Corporation FAQ's

What is a Corporation?

A Corporation is a legal artificial person that can be created only under state law; a separate legal entity that is set up to conduct a business owned by shareholders and ran by officers and directors.

What is a Domestic C Corporation?

A Corporation that is incorporated in the state where it conducts all of its business.

What is a Foreign Corporation?

A Corporation which is incorporated within a state other than the state where its business is conducted.

What is a C Corporation?

A “C Corporation” is a type of corporation is set up to make a profit and to pay taxes on its profits.

What is an S Corporation?

An S Corporation (sometimes referred to as a Sub-Chapter S Corporation) is different from a C Corporation in two significant ways. First, although it is formed in the same manner as a C Corporation, the corporate entity makes an election with the IRS to be taxed as a “pass-through entity” under subchapter S of the Internal Revenue Code.  This means that an S Corporation is not a separately taxable entity; the profits and losses are “passed-through” and reported on the personal income tax returns of the shareholders, much like a partnership.  Second, unlike a C Corporation, an S Corporation has limitations on ownership. 

What are the benefits of being an S Corporation?

A corporation can avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S Corporation. Generally, an S Corporation is exempt from federal income tax other than tax on certain capital gains and passive income. On their tax returns, the S Corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of non-separately stated income or loss.

What are the requirements to becoming an S Corporation or maintaining S Corporation Status?

In order to be qualified as an S Corporation, your corporation must be filed as a U.S. corporation, maintain only one class of stock, must not have more than 100 shareholders, must be comprised solely of shareholders who are individuals, estates or certain qualified trusts, who consent in writing to the S Corporation election and have a US Social Security Number (hence, the corporation cannot have non-resident alien shareholders) and the corporation must have a tax year ending on December 31. If your corporation fails to observe any of the above requirements, you may be ineligible for S Corporation status or your S Corporation status can be revoked by the IRS at any time.

How and when do I apply for S Corporation Status?

To apply for S Corporation status, your corporation must complete and file IRS Form 2553 with the Internal Revenue Service no more than two months and 15 days (75 days) from the date of incorporation in order for the election to take effect during the tax year the filing is made.

Upon receipt, the service center will notify the corporation, no more than 60 days after submission of the filing, as to whether the election has been accepted; you will also be notified if your election is not accepted.

What if you miss the S Corporation election deadline?

A late election to be an S Corporation generally is effective for the tax year following the tax year beginning on the date entered on line E of Form 2553. However, relief for a late election may be available if the corporation can show that the failure to file on time was due to reasonable cause.

What is a Non-Profit Corporation?

For those groups that are formed for charitable, educational, religious, literary or scientific purposes, and not to generate profits for its shareholders, a special legal entity may be formed under Section 501(c)(3) of the Internal Revenue Code that is exempt from taxation.  These tax-exempt corporations are prohibited from paying dividends.  Upon dissolution, corporate assets must generally be distributed to another non-profit group.  There are significant filing requirements at both the State and Federal level to establish and maintain tax-exempt status and the non-profit will be prohibited from engaging in certain activities, including participating in political campaigns and substantial engagement in lobbying activities.

Where should I incorporate?

Once you decide to form a legal entity, you need to choose a state in which to make your filing.  Most people choose Delaware, Nevada, or their home state.  Delaware is often chosen, especially by larger companies, because it has the most developed and flexible corporate statutes in the country and is considered pro-business.  Nevada has also become popular because of its lack of state corporate income tax, franchise tax and personal income tax.  It also has relatively low fees.

Nevertheless, if you have a small business and are going to be conducting a substantial amount of your business in your home state, it will likely be beneficial to incorporate in that state.  If you incorporate out-of-state, but do much of your business in your home state, you may have to make a filing to “qualify to do business” in the state if there is a substantial ongoing business or physical presence in the state.  You may then be subject to the same fees, taxes and regulations as if you had incorporated there in the first place, and you will have paid filing fees (and, perhaps franchise taxes) to more than one state.

Can I incorporate in more than one state?

No.  A corporation can only be incorporated (formed) in one state.  Once legally formed, it may do business in any state in the country, but it may have to fulfill additional requirements depending on what states the corporation wants to do business in.  You should check with the Secretary of State and the state official that handles corporations in any other states in which you want your corporation to do business for additional requirements.

