return on their investment with as little liability as possible. If something goes wrong and lawsuits are filed, they want to know that their home and personal accounts are not vulnerable to attack. Many banks want a business to be incorporated before providing a small business loan.
Prestige for the Corporate Officers
Having “CEO” or “President” after one’s name, along with the “Inc.” after one’s business name on a business card, may open doors and provide opportunities that would not be available otherwise. Associating with other successful businesspeople may expose one to business ideas that may have a positive financial impact. Moreover, potential clients may be more amenable to hearing the sales presentation or business proposal if it comes from the “CEO” rather than merely the sole proprietor.
Another example: S. Smith formerly sold credit card merchant account services to start-up businesses. Without a corporate title of his own, he was usually met with resistance when he called upon potential clients. Then he got smart by saying: "this is Mr Smith, CEO of Card Processing Corporation.." and this has multiplied his ability to reach decision-makers, and thus greatly enhanced his bottom-line profit. The fact that he had a title to match his newly incorporated status was the leverage he needed to get through to the decision makers.
Perpetual Duration
The incorporated business has perpetual duration unless stated otherwise in the articles of incorporation. This unlimited life allows the company to continue to exist and conduct business, even following the untimely death of an owner, or the decision by individual owners to sell their interest in the company. Companies like Anheuser-Busch Companies, Inc., Wal-Mart and the Ford Motor Company, for example, once all started as small businesses and have since then passed legacies on to family members which should continue for many generations.
Simple Transfer of the Ownership
An incorporated company can quickly transfer ownership and the operational control of the business. This controlling stake can be transferred either in whole, or in part, usually by the sale or transfer of company stock. The transfer of the ownership is typically a private, internal matter and does not typically a public filing.
Centralized Management
The centralized management found in incorporated businesses aids corporate communication during transactions by making the process more efficient than mere partnerships. When it comes to binding agreements and high-stakes business decisions, this communication allows decisions and agreements to be made with input from one person or major parties involved with the company. This differs from a partnership, where the major decisions are typically made by each partner, with a consensus needed for most of these decisions.
Privacy
Incorporate your business to provide anonymity to the shareholders, directors, officers, and owners of the company or corporation. This anonymity is subject to the local laws of the state in which the business is incorporated, but it usually means that an incorporated business can allow an individual to run, manage, and own the business without their name appearing on public record. Shareholder names do not typically appear in the public records. Nominee officer and director service, where someone other than the shareholders appears on the officer list is a service that is available in several states. This allows for the individual owner to be afforded anonymity, unlike a sole proprietorship or partnership.
These are just some of the factors and benefits to consider when deciding to take that leap and incorporate your business. Though every situation differs, incorporating your business is the next logical step if any of the above-mentioned considerations are of value to you. You can start the process now by clicking one of the order buttons on this page.
Other Considerations When Incorporating
There are other factors that should be taken into consideration when incorporating These include the fact that there are local state and federal requirements that need to be met, the need to be created in compliance with the general corporation law of the government in which the business is incorporated, the filing of the required articles of incorporation with the correct state office, and the paying of the federal and state taxes and fees, along with any business license fees imposed by the local government. There are also certain easy “corporate formalities” (described at length elsewhere on this site) that must be observed within the corporate business model. The corporation must be operated with a management structure that includes the corporate officers, and a board of directors. This can typically be one person holding all positions. Please be sure to read our very through descriptions of these duties that comes with your package, and see how we can simplify the entire process so that you and your company can start enjoying the benefits of incorporation immediately!
Incorporate Your Business -Call our Corporate Formation Specialists today!
We offer complete online processing of your incorporation order. You can also call our offices Mon-Fri 8AM to 8PM Eastern Time and 5AM to 5PM Pacfiic Time. Feel free to speak with any of our incorporation specialists who can help you with your service selection. We offer complete, fast and reliable service for all 50 states, nobody can incorporate your business better than Go Risk Free Inc. Your Satisfaction is Guaranteed!