A Guide to

Incorporating Your Business

Visit bizfilings.com or call 1-800-981-7183

 Table of Contents

Entity descriptions, advantages and disadvantages Post-incorporation and ongoing compliance

•• Sole proprietorship . . . . . . . . . . . . . . . . . . .  4 requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 19
•• General partnership . . . . . . . . . . . . . . . . . .  5 •• Internal requirements . . . . . . . . . . . . . . . . . 19
•• Limited partnership .................. 6 •• External requirements . . . . . . . . . . . . . . . . . 20
•• Limited liability partnership . . . . . . . . . . .  7 •• Consequences of non-compliance . . . . . . . 21
•• C corporation . . . . . . . . . . . . . . . . . . . . . . . 8
•• S corporation . . . . . . . . . . . . . . . . . . . . . . . . . 9 Using an incorporation service provider . . .  22
•• Nonprofit corporation . . . . . . . . . . . . . . . . .  10 •• Benefits of using an incorporation
•• Limited liability company . . . . . . . . . . . . . . 11 service provider . . . . . . . . . . . . . . . . . . . . . . . 22
•• Professional corporation . . . . . . . . . . . . . . . 12 •• About BizFilings . . . . . . . . . . . . . . . . . . . . . . . 22
•• Professional limited liability company . . . 12 •• BizFilings’ product listing . . . . . . . . . . . . . . 24

Business type comparison table . . . . . . . . . . 13

Where to incorporate . . . . . . . . . . . . . . . . . . . 14
•• Incorporating in your home state vs.
another state . . . . . . . . . . . . . . . . . . . . . . . . . 14
•• State statutes and taxation requirement . . 14
•• Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

The incorporation process . . . . . . . . . . . . . .  16

•• Documentation, fees and typical
time frames . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
•• Mandatory corporation and LLC
disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
•• Registered agent . . . . . . . . . . . . . . . . . . . . . .  17
•• Disclosure information required for
corporations . . . . . . . . . . . . . . . . . . . . . . . . . .  17
•• Disclosure information required for LLCs . .  18
•• Common information required for
nonprofits . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
As a business owner, you face many
decisions when it comes to starting,
running, and growing your business.
BizFilings’ Guide to Incorporating
Your Business is designed to illustrate
your options and help you decide
what structure your business will
take. It explains the advantages and
disadvantages of incorporation, what
the incorporation process entails, and
your post-incorporation requirements—
such as filing annual statements with
your state of incorporation.

We are business incorporation experts

and our goal is help you understand
incorporation and your options and to
make incorporation easier and more
affordable. We’ve been helping small
business owners incorporate since
1996 and understand the questions you
have, the challenges you face, and your
desire to succeed. We’re committed
to delivering high-quality, high-value
service at an affordable price and
supporting you across the life of your
business.

The following section on business types

is for general information purposes only.
For more help regarding your particular
business, talk with an attorney or
accountant.

— BizFilings

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 Sole Proprietorship

The sole proprietorship is the simplest business Advantages

form and not a legal entity. It is the easiest
•• The owner can establish a sole proprietorship
type of business to establish—no state filing or
instantly, easily and inexpensively.
agreement with other owners is required. It is
simply an enterprise owned and operated by an •• No state paperwork is required for creation.
individual. By default, once an individual starts
selling goods or services, he or she has created a •• No separate tax filing is required; profits or
sole proprietorship. losses are reported on the owner’s tax return.

A sole proprietorship is not legally separate from •• A sole proprietor need not pay unemployment
its owner. The law does not distinguish between tax on himself or herself (but must pay
the owner’s personal assets and the business’s
employee unemployment tax).
obligations. In fact, a sole proprietor’s assets can
be (and often are) used to satisfy the debts and
•• Few, if any, ongoing formalities.
liabilities of the business. Remember: accidents
happen, and businesses end all the time. Such
circumstances may quickly become a nightmare Disadvantages
for a business owner who operates as a sole
proprietor. •• The owner is subject to unlimited personal
liability for business debts, losses and
liabilities.

•• Obtaining capital, such as a bank loan, can

be more difficult; lenders often require a
more formal entity structure.

•• Sole proprietorships rarely survive an

owner’s death or incapacity, so they do not
retain value.

•• Sole proprietorships by definition can only

have one owner.

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 General Partnership

A general partnership is the simplest variety of Advantages

partnership, and created automatically when two
•• Owners can start partnerships relatively
or more persons engage in a business enterprise easily and inexpensively.
for profit.
•• No state paperwork is required for creation.
By default, a business that begins with a verbal
agreement or handshake is considered a general •• Most states do not impose a fee for the
partnership. All partners share in both the day-to- privilege of existing.
day management and business profits. A formal,
written partnership agreement that sets forth all
the partners’ rights and responsibilities is highly
Disadvantages
recommended; oral agreements are fertile ground •• All owners are subject to unlimited personal
for disputes. liability for business debts, losses and
liabilities.
A general partnership offers owners no liability
protection—partners are all liable for business •• Individual partners bear responsibility for
debts and obligations and their personal assets the actions of other partners.
can be used to satisfy those debts.
•• Obtaining capital, such as a bank loan, can
be more difficult, as lenders often require a
more formal entity structure.

•• Poorly-organized partnerships and oral

partnerships can lead to disputes among
owners.

