A Guide to

Incorporating Your Business

Table of Contents

Entity descriptions, advantages and disadvantages

l Sole proprietorship . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
l General partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
l Limited partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
l Limited liability partnership . . . . . . . . . . . . . . . . . . . . . 7
l C corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
l S corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
l Nonprofit corporation . . . . . . . . . . . . . . . . . . . . . . . . 10
l Limited liability company . . . . . . . . . . . . . . . . . . . . . 11
l Professional corporation . . . . . . . . . . . . . . . . . . . . . . 12
l Professional limited liability company . . . . . . . . . . . 12

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

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

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

l Documentation, fees and typical time frames . . . . . 16
l Mandatory corporation and LLC disclosures . . . . . . 16
l Registered agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
l Disclosure information required for corporations . . . 17
l Disclosure information required for LLCs . . . . . . . . 18
l Common information required for nonprofits . . . . . 18

Post-incorporation and ongoing compliance

requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
l Internal requirements . . . . . . . . . . . . . . . . . . . . . . . . 19
l External requirements . . . . . . . . . . . . . . . . . . . . . . . . 20
l Consequences of non-compliance . . . . . . . . . . . . . . 21

Using an incorporation service provider . . . . . . . . . . 22

l Benefits of using an incorporation service provider . . 22
l About BizFilings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
l BizFilings' product listing . . . . . . . . . . . . . . . . . . . . . 24
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 form Advantages
and not a legal entity. It is the easiest type of business
to establish—no state filing or agreement with other • The owner can establish a sole proprietorship instantly,
owners is required. It is simply an enterprise owned and easily and inexpensively.
operated by an individual. By default, once an individual
• No state paperwork is required for creation.
starts selling goods or services, he or she has created a
sole proprietorship. • No separate tax filing is required; profits or losses are
reported on the owner’s tax return.
A sole proprietorship is not legally separate from its
• The owner may freely mix business and personal
owner. The law does not distinguish between the
assets.
owner’s personal assets and the business’s obligations.
In fact, a sole proprietor’s assets can be (and often are) • A sole proprietor need not pay unemployment tax on
used to satisfy the debts and liabilities of the business. himself or herself (but must pay employee unemploy-
Remember: accidents happen, and businesses end all ment tax).
the time. Such circumstances may quickly become a
• Few, if any, ongoing formalities.
nightmare for a business owner who operates as a sole
proprietor.

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

• 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 of Advantages
partners: general and limited. General partners manage
the enterprise and are personally liable for its debts. • LPs enjoy pass-through taxation.
Limited partners contribute capital and share profits,
• Limited partners are not held personally responsible
but typically do not participate in management. Limited
for business debts and liabilities.
partners also incur no personal liability for partnership
debts beyond their capital contributions. At least one • General partner(s) have full control over all business
partner must be a general partner with unlimited liability, decisions.
and one must be a limited partner whose liability is • Partners have more flexibility in management structure
limited to the amount of his or her investment. Limited with fewer formal requirements and annual paperwork.
partners enjoy liability protection much like a corpora-
tion’s shareholders or an LLC’s members.

An LP allows for pass-through taxation, as income is Disadvantages

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

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C Corporation
The standard corporation, also called a C corporation, is Advantages
the most common business structure. A corporation is a
separate legal entity owned by its shareholders, thereby • Shareholders (owners) are typically not personally
protecting owners from personal liability for corporate responsible for business debts and liabilities.
debts and obligations.
• C corporations can have an unlimited number of
A corporation’s shareholders, directors, and officers must shareholders.
observe particular formalities in a corporation’s operation • Ownership is easily transferable through the sale of
and administration. For example, management decisions stock.
must often be made by formal vote and recorded in
• Corporations have unlimited life, extending beyond
corporate minutes. Director and shareholder meetings
owner illness or death.
must be properly noticed and documented. Finally, corpo-
rations must meet annual reporting requirements and pay • Some business expenses may be tax-deductible.
ongoing fees in their state of incorporation and in states
• Additional capital can be raised by selling shares of
where they are registered to transact business.
corporate stock.
Taxation is a significant consideration when choosing a
business type, and a C corporation is taxed as a separate
legal entity (i.e., no pass-through taxation like a partner-
Disadvantages
ship). A business tax return is filed and taxes are paid
on the corporation’s profits. If the corporation distrib- • C corporations may incur double taxation on corporate
utes profits to the shareholders in the form of dividends, profits.
shareholders pay income tax on those distributions. This
• Corporations are more expensive to form than sole
creates a double taxation of corporate profits.
proprietorships and partnerships.
As with any business type that offers liability protection to
• Corporations face ongoing state-imposed filing
owners, a corporation must be created at the state level.
requirements and fees.
Articles of Incorporation (sometimes called a Certificate
of Incorporation) in the appropriate state must be filed • Corporations face ongoing formalities, such as
and filing fees paid. holding and properly documenting annual meetings
of directors and shareholders.