If a Corporation does business in more than one state, is it required to designate a registered in those states as well?

If your corporation is “qualified” to do business in other states, those states will generally require a registered agent in that state.  For example, if your California Corporation has filed the necessary paperwork in Nevada to conduct business in the State of Nevada, the state of Nevada will require a Nevada registered agent.  This may be an individual or another business entity that has a physical location in the state of Nevada. 

What are the Articles of Incorporation?

The Articles of Incorporation is the document that demonstrated the organization of a corporation, sometimes also referred to as a certificate of incorporation or corporate charter in some states. Generally, the articles of incorporation will contain the name of the corporation, the business address of the corporation, the name and address information of the registered agent and registered office of the corporation, the number of shares of stock that the corporation is authorized to issue and its par value in addition to the name of the incorporator of the corporation.

What is a registered agent and does a Corporation or LLC required to designate one?

A registered agent, sometimes referred to as a resident agent, (also known as an agent for service of process) is a person or company officially recognized by the state that resides within the state of incorporation and is designated by the corporation to accept service of process on behalf of the corporation. This may be an individual or another business entity that has a physical location in the state of incorporation.  Please note that a Post Office Box or other “mail service” is usually not sufficient to qualify as a registered agent.

The registered agent is responsible for accepting official notices from the Secretary of State and service of process in the event the corporation is sued. 

The Registered Agent MUST be available Monday - Friday 8am to 5pm at the location specified on your Articles in order to accept service of process. The registered agent's name and address are public information. If you wish to keep your company’s address information confidential, designating CorpNet™ to act as your registered agent affords you that extra added layer of privacy. CorpNet™ can serve as your company’s registered agent for service of process in any state FREE for the first year (with any new formation) - an annual fee of $149 per year automatically billed thereafter.

What if a corporation does not designate a registered agent or does not renew its annual subscription with its registered agent for their services?

All corporations incorporated (formed) are required by law to have a registered agent.  If you do not pay the fee charged by your designated registered agent (or otherwise have a registered agent), your corporation may be considered defunct by the Secretary of State and lose corporate status.

Do I need to send anything to the registered agent?

Yes.  You should send the registered agent 1) a copy of the corporation’s Bylaws, signed by the corporation’s secretary, and 2) an alphabetical list of shareholders and number of shares that each shareholder owns.  These should be updated annually and/or whenever there is a change.

What is Capital?

Capital is the initial monies invested into a business for the purpose of funding the business.

What is Common Stock?

Common Stock is the basic common type of ownership of shares of a corporation.

What is Par value?

Par value is the value given to newly issued stock; most states do not require your stock to have any par value; others require a minimum par value.

What is the Bylaws of A Corporation?

The Bylaws of a Corporation are the set of rules governing how the affairs of a corporation will be conducted.

What is the Organizational Meeting of a Corporation?

The organizational meeting is the meeting of the founders of a corporation or limited liability company (LLC) in which the company is structures and ready to begin business.

What is piercing of the Corporate Veil?

Piercing of the corporate veil usually takes place when a court ignores the corporate structure and formalities of a corporation and holds the individual shareholders of the corporation liable for certain acts such as fraud or deceit.

What is the Minutes of A Corporation?

The Minutes of a Corporation are the set of records of the proceedings of the corporate meetings of the corporation.

What is an annual report?

An Annual Report is a document filed by a corporation or limited liability company (LLC) each year, usually listing the name, address, and contact information of the officers, directors, and the registered agent of the corporation or LLC.

What is an Employer Identification Number (EIN)?

An Employer Identification Number (EIN) (also known as a Federal Tax Identification Number), is used to identify a business entity. Generally, a business is required to have an EIN specially if it has employees and/or the business is operated as a Corporation, Limited Liability Company or a partnership.

When is an Employer Identification Number (EIN) required?

An Employer Identification Number (EIN) is usually required when an applicant starts a new business, hires (or is about to hire) employees, is business operated as a corporation, LLC or a partnership, opens a bank account, changes their type of organization, or purchases another ongoing business.

Do you need an Employer Identification Number (EIN)?

