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FAQ for Business Owners

Everything you need to know about starting and operating a business in the U.S.

Incorporation can provide many benefits. Incorporation can help limit your personal liability as a business owner. In general, creditors of your corporation must satisfy their claims by seizing the assets of the corporation rather than your personal assets. In contrast, as a sole proprietor or partner in a partnership you are financially responsible for all liabilities of the business, and your personal assets are subject to seizure or lien by creditors. Other benefits of incorporation can include greater tax deductions for health insurance and medical expenses, lower payments for social security tax and medicare tax, and greater opportunity to raise capital for the business through the issuance of stock.

No. By using the Corporate Creations service, incorporation is a simple process. The Confidential and Secure Order Form contains all of the information necessary for us to form your corporation in any state. We will file articles of incorporation (called certificate of incorporation in Delaware and a few other states) with the state you select. Corporate Creations will handle all details of forming your corporation. We can also assist with the formation of a limited liability company, limited partnership, nonprofit corporation or offshore company.

Generally, you should incorporate in the state where your office is physically located. If you incorporate in another state such as Delaware, you may need to submit an application to qualify as a foreign corporation in the state where your office is physically located. We can assist you with the foreign qualification application.

Most states have revised their corporate laws based on the laws of Delaware. For companies that are privately owned (not publicly traded), generally there are no substantive differences any more between the corporate laws of Delaware and those of other states. If you incorporate for the purpose of owning and operating a business, the general rule is that you should incorporate in the state where your main business office is located. We look forward to receiving your incorporation order.

Under state law, every company is required to have a registered agent located in the state of incorporation and in all states where the company is qualified to transact business. The role of the registered agent is to receive legal papers (called service of process) and state annual reports on behalf of the company. As part of registered agent service, you will receive upon request free updates regarding the status of the company and information about the procedure to amend the company. There is an annual fee for registered agent service. In the United States, registered agent service is provided by Corporate Creations Network Inc.

Yes. In general, corporations file an annual tax return (IRS Form 1120 or 1120S) and a simple one page annual state report that updates information such as the address of the corporation and the names of its current officers and directors. (The names of the shareholders are generally not listed in the annual state report.) Note that annual tax returns are also filed by sole proprietorships (Schedule C to IRS Form 1040), limited liability companies (IRS Form 1065) and general partnerships (IRS Form 1065).

In most states, one person is enough to form a corporation. The same person may hold the offices of President, Secretary and Treasurer and may be the only person on the Board of Directors. The officers manage the daily business of the corporation based on the instructions of the Board of Directors.

The corporation is owned by the shareholders. A corporation may have one or more shareholders. In general, since the shareholders elect the persons who serve on the Board of Directors, the corporation is controlled by the shareholders. The shareholders who own more than 50% of the corporation's common stock get to make the ultimate decisions about running the corporation.

Generally, there are no restrictions on foreign ownership of a company formed in the United States. The procedure for a foreign citizen to form a company in the United States is the same as for a U.S. resident. It is not necessary to be a U.S. citizen or to have a green card to own a corporation or limited liability company formed in the United States. To receive pass-through profit distributions, a foreign citizen may form a limited liability company. In contrast, all profit distributions (called dividends) made by a C corporation are subject to double taxation. (Under U.S. tax law, a nonresident alien may own shares in a C corporation, but may not own any shares in an S corporation.) For this reason, many foreign citizens form a limited liability company instead of a C corporation.

A foreign citizen may be a corporate officer and/or director, but may not work in the United States or receive a salary or compensation for services provided in the United States unless the foreign citizen has a work permit (either a green card or a special visa) issued by the United States. Some work permits allow a foreign citizen to work only for a sponsoring employer. Such work permits generally do not enable a foreign citizen to also work for a new, unrelated company formed by the foreign citizen. The foreign citizen would need to obtain a separate work permit to work for the new company. We do not provide immigration advice.

No. To determine the value of incorporation for your business, we suggest you consult with your attorney or tax advisor. To form your corporation, however, you may use our incorporation service to save money on the administrative aspects of incorporation. The Corporate Creations incorporation service is used worldwide by attorneys, accountants and business owners. Corporate Creations offers competitive prices and the highest quality incorporation and corporate services in the United States.

The process to form a "for profit" versus "nonprofit" corporation is similar, but the text of the articles of incorporation is different. There are no owners in a nonprofit corporation. Instead, a nonprofit corporation is controlled by a board of directors. The profits of a nonprofit corporation may not be paid to the "founders" of the nonprofit, except that the founders may receive compensation for the fair market value of actual services provided to the nonprofit. In general, a nonprofit corporation is exempt from federal income tax, except with respect to unrelated business income. If a nonprofit corporation will seek charitable contributions from the public, the nonprofit must apply for 501(c)(3) status, which is a separate application that should be filed within 15 months after incorporation of the nonprofit.