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

• S corporations can have only one class of stock (disre-

garding 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 matter of Advantages
public concern for non-commercial purposes. Nonprofits
are authorized by different statutes than standard for- • Nonprofits can apply for both federal and state tax-
profit corporations, but the process is similar. Nonprofit exempt status.
organizers must file nonprofit Articles of Incorporation or
• Some are eligible for public and private grants, making
a Certificate of Incorporation with the appropriate state
the obtainment of operating capital easier.
agency and pay a filing fee.
• With 501(c)(3) nonprofits, donations made by individu-
To pursue tax-exempt status, nonprofits must apply at als to the nonprofit are tax-deductible.
the federal and state (if applicable) level—it is not auto-
• The nonprofit affords limited liability protection to
matically granted when the nonprofit is incorporated.
directors and officers.
For federal tax-exempt status, a nonprofit must file Form
1023 with the IRS. For state requirements, it is best to
contact the department responsible for taxation in your
state of incorporation to determine whether a separate Disadvantages
state-level tax-exemption filing is required.
• Nonprofits incur formation expenses and face ongoing
Like standard for-profit corporations, nonprofits provide state filing requirements and fees.
limited liability protection. Personal assets of directors
• Nonprofits face ongoing formalities, such as holding and
and officers typically cannot be used to satisfy the
properly documenting regular meetings of directors.
nonprofit’s debts and liabilities.

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 business form, Advantages
combining the liability protection of a corporation with the
tax treatment and ease of administration of a partnership. • LLCs enjoy pass-through taxation.
The LLC is America’s newest form of business organization;
• Members (owners) are not personally responsible for
the great bulk of laws authorizing LLCs in the United States
business debts and liabilities.
were passed in the 1980s and 1990s.
• LLCs generally have no restrictions on the number of
LLCs enjoy pass-through taxation—sidestepping the members allowed.
double taxation of company profits borne by C corpora-
• Members have flexibility in structuring the company
tions (although LLCs can elect with the IRS to be taxed as
management.
a corporation). Multi-owner LLCs file an informational tax
return but pay no tax on company profits. The members • The LLC does not require as much annual paperwork
(owners) report their share of the LLC’s profit or loss on or have as many formalities as 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 due is also paid at the
individual level. Disadvantages

LLCs are created by filing formation documents, • LLCs are more expensive to form than sole proprietor-
typically called Articles of Organization or Certificate of ships and general partnerships.
Organization, at the state level and paying the required • Ownership is typically harder to transfer than with a
state filing fee. corporation.

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

Sole General C S Limited Limited Limited

Liability Liability
Proprietorship Partnership Corporation Corporation Partnership
Company Partnership

State filing
(& filing fee)
required for 4 4 4 4 4
creation

Ongoing
state filings
and fees
4 4 4 4 4
Limited
liability
protection
4 4 4 maybe 4
Perpetual
duration of
the business
4 4 maybe 4 maybe

Strict
ongoing
corporate 4 4
formalities

Flexibility
in who
manages 4 4
the business

Business
taxed at
entity level
4 maybe

Pass-through
income/loss 4 4 4 4 4 4
Double
taxation 4
Ease of
raising
capital
4 4 maybe

Ease of add-
ing owners/
transferring
ownership
4 4 maybe maybe maybe

interest

Sole Proprietorship

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Where to Incorporate
Once a business owner has decided to incorporate a
business or form an LLC, the next step is to choose a Home state vs. another state
state of incorporation. You are free to incorporate your
Points to consider:
business in any state, but there are factors to consider
when choosing, such as: incorporating in your home • State filing fees for forming a corporation or
state versus another state, state statutes, and state LLC in each state under consideration.
taxation requirements.
• State filing fees to register to transact business
(foreign qualify) outside your home state.

