Business Formation

Individuals and unincorporated entities (sole proprietorships)that regularly conduct business using an assumed name often referred to as a dba must file an assumed name certificate with the county clerk in each county in which business premises are maintained. If corporations, limited liability companies or limited partnerships, entities created by filing with the secretary of state, do business with a name that is different than the name set forth in the organizational documents, they must file assumed name certificates in the county or counties where the registered office and the principal office are located, and must also file with the secretary of state.

Incorporating will not keep another business from using your name. Filing articles of incorporation only prevents the secretary of state from filing a document to create another corporation, limited liability company or limited partnership that has the same, a deceptively similar, or similar name as the entity already in existence. Generally, every business must protect its own business name and the good will that it has acquired from the sale of its goods or services in a specific geographic area.

Most jurisdictions do not require publication in a newspaper unless an existing unincorporated business intends to incorporate without a change in its name. That business must then publish its intent to incorporate in the local newspaper for four consecutive weeks (in most jurisdictions). While a few jurisdictions (Georgia, Arizona, Illinois, and Pennsylvania), require publication of the corporate name to be published in a newspaper local to the county of the registered agent

A close corporation is also known as a closely held corporation. It is a corporation in which the stock of the corporation cannot be traded on a public exchange such as the NYSE, NASDAQ, etc. and the number of shareholders must be specified, and typically cannot exceed 30 and certain limitations may be placed on the transfer of stock. A close corporation can be advantageous for small businesses.

Generally states require the filing of a corporations Articles of Incorporation, the initial franchise taxes, and corporate filing fees.

In all states, only one person is needed to form a LLC. Recent changes to the IRS code have promoted reforms in state laws permitting single-member LLC's. Single member LLC's file on IRS Schedule C.

Both entities provide the benefits of pass-through taxation to avoid double taxation of profits as well as limited liability for the owners. S Corporations pass-through income to the shareholders who pay no Self Employment tax on that income, While LLC income is subject to self employment tax. S corporations have restrictions which are not applied to limited liability companies. Limited liabilty companies cannot issue stock, but rather, they offer memberships. S corporations, issue stock and are owned by the shareholders. S corporations are managed by the directors and officers, while limited liability companies are managed directly by the members unless they hire managers.

Delaware is an easy state in which to incorporate and the annual cost is low. The Delaware law provides predictability and has been tested over years. Delaware has a separate Court of Chancery to handle corporation law cases quickly and competently. Delaware provides certain tax savings including favorable franchise tax rates. Non resident shareholders are not subject to Delaware taxation. Some say, Deleware courts liberally interpret corporation laws allowing favorable and more predictable decisions for corporations.

For tax purposes, all corporations are General C Corporations when they are formed. The ordinary income of a C Corporation is taxed at the corporartion rates The owner can elect to become a Subchapter ( S ) Corporation after being created as a C Corporation and have its ordinary income not taxed at the corporation rates but passed through to its shareholders and taxed at the individuals rates.