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Frequently Asked Questions
How much money should I earn before I need to incorporate?
It's possible to earn as little as $25K per year and still see a tax savings by incorporating. One question to consider should be, "Do you plan on growing your business?" Another more important question is, "Do you have personal assets you need to protect from potential business liabilities?" Because, even if you do pay few taxes from business income, is it worth it to expose ALL your personal assets to the risks of being a small business owner? Just remember, if you pay taxes, you'll likely pay fewer taxes by incorporating. But protecting your family from liability far outweighs all those tax benefits, as significant as they are.
Who can incorporate?
Almost any business owner can incorporate. Rather than produce a laundry list of all who can, it is easier to say, "Just about anybody." If you are not sure whether your business is allowed to incorporate, simply call us toll-free at (888) 570-2021 and we will let you know.
How many people are required to incorporate?
In most states, only one. This means you personally could be sole owner (shareholder), sole director, and all officers (President, Secretary, and Treasurer) simultaneously.
What is the difference between an LLC and a corporation?
Corporations have a long history in America, unlike Limited Liability Companies. An LLC is equivalent to a general partnership where every partner gets liability protection similar to a shareholder in a corporation. LLC's are treated as partnerships for tax purposes in that taxes are paid directly by the owners (members), not the LLC itself. Owners of LLC's are generally subject to FICA tax, unlike shareholders of a corporation. LLC's work well for real estate investment when the properties are to be held, as opposed to flipped. See LLC's for more details.
Should I incorporate in Nevada or in my own state?
It depends. Nine out of ten of our clients simply do not need a Nevada corporation, at least not yet. If you are intending to do local business, and all your clients know where you are located, it makes more sense to incorporate in your own state. If you need a higher level of asset protection or you are paying a lot in taxes, adding a Nevada corporation to your arsenal may be a great next step. Read more about Nevada.
Will a one-person corporation protect me?
There is a misunderstanding regarding the effectiveness of sole-owner corporations. The bottom line is this: The reasons corporate veils are pierced generally relate to the corporation's lack of maintaining basic corporate formalities. Corporate formalities, including issuing stock, having annual meetings, keeping minutes, properly capitalizing the corporation, and keeping separate books are necessary to show that the corporation is acting like a corporation. Needless to say, sole shareholders are more likely to neglect these basic things unless they are mindful of them, thus subjecting them to a higher probability of losing their protection. It's not that they are more vulnerable legally, just more prone to neglect their corporation. Diligence is the key.
How many meetings are corporations required to have each year?
Generally one shareholders meeting. A useful formula is to have an annual shareholders meeting just prior to your directors meeting on the same day each year. This way, you appoint the directors for the upcoming year, then immediately have the directors meeting to discuss any important business including the appointing of officers for the coming year. Do not be intimidated by this formality unless of course you are planning on incorporating yourself. In that case, you will have no one to support you.
Are corporate formalities (meetings, minutes, documentation) cumbersome?
Once learned, no. In fact, it probably takes one additional minute per day to maintain your corporate formalities. If you think about it, that is equivalent to six hours per year. Small bites go a long way. The benefits far outweigh the trouble.
How many persons are required to form a Limited Liability Company?
In almost all states, only one. However, if one decides to form an LLC, keep in mind that LLC's enjoy some of the asset protection benefits of a limited partnership, in that a personal lawsuit would have a more difficult challenge in attaching property held within the LLC. This "charging order" feature however may not work unless you have at least two members. The standard protection from business liabilities is never-the-less the same. See LLC's for more information.
What entity works best for real estate investment?
Generally, LLC's are the favored entity for real estate investments because of their simplicity, tax treatment, and "charging order" feature. The tax treatment is good because of the passive nature of rental income (i.e., no FICA). Flipping properties may result in different tax ramifications, so discuss these factors with your tax advisor. See Real Estate for more information.
I can incorporate cheaply online. Should I?
Please read "Is Incorporation Cheap?" The reality is, if you are serious about your business's future, take the time to research what is involved in the incorporation process. U.S. Business Strategies would be happy to provide client references for you to contact. Ask them if they, knowing what they know now, are glad they used U.S. Business Strategies, or, if they had to do it all over again, would they have done it themselves or used a cheaper service.
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