The term C corporation refers to the way in which the corporation is taxed. There is a corporate level income tax on the profits of a C corporation. In addition, if a dividend is paid to shareholders from retained earnings, the dividend is included on the personal tax return of each shareholder. Thus, the profits of a C corporation are subject to potential double taxation. Your corporation will be taxed as a C corporation this year unless you timely file IRS Form 2553 to elect tax treatment as an S corporation.

The term S corporation refers to the way in which the corporation is taxed. An S corporation is a pass through entity. There is no corporate level income tax. Instead, a pro rata portion of the annual profit or loss of the S corporation is included on the personal tax return of each shareholder. If IRS Form 2553 is filed within 75 days after incorporation, the corporation will be treated as an S corporation for tax purposes. Many start-up businesses benefit by making the election to be taxed as an S corporation.

A limited liability company (LLC) is like an S corporation. Generally, business owners form an LLC rather than an S corporation if one or more of the following situations apply:

  1. ANY owner of the company is another business entity or a nonresident alien (a person is a nonresident alien if he or she is neither a resident nor a citizen of the United States).
  2. The company will be owned by more than 100 persons.
  3. The company plans to issue more than one CLASS of stock (for example, special allocations of profits and losses will be made that are not proportionate to the equity percentage of each owner).
  4. The owners desire to use business debt (money borrowed by the company) to increase their tax basis.
  5. The state where your business is located imposes an entity level income tax on the profits of an S corporation and does not impose such a tax on the profits of an LLC.

If these situations do not apply to you, then an S corporation should do the job. Generally, the LLC is treated like a partnership for tax purposes and there is no entity level tax. Under the recently approved IRS check-the-box regulations, an LLC will be taxed like a partnership unless the members elect to have the LLC taxed like a C corporation (association). Prior to the check-the-box system, to be taxed like a partnership, an LLC could have no more than two of the following four characteristics of a corporation: 1) Limited Liability; 2) Centralized Management; 3) Continuity of Life; 4) Free Transferability of Ownership Interests. Most LLCs have only the first two characteristics.

Formation of an S corporation or an LLC can offer many benefits including limited liability and tax savings. An LLC also provides liability protection like a corporation.

Some start-up companies benefit by starting out as an S corporation, while others remain as C corporations because the owners desire to deduct 100% of medical expenses, the corporation fails to qualify for S corporation status, or the shareholders desire to have the opportuntiy to exclude from gross income 50% of the gain from the sale of "qualified small business stock" (explained below). Generally, a corporation fails to qualify for S corporation status if one or more of the following situations apply:

  1. ANY owner of the company is another business entity or a nonresident alien (a person is a nonresident alien if he or she is neither a resident nor a citizen of the United States).
  2. The company will be owned by more than 100 persons.
  3. The company plans to issue more than one CLASS of stock (for example, special allocations of profits and losses will be made that are not proportionate to the equity percentage of each owner).

If the above situations do not apply to you, then the corporation may apply for S corporation status by timely filing IRS Form 2553. The law requires submission of Form 2553 for the S election within 75 days after the corporation first has assets, shareholders or starts doing business. If you miss the deadline, you may file Form 2553 within 75 days after January 1, but there may be tax consequences. If a corporation fails to qualify for S corporation status, then the corporation must be a C corporation. With a C corporation, 100% of the medical expenses incurred by you (as a shareholder and employee), your spouse and your children are tax deductible. In a sole proprietorship, only 60% of such medical expenses are tax deductible for the 2001 tax year.

In 1993, Section 1202 of the Internal Revenue Code was enacted to provide a 50% exclusion of any capital gain from the sale of "qualified small business stock." For shares to qualify for the exclusion, several tests must be met. For instance:

  1. Shares must be purchased directly from a C corporation and the shares must be held for at least five years (shares do not qualify if purchased in any later trading market).
  2. A "qualified small business" must have not more than $50 million in assets at all times before and immediately after the issuance of stock.
  3. At least 80% of the corporation's assets must be used in the "active conduct of one or more qualified trades or businesses" throughout the holding period.
  4. There are also limitations on the persons who may use the exclusion. You should consult your own tax advisor as to the availability of the capital gains tax exclusion.

