This term incorporation services refer to the support services rendered , related to business, especially in the formation of business entities.
There are four types of business entities most commonly used to operate a business: Normally the Incorporation service providers render services for the last two models of entities.
1. Sole Proprietorship
2. General Partnership
4. Limited Liability Company
1. Sole Proprietorship
There is NO need for incorporation services for this model.
A sole proprietorship is a business that has not incorporated which is owned by one person.
If you start a business with no partners and do not incorporate, then your business is considered a sole proprietorship.
As a sole proprietor you are required to obtain an occupational license in the city and/or county where your business is located.
Generally, you must apply in person for the occupational license. In a sole proprietorship, there may be an unlimited number of employees, but there is only one owner. If there are any employees in addition to yourself, you must apply for a Federal Employer Identification Number issued by the Internal Revenue Service.
This is like a social security number, but for a business.
You apply for a Federal Employer Identification Number by filing Form SS-4 with the Internal Revenue Service.
Technically, a sole proprietorship is not considered a separate legal entity, and there is no legal separation between you as the sole proprietor and your business.
In a sole proprietorship, you are financially responsible for all liabilities of your business, and all of your personal assets are subject to seizure or lien by creditors. This is one of the major drawbacks to operating your business as a sole proprietorship.
2. General Partnership
This model is also NOT incorporated and there is no need for incorporation services..
A general partnership is a business that has not incorporated which is owned by two or more persons. The owners of a general partnership are called general partners.
If you start a business with any partners and do not incorporate, then your business is considered a general partnership. A general partnership is subject to the occupational license issue discussed above in the sole proprietorship section. General partnerships are governed by Part II of Chapter 620, Florida Statutes.
In a general partnership, each partner is jointly and severally responsible for all liabilities of the business, and all personal assets of each partner are subject to seizure or lien by creditors.
This is one of the major drawbacks to operating your business as a general partnership. Why would you ever want to put yourself in a position where your financial upside is limited to your percentage interest in the general partnership, but your financial risk is unlimited and affected by liabilities that arise in the ordinary course of business and from the possible negligence of one of your partners? You should never be a partner in your individual name in any general partnership. The risks are too great.
A corporation is formed by filing with the state standard articles of incorporation.
The most common name ending for a corporation is "Inc." or "Corp." or "Co."
A corporation is subject to the occupational license issue discussed above in the sole proprietorship section, and must apply for a Federal Employer Identification Number.
A corporation owned by one person, who is the sole shareholder, director and officer, provides the same benefits as a corporation that has many shareholders, directors and officers.
In USA ,Corporations are governed by Chapter 607, Florida Statutes. The Incorporation service provider can give A-Z assistance for this model of business entity.
As a shareholder in a corporation, you do not have personal liability for liabilities that arise in the ordinary course of business.
This is one of the major benefits of operating your business as a corporation.
Since each shareholder is protected against personal liability for obligations of the business, operating your business through a corporation helps give you peace of mind, in contrast to a sole proprietorship or general partnership.
If your corporation is administratively dissolved for failure to file the annual report, it may be reinstated at any time by paying the applicable reinstatement fee and filing the applicable form.
The reinstatement is retroactive to the date of administrative dissolution, and the corporation continues as if the administrative dissolution had never occurred. With a corporation, failure to file the annual report on time results in paying a higher filing fee.
4. Limited Liability Company
A limited liability company is formed by filing with the state standard articles of organization.
The most common name ending for a limited liability company is "LLC." The owners of a limited liability company are called members.
A limited liability company is subject to the occupational license issue . Incorporation service provider can give A-Z services for this model also.
In USA , Limited liability companies are governed by Chapter 608, Florida Statutes.
Just as with a corporation, as a member in a limited liability company, you do not have personal liability for liabilities that arise in the ordinary course of business. This is one of the major benefits of operating your business as a limited liability company.
Since each member is protected against personal liability for obligations of the business, operating your business through a limited liability company helps give you peace of mind.
The protection against personal liability provided by a limited liability company is equivalent to that provided by a corporation.
What are the benefits of incorporation?
Incorporation can provide many benefits.
Incorporation can help limit your personal liability as a business owner.
In general, creditors of your corporation must satisfy their claims by seizing the assets of the corporation rather than your personal assets.
In contrast, as a sole proprietor or partner in a partnership you are financially responsible for all liabilities of the business, and your personal assets are subject to seizure or lien by creditors.
Other benefits of incorporation can include greater tax deductions for health insurance and medical expenses, lower payments for social security tax and medicare tax, and greater opportunity to raise capital for the business through the issuance of stock.
What are Articles of Incorporation?
A Corporation's "Articles of Incorporation" is the main filing document which begins the corporation's existence under state law.
Once filed, the corporation comes into existence.
The articles of incorporation declare the desire of an individual or group to become a corporation.
It spells out certain minimum information about the corporation that is required by the laws of the state.
It may also contain specific information about the corporation that needs to be made public record, like restrictions on the transfer of stock.
The level of complexity for a corporation's Articles of Incorporation can range from very simple to extremely complex. Generally, most jurisdictions require Articles of incorporation to contain, at a minimum, information about the Corporate Name, the Registered Agent, and the Corporation's business address. Requirements vary from state to state.