Incorporating in your home state • Ongoing fees imposed on corporations and

LLCs by each state under consideration.
versus another state
• Ongoing fees imposed on foreign-qualified
Forming a corporation or LLC in the state where your corporations and LLCs by the state(s) of
business is physically located is called home state incor- qualification.
poration. Corporations and LLCs must pay state filing
fees at the time of formation, and are also subject to
ongoing requirements and fees. If the company is incor-
porated in another state but conducts business primarily
in the home state, it may need to “foreign qualify.”
Foreign qualification registers a corporation or LLC to
State statutes & taxation requirements
transact business in a state other than the state of incor- When evaluating states for incorporation, be sure to
poration. To foreign qualify, the proper paperwork, called research each state’s corporation and LLC statutes. For
a Certificate of Authority, must be completed and filed example, pro-business corporation laws are one reason
and additional state filing fees paid. Foreign qualified why Delaware is such a common and popular choice for
businesses are subject to ongoing requirements and fees large corporations, but those same laws may not be as
both in the state of incorporation and also the state(s) beneficial to corporations with only one or a few share-
of qualification. holders (owners).

What constitutes transacting business varies by state. Business owners should also understand how corporations
Common factors are whether the company has a physical and LLCs are taxed by each state under consideration,
facility, employees or a bank account in that state. To and the taxation requirements for foreign-qualified
learn whether your company may need to foreign qualify, corporations and LLCs in the state(s) of qualification.
talk with an attorney. Consider the following:

• Does a state impose an income tax on corporations

and LLCs?

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

• 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 corpora-

tions 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 can take four to six weeks to be approved and returned
must be filed with the appropriate state agency, usually to the business owner. Most states offer expedited
the Secretary of State, and filing fees paid. This section filing services for an additional fee, reducing the turn-
describes the process typically required to form a around time for filing documents to a few days or even
corporation or LLC in any state, as well as typical costs a few hours.
and time frames.

Mandatory corporation & LLC disclosures

Matters of public record and
publication requirements LLCs and corporations must disclose certain information
in their incorporation documents. The mandatory disclo-
• Information included in the incorporation
sures vary slightly by state.
documents, such as names and addresses,
become a matter of public record; in the Company name
Internet age, they are easily searchable by indi-
The desired name of the corporation or LLC must be
viduals, regulatory and tax authorities and data
included. For corporations, it must typically include
mining services.
an identifier, such as “Corporation,” “Incorporated,”
• Some states require public announcement “Company” or an abbreviation of those terms. For
of new business incorporations. A state may LLCs, it must typically include the term “Limited Liability
require that notice of the incorporation be Company” or “LLC.” The state holds final approval rights
published in a legal journal or specific, local on the desired name to ensure it is not already in use
newspaper for a designated amount of time. by another company in that state, or is not “deceptively
similar” to a name already in use.

Business purpose
A company’s incorporation document typically must
Documentation, fees and
include a brief statement of the company’s business
typical timeframes purpose, declaring the proposed scope of a company’s
A corporation’s formation document is typically called the operations. Business purpose clauses are either of two
Articles of Incorporation or Certificate of Incorporation, types, general or specific.
depending on the state. An LLC’s formation document is
General business purpose — some states allow a general
typically called the Articles of Organization or Certificate
purpose clause, indicating that the company is formed to
of Organization. Incorporation documents advise the
engage in “all lawful business.”
state and the public of certain details concerning the
company. Incorporation documents become a formal Specific business purpose — some states require a more
record of the corporation’s or LLC’s existence. complete explanation of exactly what type of business
the company will undertake.
State corporation and LLC filing fees range widely —
from less than $40 to more than $500. The typical time
frame to have incorporation documents approved also
varies. Standard (non-expedited) incorporation filings

