Company Incorporation in USA

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Steps of Company Incorporation in USA

Before incorporating any business entity, it is important to understand the different types of business entities like S Corp, C Corp, LLC etc. Based on your business nature and the tax treatment it is important to select a business structure which serves your purpose best.

Step 1: Choose a State to Incorporate In

The next step is to choose a state to incorporate in. Each state has its own set of rules and regulations for incorporating a company. Delaware, Nevada, and Wyoming are popular choices for incorporation due to their favorable business laws.

Step 2: Choose a Business Name

The first step in incorporating a company in the USA is to choose a business name. The name must be unique and not already in use by another company. You can check the availability of your desired name by visiting the website of the Secretary of State in the state where you plan to incorporate. Check the name’s availability through the state’s business directory.

Generally, a name reservation will be effective and the name that you place on reserve will be on hold for 30-90 days.

Step 3: File Articles of Incorporation

The Articles of Incorporation is a legal document that establishes the existence of your company. It includes information such as the name of the company, the purpose of the company, the number of shares of stock, and the names and addresses of the initial directors. The filing fee for the Articles of Incorporation varies by state, but it typically ranges from $100 to $300.

Step 4: Draft Corporate Bylaws

Corporate bylaws are the internal rules and regulations that govern the operation of your company. They include information such as the duties of the directors and officers, the procedures for holding meetings, and the process for amending the bylaws.

Step 5: Appoint a Registered Agent

A registered agent is a person or company that is authorized to receive legal documents on behalf of your company. The registered agent must have a physical address in the state where your company is incorporated. You can hire a registered agent service or act as your own registered agent.

Step 6: Obtain an Employer Identification Number (EIN)

An EIN is a unique nine-digit number that is assigned to your company by the Internal Revenue Service (IRS) to identify the tax accounts of employers of your company. You will need an EIN to open a bank account, hire employees, and file taxes. You can obtain an EIN for free from the IRS. Applying for EIN with the IRS will guide you through your social security number, address and doing business as (DBA) name.

Step 7: Issue Stock Certificates

If your company will have multiple shareholders, you will need to issue stock certificates to each shareholder. The stock certificates represent ownership in the company.

Step 8: Trademark Registration

In case the business owns any trademark, it must be registered to obtain exclusive rights to run a business legally and prevent others from using a similar or identical name of your company to ensure the protection of your brand’s reputation. To apply, use the Trademark Electronic Application System (TEAS) to complete the initial application.

Details of Fees involved-

Filing Fee for Articles of Incorporation: The filing fee for the Articles of Incorporation varies by state, but it typically ranges from $100 to $300.
Registered Agent Fee: If you hire a registered agent service, you can expect to pay between $100 and $300 per year.
Business License Fee: Some states and cities require companies to obtain a business license. The fee varies by location, but it typically ranges from $50 to $400.

Documents Required:

Articles of Incorporation: The official document that establishes the corporation, including details about its name, purpose, stock structure, and registered agent.
Corporate Bylaws: Internal rules and regulations governing the corporation’s operations, board meetings, and governance.
Employer Identification Number (EIN): Essential for tax reporting, hiring employees, and other administrative functions.

ENTITY TYPE

LIABILITY

TAXATION

FORMATION

MAINTENANCE

Sole Proprietorship

Owner personally liable for business debts. Same advantages as a regular limited liability company.

Owner reports profit or loss on his or her personal tax return.

Simple and inexpensive to create and operate. No filing necessary.

No formal corporate maintenance is required.

General Partnership

Owner (partners) personally liable for business debts.

Owner (partners) reports profit or loss on his or her personal tax returns.

Simple and inexpensive to create and operate. No filing necessary.

General partners can raise cash without involving outside investors in management of business.

Limited Partnership

Limited partners have limited personal liability for business debts as long as they don’t participate in management.

The limited partnership provides the limited partners a return on their investment (similar to a dividend), the nature and extent of which is usually defined in the partnership agreement.

Suitable mainly for companies that invest in real estate. More expensive to create than general partnership.

Limited partners have no management authority, and (unless they obligate themselves by a separate contract such as a guaranty) are not liable for the debts of the partnership.

Limited Liability Company

Combines a corporation’s liability protection and pass-through Lax structure of a partnership.

IRS rules now allow LLCs to choose between being taxed as partnership or corporation.

More expensive to create than partnership or sole proprietorship.

Sale of member interests may take place per company policy Signifi cantly easier to maintain than a corporation.

Professional Limited Liability Company

Members have no personal liability for malpractice of other members; however, they are liable for their own acts of malpractice.

A single member PLLC is treated as a disregarded tax entity, the same as a sole proprietor, giving it pass-through tax treatment. A multiple member PLLC taxed as a partnership.

State licensed professionals a way to enjoy LLC advantages. Members must all belong to the same profession.
Not available in all states.

Members have great flexibility through written operating agreement to define rights & responsibilities, powers, financial matters of PLLC, and rights/ restrictions re: ownership interests.

C-Corporation

Owners have limited personal liability for business debts.

Owners can split corporate profit among owners and corporation, paying lower overall tax rate, Separate taxable entity. Fringe benefits can be deducted as business expense.

May have an unlimited number of shareholders, More expensive to create than partnership or sole proprietorship.

Shares of stock may be sold to raise capital. Meetings are required to maintain corporate status.

Structure

LLC

C-corp

S-corp

Legal Identity

Legal entity

Taxation status

Taxation

Flexible depends on each LLC

Double taxation

Pass-through taxation

Owner’s liability

Limited Liability

Limit of shareholder

No limit but not attractive to investors.

No limit on the number or nationality.

Only U.S. citizens, less than 100 shareholders.

Management & Paperwork

Simple, small amount of paperwork.

Large amount of paperwork.

Complex, abundant amount of paperwork.

Stock

None

Multiple classes of stock

One class (no preferred stock)

Common uses

SME or high-risk business aiming to:

Protect assets; or
Avoid high corporate tax

SME or high-risk business aiming to:

Attract funding;
Go public; or
Sell ownership

Small business seeking tax
advantages and flexible ownership
Business with US resident owners