What is a Certificate of Incorporation?
The certificate of incorporation is what some states issue to evidence that yours is a valid corporation and has met state incorporation requirements. In some states, however, certificate of incorporation means articles of incorporation, the document that you file to incorporate your business.
What are Corporate Bylaws?
Bylaws are rules for the corporation that specify things such as the number of votes required to pass a matter put before the corporation, and the requirements to be met before a shareholder can sell his shares, among other things. Bylaws may not be changed without a majority of votes of the board of directors. Bylaws do not need to be filed with the State. They are created solely for the corporation and it's shareholders.
Full Plan for incorporation service : Any incorporation service provider will give the following services :
Company name availability check for the state you select
The service provider will perform a non-binding name check for name availability within the State.
Preparation and filing of your articles of incorporation
The articles are the primary legal document of a corporation, they serve as a corporation's constitution. The articles are filed with the state government to begin corporate existence. They contain basic information on the corporation as required by state law.
ONE YEAR of Registered Agent Services
A person or entity designated to receive important tax and legal documents on behalf of the corporation. The Registered Agent must be located and available at a legal address within the specified jurisdiction at all times.
S Corporation Election Form Preparation
The term S corporation refers to the way in which the corporation is taxed. An S corporation is a pass through entity. There is no corporate level income tax.
Instead, a pro rata portion of the annual profit or loss of the S corporation is included on the personal tax return of each shareholder.
Obtain Federal Tax Identification Number.
LLC will get your Federal Employee Identification Number (FEIN). With authorization they will get your Tax ID Number from the IRS.
Who owns the corporation?
The corporation is owned by the shareholders. A corporation may have one or more shareholders. In general, since the shareholders elect the persons who serve on the Board of Directors, the corporation is controlled by the shareholders.
The shareholders who own more than 50% of the corporation's common stock get to make the ultimate decisions about running the corporation.
What is a C corporation?
The term C corporation refers to the way in which the corporation is taxed. There is a corporate level income tax on the profits of a C corporation.
In addition, if a dividend is paid to shareholders from retained earnings, the dividend is included on the personal tax return of each shareholder.
Thus, the profits of a C corporation are subject to potential double taxation. Your corporation will be taxed as a C corporation this year unless you timely file IRS Form 2553 to elect tax treatment as an S corporation
What is an S corporation?
The term S corporation refers to the way in which the corporation is taxed. An S corporation is a pass through entity.
There is no corporate level income tax. Instead, a pro rata portion of the annual profit or loss of the S corporation is included on the personal tax return of each shareholder. If IRS Form 2553 is filed within 75 days after incorporation, the corporation will be treated as an S corporation for tax purposes.
Many start-up businesses benefit by making the election to be taxed as an S corporation.
How does an S corporation differ from a limited liability company?
A limited liability company (LLC) is like an S corporation. Generally, business owners form an LLC rather than an S corporation if one or more of the following situations apply:
1) ANY owner of the company is another business entity or a nonresident alien (a person is a nonresident alien if he or she is neither a resident nor a citizen of the United States).
2) The company will be owned by more than 75 persons.
3) The company plans to issue more than one CLASS of stock (for example, special allocations of profits and losses will be made that are not proportionate to the equity percentage of each owner).
4) The owners desire to use business debt (money borrowed by the company) to increase their tax basis.
5) The state where your business is located imposes an entity level income tax on the profits of an S corporation and does not impose such a tax on the profits of an LLC.
If these situations do not apply to you, then an S corporation should do the job. Generally, the LLC is treated like a partnership for tax purposes and there is no entity level tax. Under the recently approved IRS check-the-box regulations, an LLC will be taxed like a partnership unless the members elect to have the LLC taxed like a C corporation (association).
Prior to the check-the-box system, to be taxed like a partnership, an LLC could have no more than two of the following four characteristics of a corporation:
1) Limited Liability;
2) Centralized Management;
3) Continuity of Life;
4) Free Transferability of Ownership Interests.
Most LLCs have only the first two characteristics.
Formation of an S corporation or an LLC can offer many benefits including limited liability and tax savings. An LLC also provides liability protection like a corporation.
What is a nonprofit corporation?
The process to form a "for profit" versus "nonprofit" corporation is similar, but the text of the articles of incorporation is different.
There are no owners in a nonprofit corporation. Instead, a nonprofit corporation is controlled by a board of directors.
The profits of a nonprofit corporation may not be paid to the "founders" of the nonprofit, except that the founders may receive compensation for the fair market value of actual services provided to the nonprofit. In general, a nonprofit corporation is exempt from federal income tax, except with respect to unrelated business income.
If a nonprofit corporation will seek charitable contributions from the public, the nonprofit must apply for 501(c)(3) status, which is a separate application that should be filed within 15 months after incorporation of the nonprofit.
CONCLUSION : Incorporation services is a Legal service rendered to Business entities to incorporate the business followed by annual and routine legal business services related to incorporation of the company.
Author: C.Eashwer â€“ Singapore