– 16 –
Registered agent Advantages of using a registered agent service provider

Most states require incorporated companies to name a Stability: The registered agent address must be kept
registered agent, which is the party that accepts important updated with the state. If a business owner serves as
legal and tax documents on behalf of the company. the company’s registered agent and moves, he or she
The registered agent must have a physical address (no must file an amendment and pay necessary state filing
P.O. boxes) in the state of incorporation, and must be fees to update the registered agent address on record
available at that address during normal business hours. for the company. If a registered agent provider is used,
Examples of important documents typically delivered to the provider is responsible for filing the amendment if its
the registered agent include Service of Process (Notice address changes and for paying the necessary state fees.
of Litigation), tax notices, and annual filing notices.
Anonymity: In states that do not mandate disclosure
of the company’s legal address, the registered agent’s
Incorporator
address is often the only address disclosed to the public,
The person or company who initiates the company’s formation giving anonymity to company owners and managers.
filing is the incorporator. Most states require that the name, This is also a benefit for home-based businesses, since
signature and address of the incorporator (or organizer for the registered agent address will be made public, not
LLCs) be included in the incorporation documents. the owner’s home address.

Reliability: Registered agent providers maintain fully

staffed offices to accept registered agent documents
Registered agent received. They treat the receipt of these documents and
The registered agent warrants additional discussion. prompt delivery to you with utmost professionalism.
The majority of states require corporations and LLCs Compliance assistance: Many registered agent service
to appoint a registered agent in the state where the providers offer tools and services to help business owners
company is formed. keep their companies in compliance with both internal
formalities and the ongoing filing and fee requirements
A business owner has the option of serving as the
imposed by the state of incorporation. Companies that do
company’s registered agent as long as he or she maintains
not meet their compliance requirements face the possibility
a physical address in the state in which the corporation
of losing the limited liability protection offered to owners
or LLC is formed and is available during normal business
and/or administrative dissolution of the business by the state.
hours. There are many professional registered agent
service providers that typically charge an annual fee. Many
small business owners find their services advantageous,
for reasons such as the registered agent’s name and Disclosure information required
address are included on the incorporation documents for corporations
(instead of the owner’s) and are matters of public
The information required in corporate formation
record, and ensuring someone is always present during
documents varies from that required for LLCs. The
normal 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 services Number of authorized shares of stock
as part of their fee, including software to keep track of
Corporations must set forth the number of shares of stock
important corporate information and provide alerts for
they wish to authorize and the par value, if any, associ-
upcoming compliance events. Some may also assist you
ated with those shares. A corporation need not issue the
with filing your company’s annual report and monitor the
total number of authorized shares. Some opt to withhold
status of your company with your state of incorporation. unissued shares in order to add additional owners at a
later date or to increase the ownership percentage for a
current shareholder.

– 17 –
Share par value Disclosure information required for LLCs
Par value is the minimum stated value of a share of stock.
It typically doesn’t correlate to the actual value of a share. The following disclosures are generally required for LLCs:
Common par values are $0.01, $1 or no par. The actual
Management structure
value is fair market value, or what someone is willing to
LLCs must typically specify whether the company will
pay for a share of stock. For public companies, actual
be managed by its members (owners) or by managers.
value is determined by the price investors are willing to
When an LLC is managed by members, owners oversee
pay for each share on the national exchange. For private
daily business operations. When managed by appointed
companies, the actual value of a share is typically deter-
managers, the LLC resembles a corporation, where
mined by the overall value of the corporation or the book
business management is the responsibility of the directors
value. It often makes sense to establish a low par value for
and officers rather than the owners (shareholders).
shares, as a number of states use par value to calculate a
corporation’s franchise tax obligations. Members/Managers
Many states require the names and addresses of the initial
Preferred shares member(s) or manager(s) be set forth in the formation
If a corporation plans to authorize both common and documents.
preferred shares, this information, along with any infor-
mation on voting rights, must be included in the Articles Dissolution date
of Incorporation. Preferred shares typically provide those All states allow (but not all require) the LLC to list a disso-
shareholders preferential payments of dividends or distri- lution date in the Articles of Organization, dictating the
bution of assets should the company end operations. maximum duration of an LLC’s existence. Almost every
Many small business owners choose to only authorize state allows for perpetual existence.
shares of common stock. For details on preferred shares
and voting rights, talk with an attorney.

