Categorized | Incorporate Online

Startup 1.7. Incorporate Online

Shoestring Venture: The Startup Bible (1st Edition)Because corporations and LLC’s are complex legal entities, forming a corporation can be a tricky affair. Unlike a small proprietorship, you can form a corporation anywhere: any state or almost any country. You could be doing all your business in North Dakota but be incorporated in Delaware—or the Bahamas! The state, or country, you choose to be incorporated in has everything to do with the regulations of that state and how much that state taxes your corporate income. However, even if a state or country does not tax your corporate income, the state and country you live in will tax any distributed profits or capital gains that are paid out to you.

Forming a corporation is a relatively complicated task with several steps, each with its own pitfalls.

  1. Corporate Name Clearance. All states have rules about which corporate names are kosher and which aren’t, so the first hurdle to get over is state approval of your corporate name.
  2. Directors. Before anything gets filed, you will need a Board of Directors. The Directors represent the “owners” (shareholders) of the business and exercise governance over the management.
  3. Articles of Incorporation. Once you have directors, you will file a set of legal papers, the “ Articles of Incorporation,” with the Secretary of State of the state, or country, you’re incorporating in. While the fee for American states is pretty reasonable—anywhere from $100 to $800—it’s paying the lawyers to draw up these articles that typically can take a big bite from your bank account.
  4. Corporate Bylaws. Every corporation is legally required to have “operating rules,” or corporate bylaws governing the conduct of the business. These bylaws serve as a contract between the investors and the management; since the owners often don’t run the company, they want to make sure that the directors who govern the company follow certain minimum rules, such as when and how often the directors meet. Bylaws are typically passed at the first Directors’ meeting, in which not only bylaws, but stock issuance, fiscal year determination, corporate officers, and the corporate seal are also effected.
  5. Stock Issuance. Before the corporation can do business, the Board of Directors has to issue shares in the corporation to the owners. The Directors have to determine the “rules” of these shares: which shares have voting privileges, whether shares can be traded, and so on. Because of federal and state securities regulations, stock issuance can be a lengthy, complicated, and expensive process if stock is being issued for sale to general investors. If, on the other hand, shares in the company are privately distributed, that is, limited to only a few people who will be fairly active in running the company, stock issuance is exempt from almost all federal and state regulation. If the corporation has limited investors, but some are passive investors, i.e., not actively running the company, then you absolutely need to hire a lawyer to help you figure out which federal and state regulations apply to your stock issuance. Once you have all that figured out, the shares have to be issued, the names of the shareholders recorded, and a notice of stock transaction filed with the state.
  6. Business License. And, just in case you thought government was user-friendly, you still have to get a business license! You will probably also need to get a taxpayer identification number from the federal government and there may an army of other permits and licenses you need, such as a seller’s license or a liquor license.

Incorporating need not take a bevy of lawyers and accountants. Again, the Internet simplifies and speeds up the process and significantly reduces your cost. If you’re serious about forming a corporation or LLC, you should consult all the services below and shop for the best price.

United States

  • LegalZoom Business Formationshttp://www.legalzoom.com/business-formations/businessformations.html – LegalZoom is a relatively new legal service delivering a smorgasbord of virtual legal services at substantially discounted prices. LegalZoom is able to offer steep discounts because you’re essentially purchasing legal boilerplate from them. Their business formations unit offers incorporation, LLC formation, and DBA registration services across all states. Incorporation services start at $139 plus state fees ( articles of incorporation, bylaws, corporate name clearance, resolutions of the first meeting of the Directors) to $369 plus state fees.
  • Form-A-Corphttp://www.form-a-corp.com – Form-A-Corp allows you to register a business online or by phone. You can form a for-profit, a nonprofit, or a subchapter “S” corporation, or limited liability company ( LLC) in any of the fifty U.S. states. Form-A-Corp will perform all the necessary legal steps for you and provide legal and accounting resources after your corporation or LLC is formed. The cost varies by state and business structure; Form-A-Corp includes an online calculator that helps you determine all the costs, including Form-A-Corp’s fees, which you’ll have to pay.
  • Business Filings Inc. – http://www.bizfilings.com – BizFilings professionally forms corporations, LLCs, and nonprofits and offers “rush service” if you need to have your corporation right now. This rush service makes it possible to file a corporation or LLC in as little as twenty-four hours. The company offers a free Guide to Incorporating Your Business, illustrating the options available to new business owners as they decide the appropriate structure for their business; the advantages and disadvantages of forming a corporation or an LLC; the formation process; and the requirements imposed on business owners after forming a corporation or an LLC.
  • Companies Incorporatedhttp://www.companiesinc.com – Companies Incorporated allows you to form Corporations, Limited Liability Companies, Limited Partnerships, and Trusts. You can incorporate online or over the telephone. To get an idea of your total fees, you must fill out an application.
  • MyCorporation.comhttp://www.mycorporation.com/allservices/corpsupplies.htm – MyCorporation.com provides incorporation and related services primarily online, although they do offer telephone incorporation services. Besides incorporation, MyCorporation also helps business owners complete entity formation, trademark searches and registrations, copyright registrations, DBA registrations, and appointment of agents. MyCorporation does not provide legal advice. Its fees are fairly low; typically around $150 for incorporation services on top of various state fees.
  • ActiveFilings.Comhttp://www.activefilings.com – Active Filings fees typically start around $170 in addition to state filing fees and they provide the full range of incorporation and business entity formation services. As with other sites, you can determine the final fees using their quote interface.

Offshore

You may, for tax or legal purposes, choose to incorporate in another country: lower taxes, lax business regulations, privacy, or to protect assets from lawsuits and other liabilities. This will raise a ton of legal and tax issues. If you do this wrong, you could have State and Federal tax authorities dragging you and your still-beating heart over the coals, so offshore incorporation is not for the reckless or the weak-kneed. Internet resources make it much easier, but you should do your homework first. In fact, if you intend to incorporate offshore, it’s the one thing you should never do totally over the Internet. You really need to sit down with a lawyer and spend a few bucks to protect your backside.

  • Offshore Corporationhttp://www.offshorecorporation.com – Offshorecorporation.com is a division of Companies Incorporated. It was specifically formed to provide Internet registration of business entities in non-U.S. countries that offer better tax or legal situations for your company. You can read descriptions of each country and what makes that country advantageous to your business entity. Offshorecorporation.com will also set up banking for you in your host country if that’s required.
  • WSR Corporationhttp://www.wsr-corporation.com – Specializing in offshore business consultancy since 1973, WSR assists you with all aspects of company formation, limiting liability, asset protection, and tax minimization that you can get from incorporating offshore.
  • Proform Offshore Limitedhttp://www.proformoffshore.com – Proform Offshore incorporates offshore companies in all the major tax- or regulation-beneficial offshore jurisdictions. Services include offshore company formation, nomination of directors, registered office and agent, and all government fees.
  • Fidelity Corporate Serviceshttp://www.seychellesoffshore.com – Fidelity Corporate Services (Seychelles) Ltd is a specialized offshore company formation agent that incorporates business entities in the Seychelles. Unlike other resources listed here, Fidelity Corporate Services is not an intermediary, but instead a direct agent of the Seychelles. A Seychelles IBC (International Business Corporation) pays no taxes and is burdened by minimum reporting and record-keeping requirements. The Seychelles IBC also offers some of the most rigorous privacy protections.
  • Atrium Incorporatorshttp://www.atrium-incorporators.com – Atrium Offshore specializes in the formation of offshore business entities primarily to protect assets from taxes and lawsuits. Like the other companies listed here, their services focus on countries that minimize the tax and regulatory profile of a company.
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