Did you ever think that you can do online as much as you can? Take legal services for instance.
For so long, getting even routine legal paperwork completed such as divorce paperwork, Last Will and Testaments, Prenuptial Agreements, and incorporating a business, to name a few, were in the exclusive domain of lawyers and law firms.
Not anymore. These days you can get all the above legal services done for you over the Internet by online legal services companies.
Sure, lawyers are still in demand for complex circumstances, but for straight-forward legal paperwork, there’s no reason not to at least explore using an online legal service (incorporation services comparison chart).
B2Web’s Incorporating a Business Hub is all about informing you about incorporating a business – using lawyers, doing it yourself, and using an online incorporation service.
Registering Your Company Depends On Jurisdiction
The steps for incorporating a business depends on your jurisdiction. In the USA, you register your company with a particular state. In Canada you can register your company Federally or with a particular province.
For the detailed incorporation steps by jurisdiction, click the applicable state or province to the right.
Types of Corporations in the USA
Generally, there are 4 types of corporations:
- C Corporation
- S Corporation
- Non Profit Corporation
- Professional Corporation
After determining which jurisdiction you wish to register your company, you must choose the type of corporation you wish to form.
C Corporation vs. S Corporation
The key difference between a C Corporation and S Corporation is regarding taxation. Both corporations are more or less set up the same. However, with a C Corp, the corporation is taxed independently from its shareholders. It’s a double taxation arrangement.
With an S Corp, the income or losses pass through to the shareholders. The downside is the tax rate on all income is taxed at the personal income tax rates. The advantage is the income is only taxed once rather than paying both corporate tax and then income tax for money paid through to the shareholders (like a C Corporation).
A few other notable differences between an S Corp and C Corp are with an S Corp:
- the limit to number of shareholders is 100.
- Shareholders must be an individual or trust and not be a corporation; AND
- Each shareholder must be a citizen of the USA or permanent resident Alien.
Non Profit Corporation
Not any entity can be a non profit corporation. The entity must be formed for not-for-profit oriented endeavors such as a religious organization, charity, and other not-for-profit oriented purposes. A non profit corporation does not pay taxes, but then cannot pay dividends.
When a non profit corporation is dissolved, its assets are distributed to another non profit group. The money or assets aren’t distributed to individuals.
Professional Corporation
A professional corporation is designed for professionals who provide professional services such as doctors, lawyers, accountants, architects, and other licensed professionals.
It’s a good idea to seek legal advice when choosing to form a professional corporation. However, once you have your advice, and know how to proceed, you can use an online incorporation service to complete the paperwork.
Where Do LLCs Fit In?
What’s an LLC?
An LLC is a Limited Liability Company. It offers different advantages to either an S Corp and C Corp.
An LLC is an entity that, like a corporation, offers limited liability protection for its against debts and judgments for its members (members are the term of owners rather than shareholders).
Other advantages to an LLC are as follows:
Forming and maintaining an LLC requires fewer formalities than a corporation. The members need not hold regular meetings unlike a corporation that must hold meetings of the board of directors. However, an LLC still has initial and ongoing filing requirements in the state in which the LLC is formed.
Pass-Through Taxation
An LLC is not a taxed entity. Profits and losses pass through to the members of an LLC. An LLC avoids double taxation.
Flexible Sharing of Profits and Losses
An LLC can distribute profits and losses among its members in any allocation distribution scheme agreed upon by the members. In other words, profits and losses need not be distributed according to percentage of ownership of its members.
How Do You Know Which Type of Entity is Best?
In order to determine which type of entity to form, it’s a good idea to consult a lawyer and/or accountant.
Not all businesses are the same. Moreover, not all business owners have the same outlook and financial needs from their business. This is why it’s a good idea for each incorporator to get legal advice in order to make an informed decision. Once armed with how to set up your entity, then consider using an online incorporation service. I compare several online incorporation services here.
