IncFile.com - Business Incorporation Solutions

Typically entrepreneurs will select the S-Corporation as the entity of choice for the following reasons:

• The S-Corporation combines the advantages of the sole proprietorship, the partnership, the LLC and the corporation into one entity.
• Unlike sole proprietors and the partners in a partnership the shareholders of the S-Corporation are granted the same level of limited liability and personal asset protection as are the shareholders of a corporation.
• The S-Corporation allows shareholders to avoid the “double taxation” levied on shareholders of C-Corporations that is because all of the income or losses in a S-Corporation are reported only once on the personal income tax returns of the S-Corporation’s shareholders.

In order to elect S-Corporation status for an already existing C-Corporation for the current tax year, the corporation must file the IRS Form 2553 by March 15. If the corporation is filed on or after January 1 of the current tax year, then the S-Corporation election can be submitted anytime within the tax year as long as the filing is accepted no later than 75 days after the corporation has started any of the following activities listed below (whichever is earliest):

• Issued stock to shareholders
• Acquired assets
• Conducted business as a corporation

If the S-Corporation electing is filed more than 75 days after the above listed items then the S-Corporation status would still be elected, but it would not go into effect until the beginning of the next calendar year.

For purposes of federal taxation, an S Corporation is taxed differently than a C Corporation. Typically, the S Corporation files its annual return using the Form 1120S, as opposed to the 1120 for a C Corporation. The 1120S is an informational return; it simply informs the federal tax authorities the amount of net profit/loss made by the S Corporation, the shareholders amongst which the profit/loss will be distributed, and the proportion in which the profit/loss is distributed to the shareholders. There is no tax payment/refund associated with the 1120S tax return, as the S Corporation does not have the independent tax status that a C Corporation has. Instead, the profits/losses of the S Corporation are considered distributed to the shareholders in proportion to the ownership interest of the shareholder.

Absolutely not. Being formed as a Nonprofit Corporation does not automatically mean that the corporation is tax-exempt for federal and, in some instances, state income tax. A “tax-exempt” Corporation is a distinctive entity that has gained an exemption from income tax liability. A Nonprofit Corporation is not eligible for exemption from income tax liability until it applies for and has been approved by the IRS for tax-exempt status.

The majority of states require Nonprofit Corporations to have a minimum of three directors. However, some states allow for less than three directors. A small number of states require only one director.

Yes, a Nonprofit Corporation may pay a reasonable salary to its officers, directors and/or employees for services rendered to the Nonprofit Corporation and associated to its exempt purpose.

You are not required to form your nonprofit in the state where it will be physically located. However, practical matters in choosing a location to incorporate should be taken into consideration, such as the state fees and the taxation laws governing that state. If your nonprofit corporation will have only a few officers or directors and most of the activities will take place in one state, it is advisable to incorporate in that state. The disadvantages of not incorporating in your home state include the requirement of having to qualify to do business in a foreign state, being subjected to taxes in both your state of incorporation and the state in which you conduct business, and being susceptible to a law suit in your state of incorporation as well as the state in which you conduct business.

You should choose a name that represents the purpose of your nonprofit corporation. If you incorporate through IncFile, we will request a first and second name choice for your nonprofit and complete a name availability search to assure that your name is available and not deceptively similar to any other legal entity. Further, you must choose a name that clearly indicates that your nonprofit is incorporated, by including the words “Corporation”, “Incorporated”, “Corp.”, or “Inc.” in your name.

You must incorporate the nonprofit organization in your particular state, which consists of filing your organization’s articles of incorporation with the state. It is important that your organizing documents contain the required language and specific clauses, such as a detailed exempt purpose statement, to ensure that your nonprofit will meet the requirements to qualify for Federal 501(c)(3) tax-exempt status. If you choose to incorporate your nonprofit through IncFile, you only need to complete the online order form. IncFile will prepare and file your organizing documents.

A Nonprofit Corporation is a Corporation whose principal purpose is public benefit and not for producing a profit. A Nonprofit Corporation may not distribute income to benefit its officers and/or directors. More importantly, a Nonprofit Corporation is not an ordinary business and should not be used as an alternative form for a business with the primary purpose of generating a profit.

Due to the fact that the EIN is filed with the IRS in the name of the company, we have to wait until the state officially forms your company and we receive the official filed documents from the state in order to electronically obtain your EIN. Once we have received your documents from the state we will immediately obtain your EIN electronically and forward everything to you, ASAP.