Directors Common information required for

Many states require the names and addresses of the nonprofits
corporation’s initial directors be included in the incor-
poration documents. Directors are responsible for over- A nonprofit corporation’s Articles of Incorporation or
seeing and directing corporate affairs, including making Certificate of Incorporation resemble for-profit Articles
major corporate decisions. They are not responsible for of Incorporation, but with a few key differences:
the daily business activities, attended to by the officers.
• Nonprofits do not issue stock, so the nonprofit Articles
Directors are elected by the shareholders, and are
of Incorporation will not require information on shares
responsible for appointing officers.
of stock or par value.
Officers • Nonprofits must include very specific and detailed
Some states require names and addresses of officers to business purpose clauses. This information is used
be included in the incorporation documents. Officers are by the state to ensure the company fits within the
responsible for the day-to-day activities of the corpo- nonprofit guidelines. It is also evaluated by the IRS,
ration. Common officer titles include president, vice if the nonprofit applies for federal tax-exempt status.
president, secretary, and treasurer. In most states, one
• The state-approved Articles of Incorporation must be
person can fulfill all roles.
provided to the IRS when the nonprofit applies for a
federal tax-exempt status.

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Post-incorporation and Compliance Requirements

Requirements imposed on corporations and LLCs do not Internal corporate requirements

end when incorporation documents are approved by the Corporations face the strictest requirements of any
state—they are ongoing. Owners enjoy certain benefits business type. The following ongoing steps are required
from corporations and LLCs, and must fulfill responsibilities of corporations:
to maintain those benefits. Failing to follow requirements
can result in dire consequences, including the potential loss • Create and regularly update bylaws.
of the limited liability protection provided to the owners.
• Hold an initial meeting of directors (organizational
meeting) where bylaws are adopted, officers are
appointed, shares of stock are issued to initial share-
Internal requirements holders and initial business decisions or steps (such as
authorizing the corporation to open a bank account)
Corporations are required to undertake certain ongoing
are approved. Minutes outlining all actions taken at
formalities in their internal governance, and while LLCs
the organizational meeting should be taken and kept
do not face the same requirements, similar steps are
in the company record book.
recommended. The importance of faithfully undertak-
ing and properly documenting each cannot be over- • Hold an initial meeting of shareholders to approve the
stated, as failing to do so can result in loss of limited incorporation, the initial board of directors and the
liability protection for the company’s owners. There are steps taken by directors at the organizational meeting.
many tools available today, specifically geared towards Minutes outlining all actions taken should be taken
small business owners, to make complying with internal and kept in the company record book.
formalities as easy and convenient as possible.
• Hold and properly document annual meetings of
directors and shareholders. At the annual meeting of
directors, directors typically undertake the approval
or rejection of major business decisions, renewal
A corporation’s bylaws are second only to its of the officers’ terms and/or the appointment of
Articles of Incorporation in importance. Bylaws new officers. At their annual meeting, shareholders
outline the corporation’s internal governance typically undertake the renewal of directors’ terms
rules, and address a wide range of internal policies and/or appointment of new directors. They also get
and procedures—from establishing a corpo- an update on the status of the corporation (if the
ration’s fiscal year and what corporate actions shareholders are not involved in the daily operation
require shareholder approval, to outlining how of the business).
many officers a corporation will have. Bylaws are
adopted by a corporation’s directors at their orga- • Record changes in company ownership in a stock
nizational meeting. Another item often addressed transfer book or ledger.
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 to the
While LLCs are not required to follow ongoing formalities,
anniversary of the company’s incorporation (or date it
undertaking the following steps is typically recommended:
registered to transact business in the state, if applica-
• Create and regularly update an operating agreement. ble). Others set a particular due date for all corporation
Like a corporation’s bylaws, an LLC’s operating annual statements and another for all LLCs. Because the
agreement outlines the internal governance of the LLC. periodic filing requirement and annual franchise tax can
represent a significant burden and expense, business
• Hold an initial meeting of the members or managers to
owners should research these requirements prior to
approve the operating agreement, issue membership
incorporating.
interest to members and undertake initial company
decisions, such as authorizing the LLC to open a bank
account. It is also recommended that the actions
taken at this meeting be documented and kept in a Additional external requirements
company record book. Here are some other potential state and federally
imposed requirements that may apply to your company:
• Hold and properly document the actions taken at
annual meetings of members or managers. Here are some other potential state and federally
imposed requirements that may apply to your company:
• Record any changes in ownership (membership)
interest in a transfer book or ledger. • Filing a federal income tax return and paying necessary
taxes.