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 Limited Partnership

A limited partnership (LP) is owned by two classes Advantages

of partners: general and limited. General partners
•• LPs enjoy pass-through taxation.
manage the enterprise and are personally liable
for its debts. Limited partners contribute capital •• Limited partners are not held personally
and share profits, but typically do not participate responsible for business debts and liabilities.
in management. Limited partners also incur no
personal liability for partnership debts beyond •• General partner(s) have full control over all
their capital contributions. At least one partner business decisions.
must be a general partner with unlimited liability,
and one must be a limited partner whose liability •• Partners have more flexibility in management
is limited to the amount of his or her investment. structure with fewer formal requirements
Limited partners enjoy liability protection much and annual paperwork.
like a corporation’s shareholders or an LLC’s
members. Disadvantages
An LP allows for pass-through taxation, as income •• The general partner(s) face unlimited liability.
is not taxed at the business level. Limited partners
can use losses to offset other passive income on •• Limited partners are prohibited from
their tax returns. An informational tax return is participating in business management.
filed, but profits or losses are reported on the
partners’ personal tax returns and any tax due
is paid at the individual level. General partner
losses can be used to shelter other income up
to the value of their investment, since losses are
not usually considered passive. LPs are especially
appealing to businesses focused on a single,
limited-term project (such as real estate or the
film industry). LPs can be used as a form of estate
planning in that parents can retain control of
their business while transferring shares to their
children.

To form an LP, organizers must file formation

documents with their state’s business chartering
agency and pay a filing fee.

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  Limited Liability Partnership

A limited liability partnership (LLP) is a hybrid, Advantages

sharing attributes of partnerships and limited
•• LLPs enjoy pass-through taxation.
liability companies (LLCs). LLP partners
participate in the management of the business, •• All partners are not held personally
as in general partnerships, and the personal responsible for business debts and liabilities.
assets of the partners typically cannot be used
to satisfy business debts and liabilities, as in an •• Partners have more flexibility in how they
LLC. LLP partners may also enjoy personal liability manage the company with fewer formal
protection from the acts of other partners (but requirements and annual paperwork.
each partner remains liable for his or her own
actions). State laws generally require LLPs to •• The LLP form may be the only choice for a
maintain generous insurance policies or cash professional services business that wishes
reserves to pay claims brought against the LLP. to have pass-through taxation in states that
do not allow professional limited liability
companies (PLLCs).
The LLP is appealing to licensed professionals,
such as accountants, attorneys and architects,
when they are prohibited from operating as an
Disadvantages
LLC or corporation. In fact, in many states only
licensed professionals can form LLPs. An LLP also •• The general partner(s) face unlimited liability.
allows for pass-through taxation, as its income is
not taxed at the entity level. An informational tax •• Limited partners are prohibited from
return is filed, but profits or losses are reported participating in business management.
on the partners’ personal tax returns and any tax
due is paid at the individual level.

To form an LLP, organizers must file formation

documents with their state’s business chartering
agency and pay a filing fee.

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 C Corporation

The standard corporation, also called a C Advantages

corporation, is a very common business structure.
•• Shareholders (owners) are typically not
A corporation is a separate legal entity owned personally responsible for business debts
by its shareholders, thereby protecting owners and liabilities.
from personal liability for corporate debts and
obligations. •• C corporations can have an unlimited number
of shareholders.
A corporation’s shareholders, directors, and
officers must observe particular formalities in a •• Ownership is easily transferable through the
corporation’s operation and administration. For sale of stock.
example, management decisions must often be
made by formal vote and recorded in corporate •• Corporations have unlimited life, extending
minutes. Director and shareholder meetings beyond owner illness or death.
must be properly noticed and documented.
•• Some business expenses may be tax-
Finally, corporations must meet annual reporting
deductible.
requirements and pay ongoing fees in their state
of incorporation and in states where they are •• Additional capital can be raised by selling
registered to transact business. shares of corporate stock.

Taxation is a significant consideration when

choosing a business type, and a C corporation Disadvantages
is taxed as a separate legal entity (i.e., no pass-
through taxation like a partnership). A business •• C corporations may incur double taxation on
tax return is filed and taxes are paid on the corporate profits.
corporation’s profits. If the corporation distrib-
•• Corporations are more expensive to form
utes profits to the shareholders in the form of
than sole proprietorships and partnerships.
dividends, shareholders pay income tax on those
distributions. This creates a double taxation of •• Corporations face ongoing state-imposed
corporate profits. filing requirements and fees.

As with any business type that offers liability •• Corporations face ongoing formalities, such
protection to owners, a corporation must be as holding and properly documenting annual
created at the state level. Articles of Incorporation meetings of directors and shareholders.
(sometimes called a Certificate of Incorporation)
in the appropriate state must be filed and filing
fees paid.

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 S Corporation

An S corporation is a standard corporation that Advantages

has filed for special tax treatment with the Internal
•• S corporations enjoy pass-through taxation.
Revenue Service (IRS). S corporations have pass-
through taxation—thereby sidestepping the •• Shareholders are typically not personally
double taxation of corporate profits borne by C responsible for business debts and liabilities.
corporations.
•• S corporations have unlimited life extending
S corporations file an informational tax return beyond owner illness or death.
(much like a partnership) but pay no tax at the
business level. Corporate profit or loss is reported •• Additional capital can be raised by selling
on shareholders’ personal tax returns and any tax shares of the corporation’s stock.
due is paid at the individual level.
Disadvantages
To create an S corporation, Articles of Incorporation
(sometimes called a Certificate of Incorporation) •• The IRS imposes restrictions on S corporation
in the appropriate state must be filed and filing shareholders: they must number 100 or fewer;
fees paid. A timely filing of Form 2553 must then be individuals, estates or certain qualified
be made with the IRS to elect S corporation status. trusts; and cannot be non-resident aliens.

