We love the internet, but a 50-state-drop-down menu is not the way to select the best state for your new company.  It’s a tax decision, and one you’re stuck with if you choose incorrectly.  Every start up faces three initial decisions: (1) Should I form a LLC or corporation?, (2) Where should I form my company?, (3) How do I select a corporate name?  These decisions have enormous tax consequences that will impact your business indefinitely.  The best advice is to assemble a team, consisting of a CPA and a lawyer to analyze what makes the most sense.

SHOULD I FORM A LLC or CORPORATION? LLCs are virtually the same from a liability protection standpoint, but extremely different from a tax standpoint.  Because of the exorbitant fees that LLCs must pay in California and New York, our lawyers recommend LLCs as the entity of last resort.

WHERE SHOULD I FORM MY COMPANY? The best rule of thumb is that it makes sense to form the company in the state where you are doing business.  However, if you are planning to move to another state in the future, it would make sense to consider Delaware.  Contrary to popular belief, it makes no sense to form the company in Nevada unless you are doing business there.

HOW DO I SELECT A CORPORATE NAME? The name your company is a business decision, and a fun one, but it’s best to use a “corporate-style” suffix (e.g., Inc., Incorporated, Ltd, LLC) to put the world on notice not to look to you personally for the liabilities of the business.

Jeff Unger is a lawyer and the founder of eMinutes.  For nearly twenty years, we’ve formed corporations and LLCs for A-list movie stars, Grammy award-winning musicians, and athletes. 

eMinutes has an extraordinary offer for 500 first-time entrepreneurs: The lawyers at eMinutes will consult with them and form their new companies  –  and won’t charge anything. Not even the filing fees. 

Apply online to be one of the 500 at https://eminutes.com/home-page-2/500-entrepreneurs

Well, Tax Day is upon us, and hopefully you’ve gotten your forms filled, your returns filed, and you’ve got a nice refund on the way. With all things fiscal in the air, it’s a good time to think about your company’s legal structure, and how that’s affecting your business tax status.

There are both legal and tax-related distinctions to different business types. Read these Bplans articles from the experts at Nolo to make sure you are structuring your business to use those differences for your benefit:

• How Sole Proprietors are Taxed
• How Corporations are Taxed
• How Limited Liability Companies (LLCs) Are Taxed
• How Partnerships are Taxed
• Earning Income as a Nonprofit Corporation

Sara Prentice Manela
Editor

Today we have a guest post from one of partners, The Company Corporation.

Incorporating or forming an LLC is a fast, affordable and easy process. It benefits the business owner by protecting personal and family assets from the risks and debts of the business. Here are eight easy things business owners can do to make incorporating a breeze.

1.    Select Your Company Name

Your company name can identify the type of products/services your business provides, or it can simply tout the name of the founder. The two main requirements for a company name are: no other entity in the same state may have the same or similar name; the name must include an ending like company, incorporated, corporation, association, foundation, institute, fund, society, union, syndicate, or limited. Words like “bank”, “trust” or “education” may not be used without approval from the appropriate state agency.

2.    Select Your Business Structure

A general corporation, also known as a “C” corporation, is the most common corporate structure. It may have an unlimited number of stockholders. A “close” corporation is appropriate only for the individual starting a company alone or with a small number of people. An LLC is not a corporation, but it offers many of the same advantages, combining the limited liability protection of a corporation with the “pass through”" taxation of a sole proprietorship or partnership.

3.    Select Your State

Many business owners incorporate or form an LLC in the state where they are planning to operate because it is often least complicated and most cost effective. However, Delaware still holds appeal for new companies because of its low incorporation fees, low annual franchise taxes, and lack of state income tax for corporations operating outside of Delaware. Likewise, Nevada has become increasingly business-friendly with its advantageous tax advantages.

4.    Select Your Management Team

Naming initial directors for your corporation is straightforward. Directors are typically the key players or owners in the business. In most states, only one director is required and you may simply name yourself. In an LLC, managers or members are selected.

5.    Select Your Number of Stock Shares and Par Value

Stock represents ownership in a corporation. Par value is the minimum selling price for each share of stock. Many states allow you to elect a $0 par value, to give you the most flexibility. LLCs do not issue stock, so LLC ownership is like a partnership.

6.    Choose a Corporate Kit

A Corporate Kit will help you organize and save your important company documents. They often include a corporate seal, stock certificates, stock transfer ledger, and sample forms for bylaws and minutes.

7.    Designate a Registered Agent

The Registered Agent serves a critical purpose and is an important part of protecting your corporate status. Select a highly reliable company to serve in this role. Look for a company that maintains a nationwide network of offices and serves as a full time Registered Agent in all 50 states plus District of Columbia, so that they can service your company’s needs as you grow.

8.    Worry Not!

Your decisions about company formation may be changed after your company is formed, simply by filing an amendment. Broad flexibility is available to you as your company grows and its needs change.

John Meyer from The Company Corporation will be our guest at this month’s Back to the Fundamentals webinar, April 14th.

Make sure you register for this event soon. Space is limited.