With an S corporation, the distribution of S corporation profits is exempt from the 15.3% social security/medicare tax that is imposed on wages. The shareholder of an S corporation saves about $1530 for every $10,000 profit distribution ($10,000 x 15.3% = $1530) because the entire profit distribution is exempt from the social security/medicare tax. This tax savings strategy is commonly called "wage reduction." Remember to pay a reasonable wage if you implement the wage reduction strategy.

By contrast, in a sole proprietorship, all self-employment income is subject to the 15.3% social security/medicare tax (called self-employment tax in the context of a sole proprietorship). If you are the sole owner of a business that has not incorporated, your business is considered a sole proprietorship.

The 15.3% security/medicare tax is comprised of a 12.4% social security tax and a 2.9% medicare tax. Wages higher than $102,000 in the year 2008 are exempt from the 12.4% social security portion of the tax. Note, however, that the 2.9 % medicare portion of the tax is applied to all wages (and self-employment income), without an upper limit.

In addition to the tax savings benefit explained above, there are liability protection reasons for choosing to run your business as an S corporation. With an S corporation, your liability is limited to the money you invest in the business. With a sole proprietorship, you have unlimited personal liability and all of your personal assets are subject to the rights of creditors to seize or place a lien against your personal assets.

For state income tax purposes, the following areas do NOT recognize S corporation status and treat the S corporation like a C corporation: District of Columbia, Louisiana, Michigan, New Hampshire, New York City and Tennessee. In those areas, business owners generally benefit by forming an LLC rather than an S corporation. Texas does not recognize S corporation status either, but Texas does not have a corporate income tax measured by net income for any type of corporation. Source: 1997 State Tax Handbook (CCH Incorporated, Chicago).

A trademark is a word, phrase or logo that identifies a product or a service. Often, the trademark is one of the most valuable assets of a business. "Trademark" means a brand name and/or logo for the product or service sold by your company. The trademark may be the same as or similar to your company name, or the trademark may be entirely different than your company name. It is customary to omit the corporate suffix such as "Inc." from the trademark.

For protection of your brand name used in connection with the sale of goods or services in the United States, we recommend federal trademark registration. A trademark can be registered in the state where you do business or with the federal government. State trademark registration puts competitors on notice that you claim priority rights to use your trademark in the area where you do business. In general, federal trademark registration provides a right of priority nationwide to the first company that submits a federal trademark application. This right of priority nationwide is subject only to the limited common law rights that others may have acquired in the geographic areas where they have advertised and sold products or provided services under a confusingly similar trademark prior to the filing date of your federal application.

You may apply for trademark registration of a brand name and/or logo. Some people mistakenly believe that incorporation or the registration of an assumed name (fictitious name) provides effective trademark protection. The practical reality is that trademark registration is the only effective way to achieve trademark protection in the United States. It is important to distinguish a trademark (brand name) from a company name. A trademark is the brand name of the goods or services sold by a company. A company name is the name of an entity that operates a business. In some cases, a company's trademark is similar to the company's entity name. For example, the company "Corporate Creations International Inc." provides corporate document filing services under the trademark CORPORATE CREATIONS. A company name is a noun: "Corporate Creations International Inc. has many talented employees." Contrast that to a trademark, which is an adjective: "You can order CORPORATE CREATIONS incorporation services by phone or online."

It is customary to omit the corporate suffix such as "Inc." from a trademark. Note that a company's exact entity name (including "Inc." or the equivalent) should be mentioned somewhere in all marketing materials. Otherwise, state law requires a company to register its assumed name (fictitious name) in the state where it has employees. For example, the company "Corporate Creations International Inc." has registered the fictitious name "Corporate Creations" in Florida where it has employees, and it also uses the trademark CORPORATE CREATIONS under license from another entity that is the record owner of that trademark.

The local Corporate Creations offices do not provide trademark services. Instead, an independent firm affiliated with or referred by your local Corporate Creations office may provide trademark services. If you pay by credit card, your local Corporate Creations office may act as a credit card processing agent on behalf of the independent firm that provides the trademark services.

You should order a trademark search in addition to ordering the preparation of a federal trademark application. Trademark searches are completed within five days of your request. A Full Trademark Search includes a search of the following:

  1. Federal applications and registrations filed with the U.S. Trademark Office
  2. State applications and registrations filed in all U.S. states
  3. Yellow page listings in all U.S. states
  4. Various databases that list common law trademarks

As a lower cost alternative to a Full Trademark Search, you may order a Federal Trademark Search, which includes only a search of federal applications and registrations filed with the U.S. Trademark Office.