•• S corporations can have only one class of

stock (disregarding voting rights).

•• All shareholders must consent in writing to

the S corporation election.

•• S corporations are more expensive to form

than sole proprietorships and general
partnerships, and face ongoing, state-
imposed filing requirements and fees.

•• A few states require a state-level filing for the

entity’s S corporation status to be recognized.

•• S corporations face ongoing corporate

formalities, such as holding and properly
documenting annual director and
shareholder meetings.

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 Nonprofit Corporation

A nonprofit corporation is formed to pursue a Advantages

matter of public concern for non-commercial
•• Nonprofits can apply for both federal and
purposes. Nonprofits are authorized by different
state tax-exempt status.
statutes than standard forprofit corporations,
but the process is similar. Nonprofit organizers •• Some are eligible for public and private
must file nonprofit Articles of Incorporation or a grants, making the obtainment of operating
Certificate of Incorporation with the appropriate capital easier.
state agency and pay a filing fee.
•• With 501(c)(3) nonprofits, donations made
To pursue tax-exempt status, nonprofits must by individuals to the nonprofit are tax-
apply at the federal and state (if applicable) deductible.
level—it is not automatically granted when the
nonprofit is incorporated. For federal tax-exempt •• The nonprofit affords limited liability
status, a nonprofit must file Form 1023 with the protection to directors and officers.
IRS. For state requirements, it is best to contact the
department responsible for taxation in your state
of incorporation to determine whether a separate
state-level tax-exemption filing is required. Disadvantages

Like standard for-profit corporations, nonprofits •• Nonprofits incur formation expenses and
provide limited liability protection. Personal face ongoing state filing requirements and
assets of directors and officers typically cannot fees.
be used to satisfy the nonprofit’s debts and
•• Nonprofits face ongoing formalities, such as
liabilities.
holding and properly documenting regular
meetings of directors.
The most common type of nonprofit is the 501(c)
(3), formed in compliance with Section 501(c)(3)
of the Internal Revenue Code. These nonprofits
are organized and operate for a religious,
educational, charitable, scientific, literary, testing
for public safety, fostering of national or interna-
tional amateur sports or prevention of cruelty
to animals or children. Nonprofits may also be
formed for other purposes. For example, business
leagues, chambers of commerce, and real estate
boards are formed under Section 501(c)(6), and
a cooperative hospital service organization is
formed under Section 501(e).

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 Limited Liability Company

The limited liability company (LLC) is a hybrid Advantages

business form, combining the liability protection
•• LLCs enjoy pass-through taxation.
of a corporation with the tax treatment and ease
of administration of a partnership. The LLC is •• Members (owners) are not personally
America’s newest form of business organization; responsible for business debts and liabilities.
the great bulk of laws authorizing LLCs in the
United States were passed in the 1980s and 1990s. •• LLCs generally have no restrictions on the
number of members allowed.
LLCs enjoy pass-through taxation—sidestepping
the double taxation of company profits borne by •• Members have flexibility in structuring the
C corporations (although LLCs can elect with the company management.
IRS to be taxed as a corporation). Multi-owner
LLCs file an informational tax return but pay no •• The LLC does not require as much annual
tax on company profits. The members (owners) paperwork or have as many formalities as
report their share of the LLC’s profit or loss on corporations.
their individual tax returns, and any tax due is
paid at the individual level. Single-member LLCs
report company profits on Schedule C and any tax Disadvantages
due is also paid at the individual level.
•• LLCs are more expensive to form than sole
proprietorships and general partnerships.
LLCs are created by filing formation documents,
typically called Articles of Organization or •• Ownership is typically harder to transfer than
Certificate of Organization, at the state level and with a corporation.
paying the required state filing fee.
•• Because the LLC is a newer business type,
there is not as much case law to rely on for
determining precedent.

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 Professional Entities

Professional corporation Professional limited liability company

Professional corporations (PCs) are specialized Professional limited liability companies (PLLCs)
entities organized and operated solely by licensed are specialized entities organized and operated
professionals such as attorneys, accountants solely by licensed professionals such as attorneys,
and doctors. Shareholders (owners) may enjoy accountants and doctors. The members (owners)
personal liability protection from the acts of may enjoy personal liability protection from the
other shareholders, but each remains liable for acts of other members, but each remains liable
his or her own professional misconduct. for his or her own professional misconduct. Not
all states recognize the PLLC business type.
State laws generally require PCs to maintain
generous insurance policies or cash reserves State laws generally require PLLCs to maintain
to pay claims brought against the corporation. generous insurance policies or cash reserves to
PCs are formed in a similar manner to standard pay claims brought against the corporation. PLLCs
corporations, by filing formation papers with the are formed in a similar manner to standard LLCs
appropriate state agency and paying filing fees. by filing formation papers with the appropriate
state agency and paying filing fees.

Incorporation Wizard
Deciding which structure your business will
take can be complex. BizFilings’ Incorporation
Wizard is an online tool that helps you
evaluate business forms according to your
specific business needs. As you answer
business-related questions, the Wizard ranks
each entity type according to how well each
may suit your needs. Use the Incorporation
Wizard at www.BizFilings.com/wizard.aspx.

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 Business Type Comparison Table

This table provides an at-a-glance reference for comparing the most common business entity types.