Although we perform a name search for your company before we file it with the state, the company name is not official until it has been accepted and filed by the state. We cannot recommend making any business or financial decisions based upon the company name until it has officially been accepted and filed by the state.

If your first name choice does not appear to be available, we will automatically proceed to the second name choice. If neither is available, we will contact you to for further instructions. The alternate name is not a required field; if you are not certain that the alternate name will be acceptable to you then please leave that field blank.

If you already have an EIN, and the organization or ownership of your business changes, you may need to apply for a new number. Some of the circumstances under which a new number is required are as follows:

• An existing business is purchased or inherited by an individual who will operate it as a sole proprietorship.
• A sole proprietorship changes to an LLC, corporation, or partnership.
• A partnership changes to an LLC, corporation, or sole proprietorship.
• A corporation changes to an LLC, partnership, or sole proprietorship.
• An LLC changes to a corporation, partnership, or sole proprietorship.
• An individual owner dies, and the estate takes over the business.

A corporation consists of all three: officers, directors and shareholders. Shareholders are the owners of the corporation and elect the directors. Directors guide and are involved in the fundamental decisions of the corporation on behalf of the shareholders. Officers are selected by the directors and run the day-to-day operations of the corporation. These do not need to be separate people. Any person can fill all three positions. In small businesses, one person can be the only shareholder, the only director, and the only officer.

The 2553 Form, known as the sub chapter S election, is required to be filed with the IRS to get S-Corporation status for purposes of federal taxation. Filing this Form with the IRS is used to convert a C-Corporation into an S-Corporation.

Par value is a nominal dollar amount given to corporate shares. It doesn’t necessarily reflect their real value, and is typically set at a low value (i.e. one dollar or one cent). The par value of a share is the minimum price at which it may be sold to shareholders, and the par value must be the same for all shares of the same class. The shares can be sold to the initial shareholders, at par value or more, but the price must be the same for each share. Not all states require a par value. Unless you specify otherwise, IncFile will authorize 1500 shares (this is due to the fact that 1500 is easily divisible by 2, 3, 4, 5, 6) with a par value of one cent, or at no par value if not required by your state.

The bylaws of a corporation are an internal document that contains rules for holding corporate meetings and carrying out other formalities according to state corporate laws. Bylaws are not filed with the state.

The number of initial shares your corporation is authorized to distribute is specified in the Articles of Incorporation. The actual number is more or less arbitrary, at your discretion. IncFile uses a default number of 1500 shares (this is due to the fact that 1500 is easily divisible by 2, 3, 4, 5, 6), with a par value of one cent (if your state requires par value, otherwise no par value will be assigned). Some states charge more to form a corporation with a high number of shares and/or high par value.

Once you receive the filed Articles of Incorporation, which signifies the formation of the corporation by your state, your corporation will need to hold an organizational meeting of the initial shareholders and directors. At this meeting the directors will typically adopt corporate bylaws, distribute corporation stock to initial shareholders, and appoint corporate officers. Also, in most states, directors must meet at least once a year, as directors typically must be elected (or reelected) each year. At the annual meeting the board members accept their election to the board, and transact any other necessary business. The date, time, and location of the annual meeting is typically specified in the bylaws. Written notification of the annual meetings is not usually required, but it is probably a good idea. Other regular meetings may be held as spelled out in the bylaws. Special meetings may be called, and it is typically required that directors receive written notice of the date, place, and purpose all special meetings of directors.

NOTE: It is important to observe these formalities and take corporate minutes of the required meetings. Failure to follow these formalities and properly document your meetings (i.e. keeping minutes) can place your corporate status in jeopardy. The necessary record keeping material, sample bylaws, and stock certificates are included in the Customized Corporate Kit provided by IncFile.

Unlike many other business entities in which the profits pass through to the owners’ personal tax return (e.g. LLCs, S Corporations, etc.), the C Corporation is a completely separate taxable entity. The C Corporation pays federal taxes on the net profits (after all expenses, including salaries and bonuses) of the business by filing the 1120 form with the IRS. The after tax profits can be paid out to the owners (shareholders) in the form of dividends, or retained for reinvestment of the business. The first $50,000 of net income is only federally taxed at 15% rate, and the next $25,000 is taxed at a 25% rate. Different states have different rules on how they tax corporations.