With real-world examples, charts, and tables, this handy guide will help you calculate the benefits of incorporation for your business—before you decide to take the leap. For small business owners, with Incorporate Your Business you'll master all the fundamentals, including: - Overall benefits of incorporation
- Tax changes under incorporation
- Various types of corporations
- Completing all the paperwork correctly
- Setting up a corporate structure
- Electing officers and setting up the board
- Holding important organizational meetings
Table of Contents:
CHAPTER 1 Why Should I Incorporate My Business? 1
What a Corporation Is, and What It Is Not 3
Who Starts and Who Owns a Corporation? 4
Reasons to Incorporate Your Business 5
Limiting Your Liability for Business Debts 5
Liability of Stockholders Who Are Also
Employees of Small Corporations 7
Save Payroll Cash by Incorporating 9
Tax Savings 10
Prestige of a Corporation 10
Ease of Transferring Ownership 10
Reasons Not to Incorporate Your Business 11
Corporations and Other Business Forms Are
Too Complicated 11
Corporations Cost Too Much to Set Up and Operate 12
My Business Is Too Small to Incorporate 13
A Corporate Form Does Not Entirely Protect Professionals 13
CHAPTER 2 How Incorporating Can Result In Tax Savings 15
Tax Savings In a Corporation? Maybe 15
The Organization of this Chapter 16
An Example of Tax Saving from a Corporation 16
Some Background, Concepts, and Explanations 17
How Your Business Tax Picture Changes When You Incorporate 18
How a Sole Proprietorship Is Taxed 18
How a Corporation Is Taxed 21
Double Taxation of Corporate Profits 23
How to Cope with Double Taxation of
Your Corporation 24
Pay Dividends Between May 6, 2003 and December 31, 2008 24
Keep Earnings in the Corporation 24
Pay Salaries to Stockholders/Employees 25
The IRS Position on Salary Levels for Stockholder/Employees 26
Pay Interest to Stockholders 28
Alternative Minimum Tax on Corporations 29
What If the Corporation Has a Net Loss Instead of Net Taxable Income? 30
S Corporations 31
How Stockholders Take Profits out of an S Corporation 32
The Disadvantages of an S Corporation 33
Type of Stockholders 33
Number of Stockholders 34
Use of the Corporation’s Loss, If It Has a Bad Year 34
Flow-through of Certain Tax Attributes to the Stockholder 35
S Corporations Are Limited to One Class of Stock 36
When to Use an S Corporation 37
CHAPTER 3 The Alternatives to Forming a Corporation 41
Sole Proprietorship 41
General Partnership 42
Limited Partnership 43
Limited Liability Company (LLC) 43
Other Entities With Limited Liability of the Owners 45
Passive Losses 46
Which Business Form Best Attracts Investors to Your Enterprise? 47
CHAPTER 4 How to Structure a Corporation 51
The Basic Corporation 52
Assets, Liabilities, and Equity 52
How to Invest In Your Corporation 54
Debt versus Equity 58
The IRS Position on Debt versus Equity 60
How to Invest In Your S Corporation 61
Keep Control of Your Corporation If Possible 62
CHAPTER 5 Planning Your Corporation 65
Do-It-Yourself Incorporation 65
Using Professionals 66
Choosing an Attorney 67
Choosing an Accountant 67
Planning the Specifics of Your Corporation 68
Decide on the Size of the Initial Investment in the Corporation 68
Size Your Investment to Qualify for Treatment as a Small-business Corporation 70
Who Will Be the Owners (Stockholders) of Your New Corporation? 71
Determine How Many Shares of Stock Will Be Authorized and Issued 72
Determine What the Price per Share of Stock Will Be 74
Determine Who Will Be the Directors and Officers, and Assign Duties 77
Prepare a Pre-incorporation Agreement 79
Determine Who Will Be the Incorporator(s) 79
Select a Resident Agent for Your Corporation 80
Have All Prospective Stockholders Sign a Stock Subscription 81
Determine the State in Which You Will Incorporate 82
Choose a Name for Your Corporation 85
Determine If You Can Use a Simplified Procedure 88
Prepare a Pre-incorporation Agreement 89
Prepare a Stockholders’Agreement 90
CHAPTER 6 Steps to Create and Run Your Corporation 93
Steps to Forming Your Corporation 93
Initial Action the Incorporator(s) Should Take 93
Hold Organizational Meetings 99
Organizational Meeting of the Stockholders 100
Organizational Meeting of the Board of Directors 100
Register Your Corporation with the Internal Revenue Service (IRS) 100
Register Your Corporation with Your State’s (and Any Foreign State’s) Tax Authorities 101
Elect S Status for Your Corporation If That Is Your Decision 102
Pay Particular Attention to the Initial Corporate Income Tax Return 102
Steps to Keep Your Corporation Alive 103
Hold the Annual Stockholders Meeting Every Year 104
Hold an Annual Board of Directors Meeting Every Year 104
Special Meetings of the Board of Directors (or of Stockholders If There Is No Board
of Directors) 105
Live Your Corporate Life as If You Meant It 105
Nonprofit Charitable Organizations 106
APPENDIX A Useful Forms 107
APPENDIX B Useful Addresses 213
APPENDIX C Short Course in Corporate Finance Terms 227
APPENDIX D Glossary 231
INDEX 239
About the Author :
ROBERT A. COOKE, CPA, has owned or co-owned three successful small businesses and is the author of six books, including Doing Business Tax-Free and How to Start Your Own S Corporation, Second Edition, both from Wiley.