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 Where to Incorporate
Once a business owner has decided to incorporate
Home state vs. another state
a business or form an LLC, the next step is to
choose a state of incorporation. You are free Points to consider:
to incorporate your business in any state, but •• State filing fees for forming a corporation or LLC
there are factors to consider when choosing, in each state under consideration.
such as: incorporating in your home state versus •• State filing fees to register to transact business
another state, state statutes, and state taxation (foreign qualify) outside your home state.
requirements.
•• Ongoing fees imposed on corporations and
LLCs by each state under consideration.
Incorporating in your home state
•• Ongoing fees imposed on foreign-qualified
versus another state corporations and LLCs by the state(s) of
qualification.
Forming a corporation or LLC in the state where
your business is physically located is called home
state incorporation. Corporations and LLCs must State statutes & taxation requirements
pay state filing fees at the time of formation, and When evaluating states for incorporation,
are also subject to ongoing requirements and be sure to research each state’s corporation
fees. If the company is incorporated in another and LLC statutes. For example, pro-business
state but conducts business primarily in the home corporation laws are one reason why Delaware
state, it may need to “foreign qualify.” Foreign is such a common and popular choice for large
qualification registers a corporation or LLC to corporations, but those same laws may not be as
transact business in a state other than the state beneficial to corporations with only one or a few
of incorporation. To foreign qualify, the proper shareholders (owners).
paperwork, called a Certificate of Authority, must
be completed and filed and additional state Business owners should also understand
filing fees paid. Foreign qualified businesses are how corporations and LLCs are taxed by each
subject to ongoing requirements and fees both in state under consideration, and the taxation
the state of incorporation and also the state(s) of requirements for foreign-qualified corporations
qualification. and LLCs in the state(s) of qualification. Consider
the following:
What constitutes transacting business varies by
state. Common factors are whether the company •• Does a state impose an income tax on corporations
has a physical facility, employees or a bank account and LLCs?
in that state. To learn whether your company may •• Does the state impose a minimum tax or a franchise
need to foreign qualify, talk with an attorney. tax?
•• Try calculating your company’s projected revenue
for its first years of existence and then evaluate
the states in terms of the amount of taxes your
company would be required to pay.

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Delaware While incorporating in Delaware holds potential
advantages, one disadvantage is that if you
Why has Delaware been one of America’s most operate your business in another state or states,
popular corporate and LLC destinations? It was you may need to “foreign qualify” your business
America’s first corporate haven, and its laws are in the state(s) where you are doing business.
intentionally pro-business. More than 50 percent Foreign qualification is the process of registering
of all U.S. publicly-traded companies and 60 a company to transact business in states other
percent of Fortune 500 companies call Delaware than its state of incorporation. When you foreign
home. But these same advantages may not qualify your company, you must file paperwork
always apply to smaller businesses. For questions with the states in which you’ll be transacting
on which state is best for the formation of your business and pay the necessary filing fees. You
business, talk with an attorney or accountant. will also be subject to ongoing filings and fees
(such as annual reports and/or franchise taxes)
in your state of incorporation and state(s) of
Common advantages of forming in Delaware qualification.

•• The cost to form a corporation or LLC is among

the lowest in the country.

•• Delaware’s corporate law is one of the most

flexible in the country.

•• The taxation requirements are often favorable

to companies with complex capitalization
structures and/or a large number of authorized
shares of stock.

•• There is no state corporate income tax for

corporations and LLCs that are formed in
Delaware but do not transact business there
(there is a franchise tax, however).

•• One person can hold all officer positions and

serve as the sole director of the corporation or
sole member/manager of the LLC.

•• No director, member, manager or officer names

need be listed in the formation documents,
providing a level of anonymity.

•• Shareholders, directors and officers of a

corporation and members or managers of an
LLC need not be residents of Delaware.

•• Shares of stock owned by persons outside of

Delaware are not subject to Delaware taxes.

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 The Incorporation Process
To form a corporation or LLC, formation paperwork Standard (non-expedited) incorporation filings
must be filed with the appropriate state agency, can take four to six weeks to be approved and
usually the Secretary of State, and filing fees returned to the business owner. Most states offer
paid. This section describes the process typically expedited filing services for an additional fee,
required to form a corporation or LLC in any state, reducing the turnaround time for filing documents
as well as typical costs and time frames. to a few days or even a few hours.

Matters of public record and publication Mandatory corporation & LLC disclosures
requirements LLCs and corporations must disclose certain
•• Information included in the incorporation information in their incorporation documents.
documents, such as names and addresses, The mandatory disclosures vary slightly by state.
become a matter of public record; in the
Internet age, they are easily searchable by indi- Company name
viduals, regulatory and tax authorities and data The desired name of the corporation or LLC must
mining services. be included. For corporations, it must typically
•• Some states require public announcement include an identifier, such as “Corporation,”
of new business incorporations. A state may “Incorporated,” “Company” or an abbreviation of
require that notice of the incorporation be those terms. For LLCs, it must typically include
published in a legal journal or specific, local the term “Limited Liability Company” or “LLC.” The
newspaper for a designated amount of time. state holds final approval rights on the desired
name to ensure it is not already in use by another
company in that state, or is not “deceptively
Documentation, fees and similar” to a name already in use.
typical timeframes
Business purpose
A corporation’s formation document is typically
called the Articles of Incorporation or Certificate A company’s incorporation document typically
of Incorporation, depending on the state. An LLC’s must include a brief statement of the company’s
formation document is typically called the Articles business purpose, declaring the proposed scope
of Organization or Certificate of Organization. of a company’s operations. Business purpose
Incorporation documents advise the state and the clauses are either of two types, general or specific.
public of certain details concerning the company.
Incorporation documents become a formal record General business purpose — some states allow a
of the corporation’s or LLC’s existence. general purpose clause, indicating that the company
is formed to engage in “all lawful business.”
State corporation and LLC filing fees range
widely — from less than $40 to more than $500. Specific business purpose — some states require a
The typical time frame to have incorporation more complete explanation of exactly what type of
documents approved also varies. business the company will undertake.