A licensed attorney will prepare the Federal Trademark Application within five days of your request. When the federal registration is issued, you will be invoiced for prosecution of the trademark application, which includes routine conferences and correspondence between the licensed attorney and the trademark attorney who represents the U.S. Patent and Trademark Office. For certain trademark office actions, opposition actions, other trademark disputes, or international trademark applications, with your prior approval, arrangements may be made with independent litigation counsel or local trademark counsel to handle such matters at standard hourly rates.

Startup checklist

When starting a new business, the process can be overwhelming. Our checklist below will help you focus on the steps needed to set up a new business from scratch. No matter where you are in the process of starting up a new business, referring to this list can ensure you do everything necessary to get your business off to the right start.

  1. Business Plan.
    The process of writing a business plan starts with an outline of what you plan to accomplish. Like our friends at, we believe some things should be unplanned, but your business is not one of them.
  2. Raising Capital.
    If you plan to raise equity capital from others, you should contact angel investors (Angel Capital Association) and venture capital firms (National Venture Capital Association). We believe investors have more money than time, so concise business plans win investors.
  3. Entity Formation.
    Forming an entity will protect personal assets from business debts and can provide credibility and tax benefits. Contact Corporate Creations if you would like us to form your entity.
  4. Fictitious Name Registration.
    If your entity will do business under a name other than its legal name filed with the Secretary of State, the law requires your entity to file a fictitious name registration (called assumed name or alternate name in some states). Contact Corporate Creations if you would like us to handle the fictitious name registration for your entity.
  5. Registered Agent.
    Under state law, entities must appoint a registered agent located in the state of formation where state annual reports and legal documents such as service of process can be delivered. Corporate Creations provides registered agent services nationwide.
  6. Trademark Registration.
    You should hire a trademark attorney to protect the brand names of the products and services sold by your business. Contact Corporate Creations if you would like us to refer a trademark attorney.
  7. Employer Identification Number (EIN).
    All banks require your entity to obtain a federal tax identification number known as Employer Identification Number. Contact Corporate Creations if you would like us to obtain the EIN for your entity.
  8. Licensing Requirements.
    Depending on your type of business, you may be required to obtain licenses from state, county or city government agencies before you start your business.
  9. Governance Documents.
    With our corporate kit service, Corporate Creations includes standard governance documents such as bylaws for a corporation and operating agreement for a limited liability company.
  10. Insurance Requirements.
    Consider obtaining general liability insurance to protect the assets of your entity. All entities with employees typically obtain unemployment insurance and workers compensation insurance.
  11. Business Expansion.
    You can establish a business presence in other states by qualifying your entity to transact business in other states. Contact Corporate Creations if you would like us to handle the qualification forms for your entity or regular mail forwarding service from our Florida headquarters.
  12. Web Site.
    Register your web site address with
  13. Marketing Materials.
    Hire a marketing firm to design business cards, brochures and other marketing materials for your business.
  14. Bank Account.
    You must open a bank account in the name of your entity to protect your personal assets from your business assets. To simplify accounting, consider opening the following separate bank accounts for your entity: Operating Bank Account to receive check deposits and to pay invoices, Merchant Bank Account to receive credit card deposits, and Payroll Bank Account to pay staff compensation and payroll taxes.
  15. Payroll Service.
    You should hire an accountant or payroll service company to handle your payroll, Employer's Federal Unemployment Tax Return (Form 940) and Employer's Quarterly Federal Tax Return (Form 941).
  16. Accountant
    You should hire an accountant to help set up your chart of accounts and to prepare the annual tax return for your entity. Form 1120S is filed by an S corporation and by a limited liability company taxable as an S corporation. Form 1120 is filed by a C corporation and by a limited liability company taxable as a C corporation. Form 1065 is filed by a limited liability company taxable as a partnership. Contact Corporate Creations if you would like us to refer an accountant.
  17. Business Credit Cards.
    You should use one or more credit cards exclusively for business expenses. To simplify accounting, consider using one credit card for certain types of business expenses such as travel and entertainment and other credit cards for other types of business expenses such as office supplies and equipment. Your personal expenses should be charged on different credit cards used only for personal expenses.
  18. Legal Advice.
    Do what you do best, then hire professionals such as attorneys to do what they do best. Contact Corporate Creations if you would like us to refer an attorney.
  19. Compliance.
    As your company changes and grows, you may need to file entity compliance forms for qualification, amendment, annual reports, merger and dissolution. Contact Corporate Creations if you would like us to handle any of those entity compliance forms.
  20. Set Goals.
    Put your goals in writing to help you focus on achieving your goals, then seize the day every day.

To place an order, get a free quote or get more information, please call us at (561) 694-8107. If you want us to contact you, please click here.