Generally, a business is required to have an EIN specially if it has employees and/or the business is operated as a Corporation, Limited Liability Company or a partnership. CorpNet can assist your company in preparing and filing the necessary paperwork and obtain your company’s employer identification number for a minimal service fee.

What happens if a business entity does not obtain an EIN?

If a business entity does not obtain an EIN, it will not able to open up a bank account or file its business tax returns properly.  As a business owner, you are required to identify your business with one of two numbers: either your Social Security Number or an Employer Identification Number (EIN).  As a sole proprietor, you would identify your business with your Social Security Number; however, if you are operating your business aS Corporation, LLC, or other legal entity, you must obtain an EIN for that entity.

What are the shareholders of a corporation?

The shareholders of a corporation are the individuals who own the corporation.  At the annual meeting they elect the corporation’s Board of Directors.

What is the Board of Directors of A Corporation?

The Board of Directors is the governing body of a corporation that establishes corporate policies and formalities, appoints executive officers, and makes major financial decisions on behalf of the corporation.

What are the officers of a Corporation?

The officers of a corporation are those persons who run the day-to-day affairs of the corporation.  These individuals usually include the president, vice president, secretary, and the treasurer of the corporation.

Can one individual hold all positions within the corporation?

Yes.  Generally, a corporation must have a President, Treasurer, Secretary and at least one Director.

How often do I need to hold a shareholder’s meeting?

The shareholder meeting needs to be held at least annually.

How often do I need to hold a Board of Director’s Meeting?

This is usually set forth in the bylaws of a corporation; the Board of Directors must meet at least annually.

What is my corporation’s incorporation (formation) date?

Your corporation’s incorporation date can be found on the Corporate Charter issued by the Secretary of State or will be “date stamped” on the front page of the Articles of Incorporation.

What is the corporate charter?

A corporate charter is the document issued by the secretary of state’s office which indicates when the corporation came into existence; it is the birth certificate of a corporation and usually contains the date the incorporation and the corporate identification number.

How does my corporation open a bank account?

Many banks provide their own forms that are required to open a corporate bank account.  Most banks require a corporate resolution, which expressly authorizes the opening of an account, and specifying which individuals can sign checks and/or make withdrawals from the account.  In addition an EIN (Employer Identification number) is typically required to open bank accounts.

What is a corporate resolution?

A resolution is nothing more than a record of action that the directors or shareholders took without holding an “official meeting.”

Does the Secretary of State’s office issue a corporate seal for my corporation?

No. The Secretary of State does not issue corporate seals. Corporate seals may be obtained by the corporation directly from an office supply store, stationery company or a document filing service such as CorpNet™.

How do I choose a corporate name?

Once you decide on a corporate name for your business CorpNet™ will do a thorough name check to make sure that name will not cause a conflict with another existing entity. Most states will require a corporate indicator which is generally “Inc.”, “Incorporated”, “Corp.”, “Corporation”.  There are certain words that are also prohibited to use in your company name depending on your state of formation. CorpNet™ will do a complete check of these words before proceeding with the documents. If you have a prohibited word in your name CorpNet™ will take all actions needed to proceed with this name which in most cases is either removing that specific word from the name or get written authorization from the specific board that can authorize use of this word. Most common prohibited words are such as (Bank, Banc, Banking, Trust, Insurance, Olympic, etc.) depending on your state there may be more or less of these prohibited words.

How will I know if my business name is already being used?

CorpNet™ does a thorough name check with the state office before we process your Articles of Incorporation. If there is a conflict with your name we will proceed to do a search on the alternate names you have specified. If there are no alternate names or the alternate names also have conflicts we will then contact you to get new names.

Who can form a corporation?

Anyone who is at least 18 years of age and is of sound legal mind can form a corporation.

Do I need an attorney to form a corporation?

No, a corporation does not need an attorney to form the corporation with the state office. Some states require an attorney signature; however anyone can set up the corporation. CorpNet™ can easily file your Articles of Incorporation and have the resources within those states that do require an attorney’s signature.

What is a professional corporation and when is a corporation considered a professional corporation?

Certain types of services can only be rendered by a Corporation if it is filed as a Professional Corporation (PC). Such professions consist of the practice of Medicine, Dentistry, Law, Certified Public Accounting, Chiropractic services, Veterinarian Services etc. This can vary depending on what state you are filing in however most states will require the business to file as a Professional Corporation (PC) if these services are being rendered under a professional License holder.