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Registered agent Advantages of using a registered agent
service provider
Most states require incorporated companies to name
a registered agent, which is the party that accepts Stability: The registered agent address must be kept
important legal and tax documents on behalf of the updated with the state. If a business owner serves as
company. The registered agent must have a physical the company’s registered agent and moves, he or she
address (no P.O. boxes) in the state of incorporation, must file an amendment and pay necessary state filing
and must be available at that address during normal fees to update the registered agent address on record
business hours. Examples of important documents for the company. If a registered agent provider is used,
typically delivered to the registered agent include the provider is responsible for filing the amendment
Service of Process (Notice of Litigation), tax notices, if its address changes and for paying the necessary
and annual filing notices. state fees.
Anonymity: In states that do not mandate disclosure
Incorporator
of the company’s legal address, the registered agent’s
The person or company who initiates the company’s address is often the only address disclosed to the
formation filing is the incorporator. Most states public, giving anonymity to company owners and
require that the name, signature and address of the managers. This is also a benefit for home-based
incorporator (or organizer for LLCs) be included in the businesses, since the registered agent address will be
incorporation documents. made public, not the owner’s home address.
Reliability: Registered agent providers maintain fully
Registered agent
staffed offices to accept registered agent documents
The registered agent warrants additional discussion. received. They treat the receipt of these documents and
The majority of states require corporations and LLCs prompt delivery to you with utmost professionalism.
to appoint a registered agent in the state where the Compliance assistance: Many registered agent service
company is formed. providers offer tools and services to help business
A business owner has the option of serving as the owners keep their companies in compliance with both
company’s registered agent as long as he or she internal formalities and the ongoing filing and fee
maintains a physical address in the state in which requirements imposed by the state of incorporation.
the corporation or LLC is formed and is available Companies that do not meet their compliance
during normal business hours. There are many requirements face the possibility of losing the
professional registered agent service providers that limited liability protection offered to owners and/
typically charge an annual fee. Many small business or administrative dissolution of the business by the
owners find their services advantageous, for reasons state.
such as the registered agent’s name and address are Disclosure information required for
included on the incorporation documents (instead of
corporations
the owner’s) and are matters of public record, and
The information required in corporate formation
ensuring someone is always present during normal
documents varies from that required for LLCs. The
business hours to facilitate receipt of documents
following disclosures are generally required:
delivered to the registered agent. Many professional
registered agents also provide other compliance Number of authorized shares of stock
services as part of their fee, including software to Corporations must set forth the number of shares of
keep track of important corporate information and stock they wish to authorize and the par value, if any,
provide alerts for upcoming compliance events. Some associated with those shares. A corporation need not
may also assist you with filing your company’s annual issue the total number of authorized shares. Some opt
report and monitor the status of your company with to withhold unissued shares in order to add additional
your state of incorporation. owners at a later date or to increase the ownership
percentage for a current shareholder.

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Share par value Disclosure information required for LLCs
Par value is the minimum stated value of a share The following disclosures are generally required for
of stock. It typically doesn’t correlate to the actual LLCs:
value of a share. Common par values are $0.01, $1 or
Management structure
no par. The actual value is fair market value, or what
someone is willing to pay for a share of stock. For LLCs must typically specify whether the company will
public companies, actual value is determined by the be managed by its members (owners) or by managers.
price investors are willing to pay for each share on the When an LLC is managed by members, owners
national exchange. For private companies, the actual oversee daily business operations. When managed by
value of a share is typically determined by the overall appointed managers, the LLC resembles a corporation,
value of the corporation or the book value. It often where business management is the responsibility
makes sense to establish a low par value for shares, of the directors and officers rather than the owners
as a number of states use par value to calculate a (shareholders).
corporation’s franchise tax obligations. Members/Managers
Preferred shares Many states require the names and addresses of the
If a corporation plans to authorize both common and initial member(s) or manager(s) be set forth in the
preferred shares, this information, along with any formation documents.
information on voting rights, must be included in the Dissolution date
Articles of Incorporation. Preferred shares typically
All states allow (but not all require) the LLC to list
provide those shareholders preferential payments
a dissolution date in the Articles of Organization,
of dividends or distribution of assets should the
dictating the maximum duration of an LLC’s existence.
company end operations. Many small business owners
Almost every state allows for perpetual existence.
choose to only authorize shares of common stock. For
details on preferred shares and voting rights, talk with Common information required for
an attorney. nonprofits
Directors A nonprofit corporation’s Articles of Incorporation or
Many states require the names and addresses of Certificate of Incorporation resemble for-profit Articles
the corporation’s initial directors be included in the of Incorporation, but with a few key differences:
incorporation documents. Directors are responsible •• Nonprofits do not issue stock, so the nonprofit
for overseeing and directing corporate affairs, Articles of Incorporation will not require information
including making major corporate decisions. They on shares of stock or par value.
are not responsible for the daily business activities, •• Nonprofits must include very specific and detailed
attended to by the officers. Directors are elected by business purpose clauses. This information is used
the shareholders, and are responsible for appointing by the state to ensure the company fits within the
officers. nonprofit guidelines. It is also evaluated by the IRS, if
the nonprofit applies for federal tax-exempt status.
Officers
•• The state-approved Articles of Incorporation must
Some states require names and addresses of officers be provided to the IRS when the nonprofit applies
to be included in the incorporation documents. for a federal tax-exempt status.
Officers are responsible for the day-to-day activities
of the corporation. Common officer titles include
president, vice president, secretary, and treasurer. In
most states, one person can fulfill all roles.

