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- I am preparing to start a new business. What type of entity is best?
- I want to establish a corporation to run my business. What do I need to do?
- I want to establish a limited liability company to run my business. What do I need to do?
- I am currently running my business as a sole proprietorship. What are the risks involved with this business form?
- I currently run my business through an S-corporation. Is it important that I do annual minutes electing the directors and officers each year?
- I currently run my business through an S-corporation. I paid dividends to the owners during the year and adopted a health insurance plan. Should I document these actions in the annual minutes?
- I currently run my business through an S-corporation. What are the annual requirements necessary to keep my corporation in good standing?
- I currently run my business through a limited liability company. What are the annual requirements necessary to keep my company in good standing?
1. I am preparing to start a new business. What type of entity is best?
A: If the business will have only one owner, you can establish the business as a sole proprietorship, a corporation (S-corporation) or a limited liability company. If the business will have more than one owner, a partnership format is also available. We generally do not recommend sole proprietorships or partnerships due to the unlimited personal liability involved with these business forms. Factors to consider in deciding between an S-corporation and limited liability company include funding, employment tax liability, tax reporting and structure of the entity.
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2. I want to establish a corporation to run my business. What do I need to do?
A: Articles of Incorporation will need to be filed with the State Corporation Commission in order to get a Charter. Once a Charter is received, the corporation will need to be organized and funded. Organization of the corporation will include preparing minutes documenting an organizational meeting, electing officers, adopting bylaws and issuing stock. A tax identification number will be needed. An S-election will need to be made if the corporation will be operating as an S-corporation.
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3. I want to establish a limited liability company to run my business. What do I need to do?
A: Articles of Organization will need to be filed with the State Corporation Commission in order to get a Charter. Once a Charter is received, the corporation will need to be funded. You may also wish to consider executing an Operating Agreement to elect managers to run the company and to establish the operating rules for the company. Depending upon the circumstances, a tax identification number may not be needed.
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4. I am currently running my business as a sole proprietorship. What are the risks involved with this business form?
A: A sole proprietorship will not insulate your personal assets from liabilities of the business. A creditor of your business can reach your personal assets in order to satisfy the debt owed. Depending upon the risks and creditors involved in your business, an S-corporation or a limited liability company may be a better choice for operating your business. At a minium, you should have adequate liability insurance coverage.
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5. I currently run my business through an S-corporation. Is it important that I do annual minutes electing the directors and officers each year?
A: Yes. The annual minutes provide tangible evidence that your business is being properly run as a corporation. It is important to memorialize such business formalities in order to defend against a creditor of the corporation who may try to argue that the corporation is simply a shell and that your personal assets are available to satisfy the debt owed. It is also important to maintain a corporate checking account and to not use the corporate checking account for personal matters.
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6. I currently run my business through an S-corporation. I paid dividends to the owners during the year and adopted a health insurance plan. Should I document these actions in the annual minutes?
A: Yes, you should document these actions in either the corporation’s annual minutes or in the minutes of a special meeting. Documentation will help to support your actions should they ever by questioned by the Internal Revenue Service or by a creditor. The minutes for the annual meeting or a special meeting can be documented by a unanimous consent without actually holding a meeting if all directors are in agreement.
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7. I currently run my business through an S-corporation. What are the annual requirements necessary to keep my corporation in good standing?
A: You will need to file an annual report and pay an annual fee to the State Corporation Commission each year. If the annual report or fee is not paid by the appropriate deadline, you will receive a notice from State Corporation Commission stating that the corporation will be automatically terminated by a prescribed date if the fee and/or report is not forwarded. You will also need to keep a registered agent on file with the State Corporation Commission in order to keep the corporation in good standing.
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8. I currently run my business through a limited liability company. What are the annual requirements necessary to keep my company in good standing?
A: You will need to pay an annual fee to the State Corporation Commission each year. An annual report is not necessary. If the fee is not paid by the appropriate deadline, you will receive a notice from the State Corporation Commission stating that the company will be automatically terminated by a prescribed date if the fee is not forwarded. You will also need to keep a registered agent on file with the State Corporation Commission in order to keep the company in good standing.