What are the main differences between a C Corporation and an S Corporation?

An S Corporation pays no income tax and may only be used for smaller businesses. All of the income or losses of the corporation for the year are passed through the shareholders who would then report them on their personal income tax returns. Using this status can avoid double taxation. Generally, S Corporation does not have to pay state corporate income tax vs. C Corporation pays taxes on its net earnings at corporate tax rates. Typically, all salaries of the corporation whether it is the Directors, Officers or even the company’s employees are taxable to them and deductible to the Corporation itself. However, any costs paid out in dividends may be taxed twice via the federal government; it is taxed at the Corporations specific tax rates as part of its profits for the year. There are no requirements to be a C Corporation as opposed to an S Corporation which has several requirements to qualify as an S Corporation.

What are the main differences between an LLC and an S Corporation?

The main differences of an S Corporation or Limited Liability Company (LLC) are minimal. S Corporations have shares of stock that are distributed to the shareholders of the company which then determined percentage of ownership in the Corporation. S Corporations can take out some profits without having to pay Social Security Taxes. If a company decides to go public or sell shares of Stock it would only be able to do so if it is formed as a Corporation.  A Limited Liability Company (LLC) has members (owners) that contribute items to the company to determine percentage of ownership based on the fair market value of the item contributed. This item must be something tangible, for example, “Skills” or “Knowledge” would not be considered a proper item to contribute to ownership for a Limited Liability Company (LLC). The owners of a Limited Liability Company (LLC) can be foreign persons verses an S Corporation they cannot. A Limited Liability Company (LLC) can have an unlimited number of members while an S Corporation is limited to 100 shareholders (owners).  A Limited Liability Company (LLC) can always elect to be taxed as an S Corporation.

What is the procedure for forming a corporation and what legal documents are required?

The procedures in forming a Corporation start with doing a proper name search within your formation state to make sure that name is available for use. Once you have a clearance on that name you may precede to the next step which if processing your Articles of Incorporation. Please note: the state will always have the final say on approving your company name. Using the name before your corporation is filed with the state is never suggested.  The next step would be processing your Articles of Incorporation, depending on that state you are filing the information needed for the Articles of Incorporation may vary, however, in most states the information is very minimal and the information request if very general.  Some of the information needed for the Articles of Incorporation is as follows:

• Name of Corporation
• Business Address
• Number of Authorized Shares and Par Value
• Name and Address of the Registered Agent of the business.
• Name and Address of the Incorporator of the business.
• Duration
• Effective Date
• Execution of Incorporation and Registered Agent (depending on state)

The Incorporator of the corporation is generally the person filing the documents. In most states the incorporator can be any person filing the Articles on behalf of the directors/Officers of the Company. The Incorporator usually has no legal obligation the company and will release all rights once the company is filed by signing an “Incorporators Certificate” which is located within the Bylaws and Minutes of the Company!  Corpnet™ will generally act as incorporator and supply you with a signed Incorporator Certificate in your Final package.

Can I be the only stockholder in my corporation?

Yes, as long as there is one person over 18 years of age acting as the corporation shareholder, which will meet the state’s minimum requirements.

What are the advantages of incorporating in Delaware?

If your state has higher corporate fees, you may save money by incorporating in Delaware. Corporations that are filed in Delaware but not physically doing business in Delaware do not pay Delaware income tax. Please note that by doing so the state you are physically doing business in may require you to qualify your business within the state as a foreign entity.

What are the advantages of incorporating in Nevada?

Nevada unlike most states allows more privacy to the stockholders of the Corporation. It also does not share this information with the Federal Government and does not have state income tax. Please note that by doing so the state you are physically doing business in may require you to qualify your business within the state as a foreign entity.

How much will it cost to form and run a corporation?

The cost to form and run a corporation may vary depending on your state of formation. CorpNet™ can save you both time and money by assisting you in selecting, forming, and maintaining your Corporation or Limited Liability Company (LLC) in any state for as little as $49 plus state filings fees! ...We make everything easy for you so that you can focus on what you do best – getting your business off the ground quickly and efficiently!!!