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 Post-Incorporation and Compliance
Requirements
Requirements imposed on corporations and LLCs do Internal corporate requirements
not end when incorporation documents are approved
Corporations face the strictest requirements of
by the state—they are ongoing. Owners enjoy certain
any business type. The following ongoing steps are
benefits from corporations and LLCs, and must fulfill
required of corporations:
responsibilities to maintain those benefits. Failing to
follow requirements can result in dire consequences, •• Create and regularly update bylaws.
including the potential loss of the limited liability •• Hold an initial meeting of directors (organizational
protection provided to the owners. meeting) where bylaws are adopted, officers are
appointed, shares of stock are issued to initial
Internal requirements shareholders and initial business decisions or
Corporations are required to undertake certain steps (such as authorizing the corporation to open
ongoing formalities in their internal governance, and a bank account) are approved. Minutes outlining all
while LLCs do not face the same requirements, similar actions taken at the organizational meeting should
steps are recommended. The importance of faithfully be taken and kept in the company record book.
undertaking and properly documenting each cannot •• Hold an initial meeting of shareholders to approve
be overstated, as failing to do so can result in loss of the incorporation, the initial board of directors and
limited liability protection for the company’s owners. the steps taken by directors at the organizational
There are many tools available today, specifically meeting. Minutes outlining all actions taken should
geared towards small business owners, to make be taken and kept in the company record book.
complying with internal formalities as easy and
•• Hold and properly document annual meetings of
convenient as possible.
directors and shareholders. At the annual meeting of
directors, directors typically undertake the approval
A corporation’s bylaws are second only to its or rejection of major business decisions, renewal
Articles of Incorporation in importance. Bylaws of the officers’ terms and/or the appointment of
outline the corporation’s internal governance new officers. At their annual meeting, shareholders
rules, and address a wide range of internal typically undertake the renewal of directors’ terms
policies and procedures—from establishing a and/or appointment of new directors. They also get
corporation’s fiscal year and what corporate an update on the status of the corporation (if the
actions require shareholder approval, to shareholders are not involved in the daily operation
outlining how many officers a corporation will of the business).
have. Bylaws are adopted by a corporation’s
•• Record changes in company ownership in a stock
directors at their organizational meeting. Another
transfer book or ledger.
item often addressed during the organizational
meeting is corporate authorization to open a
bank account. Some banks require a copy of a
directors’ resolution approving the bank account
and assigning which officers will have signature
authority on it.

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Internal LLC recommendations The due dates for annual statements and franchise
taxes vary by state. Some states connect these dates
While LLCs are not required to follow ongoing
to the anniversary of the company’s incorporation (or
formalities, undertaking the following steps is typically
date it registered to transact business in the state, if
recommended:
applicable). Others set a particular due date for all
•• Create and regularly update an operating agreement. corporation annual statements and another for all
Like a corporation’s bylaws, an LLC’s operating LLCs. Because the periodic filing requirement and
agreement outlines the internal governance of the annual franchise tax can represent a significant burden
LLC. and expense, business owners should research these
•• Hold an initial meeting of the members or requirements prior to incorporating.
managers to approve the operating agreement,
Additional external requirements
issue membership interest to members and
undertake initial company decisions, such as Here are some other potential state and federally
authorizing the LLC to open a bank account. It is imposed requirements that may apply to your
also recommended that the actions taken at this company:
meeting be documented and kept in a company •• Filing a federal income tax return and paying
record book. necessary taxes.
•• Hold and properly document the actions taken at •• Filing a state income tax return and paying
annual meetings of members or managers. necessary taxes.
•• Record any changes in ownership (membership) •• Paying state franchise taxes.
interest in a transfer book or ledger.
•• Filing state annual statements.

External requirements •• Payroll tax obligations (such as Social Security,

Medicare, and unemployment).
External requirements are imposed by the states on
corporations and LLCs. They often include an annual •• Property tax obligations.
or biennial state filing and payment of a corresponding •• State sales and use tax obligations.
state fee.
•• County, city or municipality tax obligations.
Nearly all corporations and LLCs must file periodic
•• Obtaining and renewing any necessary state and/
reports with the Secretary of State’s office or its
or local business permits and/or licenses.
equivalent department. Annual statements are the
norm—but some states have relaxed their rules and
require only a biennial statement. In either case,
states typically impose a fee along with the filing. The
fees vary widely by state and by entity type, ranging
from $1 to more than $200.
Some states also impose a franchise tax—levied for
the privilege of existing as a corporation or LLC that
is incorporated or registered to transact business in
that state. A franchise tax may be based upon income,
assets, outstanding shares, or a combination. It might
also be a flat fee. Put another way, a franchise tax is a
tax one pays for “just being there.”

