Business Formation

The Board of Directors should try to accomplish the organizational resolutions of the corporation by adopting them in their first meeting. Generally, they should authorize the adoption or ratification of the bylaws, the election of the initial officers, the designation of the principal officer, the designation of the corporation's banks, the selection of the calendar or fiscal year, the selection of a specimen stock certificate for the common stock, the issuance of stock to initial shareholders, the payment procedure of the organizational expenses, and the possible election of the S corporation status.

Guaranteed payments are made to individual partners for services rendered or for use of capital, and are not based on a partner's share of partnership income. The guaranteed payments are deducted from partnership income before determining the partnership's profit or loss.

A "S" Corporation is formed the same way a regular "C" Corporation is formed. A corporation is a legal entity created under the laws of a particular state. It is distinct from its owners, who are called shareholders. The only difference between an "S" and a "C" is that an "S" corporation is one in which an election has been made to be treated under Subchapter "S" of the Internal Revenue Code for federal tax purposes. The filing of this "S" election permits the corporation to avoid a double taxation of its income, bypassing the corporate tax level. Generally, Form 2553 must be filed with the IRS within 75 days of incorporating. Many states also require a separate form be filed with them to allow "S" status. Other states and cities, such as New York City, do not acknowledge "S" status. As a result of these complexities, the election of "S" status should not be considered nor attempted without consulting your local CPA or attorney.

No, but a qualified professional is recommended. CPAs can be used to incorporate your business and prepare all forms required to obtain your Federal ID number and make your "Subchapter S" elections with the federal government and your state. CPAs are qualified to interact with other professionals and instruct them as to the requirements of their clients. However, CPAs should not play attorneys. Lawyers are needed to draw up shareholders' agreements, minutes and contracts based upon the advice given to you by your CPA. Lawyers reduce the advice to writing. Both a Lawyer and a CPA are valuable, necessary assets when starting your new business. You need both, but a CPA can provide the initial incorporation services.

A corporation is a legal entity formed under the laws of a particular state. The state you pick is usually the state you intend to do business in. If you are definitely going to do business in only one state and you don't believe you will raise capital from investors in the future, the answer is easy ... Use the state you are doing business in.

Most small businesses choose their home state to incorporate or the state they are doing business in. Delaware and Nevada have laws that protect corporation officers and directors from various litigation. Also, some other states have higher taxes on capitalization. However, if you incorporate in Delaware or Nevada, you will still be required to file and register as a foreign corporation with the Secretary of State in the state you are doing business. This will result in increased incorporating fees charged by your CPA. If you intend to maintain your business in only one state and do not anticipate going public or raising money through a private placement, then incorporate your company in the state you are doing business and forget about Delaware or Nevada for now!