• Filing a state income tax return and paying necessary

External requirements taxes.

External requirements are imposed by the states on • Paying state franchise taxes.
corporations and LLCs. They often include an annual • Filing state annual statements.
or biennial state filing and payment of a corresponding
state fee. • Payroll tax obligations (such as Social Security, Medicare,
and unemployment).
Nearly all corporations and LLCs must file periodic
• Property tax obligations.
reports with the Secretary of State’s office or its equiva-
lent department. Annual statements are the norm—but • State sales and use tax obligations.
some states have relaxed their rules and require only a
• County, city or municipality tax obligations.
biennial statement. In either case, states typically impose
a fee along with the filing. The fees vary widely by state • Obtaining and renewing any necessary state and/or
and by entity type, ranging from $1 to more than $200. local business permits and/or licenses.

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.”

– 20 –
Consequences of non-compliance
Piercing the corporate veil
Small business owners often mistakenly believe that
ongoing corporate and LLC requirements do not apply Liability protection is not absolute. The term
to them, or perhaps they feel too busy to properly satisfy “piercing the corporate veil” refers to a court’s
these requirements. Failing to observe internal and external decision to sidestep liability protection normally
requirements can yield dire consequences, such as losing afforded by a corporation or LLC and impose full
corporate or LLC entity status and loss of the limited liability personal liability upon the owners. A close corollary
protection provided to the company’s owners. rule is the alter ego theory, which essentially says
that if corporate shareholders disregard the legal
If a corporation or LLC is sued and is unable to show separateness of the corporation or proper formali-
that it faithfully followed all formalities, a judge might ties, the law will also disregard the corporate or
rule that the company was operating more as a sole LLC form to protect individual creditors. Courts
proprietorship or general partnership, and extend full have long recognized the distinct legal status of
personal liability to company owners (called “piercing liability-shielding entities. And courts are reluctant
the corporate veil”). to disregard the corporate or LLC status—though
they will pierce the corporate (or LLC) veil in
There are also state-level consequences that can happen
appropriate circumstances.
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 BizComply
step, many states impose late fees and interest payments
It’s imperative to keep the “corporate veil” intact by
on the outstanding annual statement and/or franchise
meeting all ongoing external and internal compliance
tax fees. Being out of good standing long enough may
requirements. With BizComply, an online compliance
lead to administrative dissolution of the company by
management tool and calendar, business owners are
the state. When the state administratively dissolves a
notified before critical compliance events need to
corporation or LLC, the business ceases to exist and all
happen, even when a company transacts business in
corporate or LLC benefits are lost.
multiple states. It also provides access to important
forms and houses a company’s essential information
in one convenient location.

for more information:

www.BizFilings.com/BizComply.aspx

– 21 –
Using an Incorporation Service Provider
Using an attorney to incorporate a business is not a legal Comprehensive offerings: Incorporation service providers
requirement. Business owners can use an online incor- typically charge a service fee plus the state filing fee in
poration service provider or incorporate on their own order to prepare and file your incorporation documents,
directly with the appropriate state agency. Using an incor- but many offer additional products and services (often
poration service provider has become the incorporation as part of incorporation packages) that business owners
method of choice for many small business owners. They typically need when starting and/or incorporating a
are less expensive than using an attorney and typically business. Additionally, many offer filings and other
less time consuming and less confusing than preparing services business owners often need throughout and/or
and filing one’s own incorporation documents. later in the life of their business, such as ongoing compli-
ance assistance, registered agent service and doing
Keep in mind, incorporation service providers are not
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 through not-so-reputable incorporation service providers. When
the incorporation process step-by-step. choosing an incorporation service provider, ensure that
the company’s contact information and customer service
hours are easy to find. Look for customer testimonials
and membership seals demonstrating that the company
Benefits of using an incorporation
belongs to organizations that promote good business
service provider practices. Also, because most incorporation service
providers offer online ordering, check for a privacy policy
Save time: When business owners personally prepare
and ensure that the checkout process is secure.
and file their formation documents, they often spend
more time than anticipated or desired to research state
requirements and fees and obtain, complete and 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 option. online incorporation provider of choice for more than
But it can often be quite expensive, particularly for new 500,000 entrepreneurs.  Since our founding in 1996, our
business owners who need all of their spare capital to knowledgeable Incorporation Specialists, step-by-step
start operations. Attorney fees vary, but incorporat- processes, and no hidden fees policy have allowed small
ing can cost between $1,500 and $3,000. If a business business owners to form a corporation, limited liability
owner needs the advice of an attorney on an entity type company (LLC) or other business structure with confi-
or where to incorporate, a provider can still be used for dence. We also offer a full range of business filing and
the actual preparation and filing of the incorporation compliance products and tools, including registered
documents. This helps save money, since the owner is agent service in all 50 states, to help businesses remain
only paying the attorney’s hourly fee for advice, and not in compliance with state regulations.
for time facilitating the incorporation process.
Unlike many online incorporators, BizFilings has a
Make incorporation understandable: Many incorporation staff of attorneys who monitor state business law and
service providers want to help business owners understand incorporation requirements to make sure our filing
the business type choices available to them, the process services are always up-to-date and accurate. Moreover,
of incorporation, and ongoing requirements. Look for a we guarantee our filing services.
provider with articles and tools to help make learning easy.