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Consequences of non-compliance
Piercing the corporate veil
Small business owners often mistakenly believe
Liability protection is not absolute. The term
that ongoing corporate and LLC requirements do
“piercing the corporate veil” refers to a court’s
not apply to them, or perhaps they feel too busy to
decision to sidestep liability protection normally
properly satisfy these requirements. Failing to observe
afforded by a corporation or LLC and impose
internal and external requirements can yield dire
full personal liability upon the owners. A close
consequences, such as losing corporate or LLC entity
corollary rule is the alter ego theory, which
status and loss of the limited liability protection
essentially says that if corporate shareholders
provided to the company’s owners.
disregard the legal separateness of the corporation
If a corporation or LLC is sued and is unable to show or proper formalities, the law will also disregard
that it faithfully followed all formalities, a judge might the corporate or LLC form to protect individual
rule that the company was operating more as a sole creditors. Courts have long recognized the distinct
proprietorship or general partnership, and extend full legal status of liability-shielding entities. And
personal liability to company owners (called “piercing courts are reluctant to disregard the corporate or
the corporate veil”). LLC status—though they will pierce the corporate
(or LLC) veil in appropriate circumstances.
There are also state-level consequences that can
happen prior to piercing the corporate veil. When
a corporation or LLC does not comply with a state’s
annual or ongoing requirements, it is no longer in
“good standing” with the state. Each state has different
parameters for what is required before a company falls
out of good standing and also how the states handle
it. For example, as a first step, many states impose late
fees and interest payments on the outstanding annual
statement and/or franchise tax fees. Being out of good
standing long enough may lead to administrative
dissolution of the company by the state. When the
state administratively dissolves a corporation or LLC,
the business ceases to exist and all corporate or LLC
benefits are lost.

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  Using an Incorporation Service
Provider
Using an attorney to incorporate a business is not a Comprehensive offerings: Incorporation service
legal requirement. Business owners can use an online providers typically charge a service fee plus the state
incorporation service provider or incorporate on filing fee in order to prepare and file your incorporation
their own directly with the appropriate state agency. documents, but many offer additional products and
Using an incorporation service provider has become services (often as part of incorporation packages) that
the incorporation method of choice for many small business owners typically need when starting and/
business owners. They are less expensive than using or incorporating a business. Additionally, many offer
an attorney and typically less time consuming and
filings and other services business owners often need
less confusing than preparing and filing one’s own
throughout and/or later in the life of their business,
incorporation documents.
such as ongoing compliance assistance, registered
Keep in mind, incorporation service providers are not agent service and doing business as (DBA) filings.
law firms and cannot provide legal advice. They can,
however, provide general information on business Professionalism: As you can imagine there are some
structures and state requirements, and walk you not-so-reputable incorporation service providers.
through the incorporation process step-by-step. When choosing an incorporation service provider,
ensure that the company’s contact information
Benefits of using an incorporation and customer service hours are easy to find.
service provider Look for customer testimonials and membership
seals demonstrating that the company belongs to
Save time: When business owners personally prepare organizations that promote good business practices.
and file their formation documents, they often spend Also, because most incorporation service providers
more time than anticipated or desired to research offer online ordering, check for a privacy policy and
state requirements and fees and obtain, complete and ensure that the checkout process is secure.
submit appropriate documents.
About BizFilings
Save money: Using an attorney or an accountant to Headquartered in Madison, Wisconsin, BizFilings is the
prepare and file formation documents is another online incorporation provider of choice for more than
option. But it can often be quite expensive, particularly 500,000 entrepreneurs. Since our founding in 1996,
for new business owners who need all of their spare our knowledgeable Incorporation Specialists, step-
capital to start operations. Attorney fees vary, but by-step processes, and no hidden fees policy have
incorporating can cost between $1,500 and $3,000. allowed small business owners to form a corporation,
If a business owner needs the advice of an attorney limited liability company (LLC) or other business
on an entity type or where to incorporate, a provider structure with confidence. We also offer a full range
can still be used for the actual preparation and filing of business filing and compliance products and tools,
of the incorporation documents. This helps save including registered agent service in all 50 states,
money, since the owner is only paying the attorney’s to help businesses remain in compliance with state
hourly fee for advice, and not for time facilitating the
regulations.
incorporation process.
Unlike many online incorporators, BizFilings has a
Make incorporation understandable: Many staff of attorneys who monitor state business law
incorporation service providers want to help business and incorporation requirements to make sure our
owners understand the business type choices available filing services are always up-to-date and accurate.
to them, the process of incorporation, and ongoing Moreover, we guarantee our filing services.
requirements. Look for a provider with articles and
tools to help make learning easy.

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Benefits of choosing BizFilings Experienced customer service: We provide our
Incorporation Specialists with significant upfront and
97% customer satisfaction: We regularly survey our ongoing training. With an average tenure of over 4 years,
customers on their satisfaction with our service. Some each team member is regularly tested and certified on
97% (per our 2014 customer survey results) said they all aspects of incorporation and compliance services,
would use us again or recommend us to their family and it shows.
or friends.
Nationwide presence: We have a network of offices
Outstanding value: Our pricing is highly competitive. in every state and Washington D.C. This allows us to
We offer exceptional value and service in all we do. Our deliver filings directly to the Secretary of State, as
formation packages are comprehensive. Our services, needed. Also, our physical presence contributes to our
such as our registered agent service, contain value- ability to provide superior registered agent service.
adds you won’t find from any other company. We can
assure you that you will receive higher quality, better Trusted partner of CPAs and attorneys: Business
service, and more for your money with BizFilings. owners aren’t the only people who trust BizFilings
to assist with the formation of their business. Our
No hidden fees: Unlike other incorporation providers, customer list includes hundreds of accountants and
we make sure our pricing is very clear throughout attorneys from across the country. In many cases, we’ll
the incorporation process. You won’t find any hidden work directly with the clients of our accountant and
items in your shopping cart at checkout. We publish attorney partners, while other times we provide the
our pricing and any associated state fees right on our filing support directly to attorneys and CPAs.
product pages and make sure we clearly explain what
you are paying for when you do business with us. Family of companies with over 100 years experience:
BizFilings, as a Wolters Kluwer company, has been
Service guarantee: Our filing services are both providing state filings, registered agent service, and
accurate and timely. Every order is carefully reviewed business compliance information and services for
by BizFilings’ personnel to identify potential errors over 100 years. Our experience and expertise in
before filing. Our warranties cover our services against business formation and compliance-related products
filing defects caused by BizFilings for the life of your and services is second to none.
corporation or LLC.
Long-term partner for our customers: We understand
Helped over 500,000 entrepreneurs: As pioneers in the ongoing pressures business owners face to
the online incorporation industry, BizFilings has been make their businesses succeed. You need to remain
providing incorporation and registered agent services focused on your business—not worry about things
online since 1996. As a trusted business partner, we’ve like incorporation and ongoing compliance. From the
helped over 500,000 entrepreneurs and business breadth of our filing services to business licenses
owners with their formation, registered agent, and and registered agent services, we support the whole
state filing needs. lifecycle of your business and are here to help you
succeed every step of the way.
Making incorporation fast and painless: Whether
they’re learning about the incorporation process and
available options or are ready to incorporate or form
an LLC, business owners turn to BizFilings.

Our website delivers free tools and rich content

to support the learning process. Our easy-to-use,
step-by-step ordering process makes incorporating
your business fast, easy and painless. Plus, if you
have questions or need help placing an order, our
knowledgeable and friendly Incorporation Specialists
are just a click or a call away.

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BizFilings’ product listing Compliance offerings and corporate supplies
Compliance kit and seal: BizFilings can provide a
State filings — all 50 states professional binder customized with your company
Incorporation: Corporation, LLC, nonprofit, limited name; corporate, LLC, NP, LP or LLP seal; 20 custom
partnership (LP) and limited liability partnership (LLP) stock, membership or partnership certificates; stock/
formation filings. membership/partnership interest transfer ledger;
sample bylaws, operating agreement or partnership
Professional services business formations: PC, PLLC
agreement; sample resolutions and more.
and LLP filings.
Compliance seal (stand-alone): BizFilings offers a
Foreign qualification filings: Certificate of Authority
professional custom seal with the company name for
filings to register a company to transact business in
stamping official company documents.
another state or multiple states.
Stock, membership or partnership certificates (stand-
Amendment filings: Certificate of Amendment filings
alone): BizFilings offers professional and secure stock,
to amend the formation documents.
membership interest or partnership certificates pre-
Dissolution filings: Certificate of Dissolution filings printed with your company name.
when a company is ceasing operations. Company forms CD: BizFilings offers customizable
State filings — all 50 states templates for bylaws, operating agreements,
partnership agreements, initial and annual meeting
Formations/qualifications: All formation or foreign minutes, resolutions and more.
qualification orders include six months free registered
agent service. State and local-related services
Registered agent only: BizFilings offers registered DBA filing service: BizFilings can undertake your
agent service in all 50 states to business owners company’s “doing business as” (DBA) filing, also called
who are undertaking their own state incorporation a fictitious business name filing, at the state and/or
or foreign qualification filings (or using another county level.
incorporator) but would like to name BizFilings as
Rush filing service: BizFilings offers a rush filing
registered agent.
service in participating jurisdictions allowing for state
Change of registered agent: BizFilings can prepare and approval of the formation filing in 24-48 hours.
file the necessary documents to change a company’s
Certified copy: BizFilings can obtain a certified copy of
existing registered agent to BizFilings. Additionally,
the Articles of Incorporation or Organization.
BizFilings will absorb any state fee charged by the
state to change your registered agent. Certificate of good standing: BizFilings can secure
your Certificate of Good Standing, demonstrating your
IRS forms and filings company is formed in a particular state and has made
Federal tax identification number obtainment: all necessary filings and paid the required fees.
BizFilings can secure your company’s federal State name availability search: BizFilings can
tax identification number (also called employer undertake a preliminary search with a state to
identification number or EIN) from the IRS. determine if a desired company name is available.
S corporation election obtainment: BizFilings will State name reservation: BizFilings can reserve a
prepare and file your corporation’s S corporation desired company name in a particular state to use
election with the IRS. either immediately or at a later date for a formation
or foreign qualification filing.
Business licenses
Apostille: BizFilings can secure certification by
Federal, state, local, county and/or regional licenses: apostille of formation and/or qualification documents
BizFilings will identify the permits and licenses that for use in another country.
apply to your business and provide all of the forms
you need.

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 Notes

- 25 -
 Notes

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 Helping Business Owners Succeed
Incorporation is an essential step for business
owners; it secures personal assets and provides
additional business benefits. Understanding
incorporation, however, is as important as
undertaking it.
BizFilings has helped over 500,000 entrepreneurs
to start, run, and grow their business, and has
turned them into satisfied customers. We wish
you success with your business and hope you will
become a satisfied BizFilings customer, too.

BizFilings Customer Service

TELEPHONE: 800.981.7183 or 608.827.5300 FAX: 608.827.5501

LIVE CHAT: www.BizFilings.com

EMAIL: info@BizFilings.com

HOURS: Monday – Friday, 8am - 7pm central time

Connect with us
Twitter.com/BizFilings

Facebook.com/BizFilings

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