– 22 –
BizFilings is a part of Wolters Kluwer, a leading global business owners turn to BizFilings. Our website delivers
information services company. Wolters Kluwer had 2009 free tools and rich content to support the learning process.
annual revenues of $4.8 billion, employs approximately Our easy-to-use, step-by-step ordering process makes
19,300 people worldwide and maintains operations in incorporating your business fast, easy and painless. Plus,
over 40 countries across Europe, North America, Asia if you have questions or need help placing an order, our
Pacific, and Latin America. knowledgeable and friendly Incorporation Specialists are
just a click or a call away.

Experienced customer service: We provide our Incorpora-

Benefits of choosing BizFilings tion Specialists with significant upfront and ongoing
training. With an average tenure of over 4 years, each
96% customer satisfaction: We regularly survey our
team member is regularly tested and certified on all
customers on their satisfaction with our service. Some
aspects of incorporation and compliance services, and
96% (per our 2009 customer survey results) said they
it shows.
would use us again or recommend us to their family or
friends. Nationwide presence: We have a network of company-
owned offices in every state and Washington D.C. This
Outstanding value: Our pricing is highly competitive.
allows us to deliver filings directly to the Secretary of State,
We offer exceptional value and service in all we do. Our
as needed. Also, our physical presence contributes to our
formation packages are comprehensive. Our services,
ability to provide superior registered agent service.
such as our registered agent service, contain value-adds
you won’t find from any other company. We can assure Trusted partner of CPAs and attorneys: Business owners
you that you will receive higher quality, better service, aren’t the only people who trust BizFilings to assist
and more for your money with BizFilings. with the formation of their business. Our customer list
includes hundreds of accountants and attorneys from
No hidden fees: Unlike other incorporation providers, we
across the country. In many cases, we’ll work directly
make sure our pricing is very clear throughout the incor-
with the clients of our accountant and attorney partners,
poration process. You won’t find any hidden items in
while other times we provide the filing support directly to
your shopping cart at checkout. We publish our pricing
attorneys and CPAs.
and any associated state fees right on our product pages
and make sure we clearly explain what you are paying for Family of companies with over 100 years experience:
when you do business with us. BizFilings, as a Wolters Kluwer company, has been
providing state filings, registered agent service, and
Service guarantee: Our filing services are both accurate
business compliance information and services for over
and timely. Every order is carefully reviewed by BizFilings’
100 years. Our experience and expertise in business
personnel to identify potential errors before filing. Our
formation and compliance-related products and services
warranties cover our services against filing defects caused
is second to none.
by BizFilings for the life of your corporation or LLC.
Long-term partner for our customers: We understand
Helped over 500,000 entrepreneurs: As pioneers in the
the ongoing pressures business owners face to make
online incorporation industry, BizFilings has been providing
their businesses succeed. You need to remain focused on
incorporation and registered agent services online since
your business—not worry about things like incorporation
1996. As a trusted business partner, we’ve helped over
and ongoing compliance. From the breadth of our filing
500,000 entrepreneurs and business owners with their
services to business licenses, and from registered agent
formation, registered agent, and state filing needs.
service to our BizComply compliance management tool,
Making incorporation fast and painless: Whether they’re we support the whole lifecycle of your business and are
learning about the incorporation process and available here to help you succeed every step of the way.
options or are ready to incorporate or form an LLC,

– 23 –
BizFilings’ product listing Compliance offerings and corporate supplies
BizComply: BizFilings offers BizComply, our proprietary online
compliance management calendar tool to help business
owners stay on top of ongoing compliance requirements.
State filings — all 50 states
Compliance kit and seal: BizFilings can provide a professional
Incorporation: Corporation, LLC, nonprofit, limited partnership
binder customized with your company name; corporate, LLC,
(LP) and limited liability partnership (LLP) formation filings.
NP, LP or LLP seal; 20 custom stock, membership or partnership
Professional services business formations: PC, PLLC and LLP filings. certificates; stock/membership/partnership interest transfer
ledger; sample bylaws, operating agreement or partnership
Foreign qualification filings: Certificate of Authority filings to agreement; sample resolutions and more.
register a company to transact business in another state or
multiple states. Compliance seal (stand-alone): BizFilings offers a professional
custom seal with the company name for stamping official
Amendment filings: Certificate of Amendment filings to amend company documents.
the formation documents.
Stock, membership or partnership certificates (stand-alone):
Dissolution filings: Certificate of Dissolution filings when a BizFilings offers professional and secure stock, member-
company is ceasing operations. ship interest or partnership certificates pre-printed with your
company name.
Registered agent service in all 50 states
Company forms CD: BizFilings offers customizable templates
Formations/qualifications: All formation or foreign qualification
for bylaws, operating agreements, partnership agreements,
orders include six months free registered agent service.
initial and annual meeting minutes, resolutions and more.
Registered agent only: BizFilings offers registered agent service in
all 50 states to business owners who are undertaking their own State and local-related services
state incorporation or foreign qualification filings (or using another
DBA filing service: BizFilings can undertake your company’s
incorporator) but would like to name BizFilings as registered agent.
“doing business as” (DBA) filing, also called a fictitious business
Change of registered agent: BizFilings can prepare and file the name filing, at the state and/or county level.
necessary documents to change a company’s existing regis-
Rush filing service: BizFilings offers a rush filing service in partic-
tered agent to BizFilings. Additionally, BizFilings will absorb any
ipating jurisdictions allowing for state approval of the formation
state fee charged by the state to change your registered agent.
filing in 24-48 hours.

IRS forms and filings Certified copy: BizFilings can obtain a certified copy of the
Federal tax identification number obtainment: BizFilings can Articles of Incorporation or Organization.
secure your company’s federal tax identification number (also
Certificate of good standing: BizFilings can secure your
called employer identification number or EIN) from the IRS.
Certificate of Good Standing, demonstrating your company is
S corporation election obtainment: BizFilings will prepare and formed in a particular state and has made all necessary filings
file your corporation’s S corporation election with the IRS. and paid the required fees.

State name availability search: BizFilings can undertake a

Business planning software
preliminary search with a state to determine if a desired
Ultimate Business Planner: BizFilings Ultimate Business Planner company name is available.
software helps business owners create a business plan through
a simple step-by-step approach. State name reservation: BizFilings can reserve a desired
company name in a particular state to use either immediately
Business licenses or at a later date for a formation or foreign qualification filing.
Federal, state, local, county and/or regional licenses: BizFilings
Apostille: BizFilings can secure certification by apostille of forma-
will identify the permits and licenses that apply to your business
tion and/or qualification documents for use in another country.
and provide all of the forms you need.

– 24 –
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: [email protected]

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

Connect with us
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Bizfilings.com/Blog

Save by incorporating with BizFilings:

• $75 off our Complete Package
• $50 off our Standard Package
Order online at
www.BizFilings.com/Guide
Mention this discount if ordering by phone at
800.981.7183

8040 Excelsior Drive ■ Suite 200 ■ Madison WI 53717

Visit BizFilings.com
800.981.7183 ■ 608-827-5300 ■ fax 608.827.5501
[email protected] ■ www.BizFilings.com