Forming a corporation is a big step toward your success and the success of your business.
Chances are you've considered the key benefits to incorporating your business:
Protecting your personal assets through liability protection Saving money on your taxes Reducing your chance of an audit Establishing credibility with your customers
The Corporate Advantage
As a sole proprietor, your liability for business debt is unlimited. Personal assets such as your home, personal bank accounts, and other valued assets may be at risk.
What does this mean? It means that if your business experiences severe financial difficulties, creditors can take away your personal property such as your home, retirement savings, or any other asset you or your spouse own.
In our increasingly litigious society, it is becoming ever more important to limit your exposure and protect yourself from liability.
Forming a corporation draws a firm line between your personal and business assets, helping protect your personal assets from risks or debts associated with running your business.
If you are operating as a sole proprietor, you will be required to pay self-employment tax on your profit, currently at 15.3%.
If you set up a corporation for your business, only the salary you pay yourself is subject to self-employment tax. Depending on your situation, you may be able to save as much as 50% on your tax bill. Another tax benefit of forming a corporation is that select medical and childcare costs may be deductible, which cannot be deducted as a sole proprietor.
Reduce Your Chance of Tax Audit
Sole proprietors tend to be more likely to file incorrect returns (many are self-prepared), and tend to underreport revenue or over report deductions.
For these reasons, the IRS has audited a much higher percentage of sole proprietor tax filings than corporate filings in recent years.
In tax year 2005, a Schedule C filer stood a one in 33 chance of being audited. For S-corporations (or LLCs filing as partnerships), the odds were around one in 300.
This means that you are almost ten times more likely to be audited if you are a sole proprietor!
Establish Credibility with Your Customers
Separating yourself from the competition by establishing a professional identity helps increase trust and credibility with your customers.
Most businesses choose to incorporate to prove their legitimacy to both customers and suppliers.
Type of Corporations
What is a C-Corporation?
What sets a corporation apart from all other types of businesses is that a corporation is an independent legal and tax entity, separate from the people who own, control and manage it.
Because of this separate status, the owners of a corporation don't use their personal tax returns to pay tax on corporate profits — the corporation itself pays these taxes.
Owners pay personal income tax only on money they draw from the corporation in the form of salaries, bonuses, and the like.
What is an S-Corporation?
An S-corporation is a regular corporation that has elected "S-corporation" tax status. Forming an S-corporation lets you enjoy the limited liability of a corporate shareholder but pay income taxes as if you were a sole proprietor or a partner.
In an S-corporation, all business profits "pass through" to the owners, who report them on their personal tax returns. The S-corporation itself does not pay any income tax.
Therefore, an S-corporation elects not to be taxed as a corporation.
After the corporation has been formed, it may elect "S-Corporation Status" by submitting IRS form 2553 to the Internal Revenue Service (in some cases a state filing is required as well).
What is a Non-Profit Corporation?
State laws distinguish between for-profit (stock) corporations and non-profit (non-stock) corporations.
A non-profit corporation often involves an organization whose primary objective is to support some issue or matter of private interest or public concern for non-commercial purposes.
Examples of non-profit types might relate to the arts, charities, education, politics, religion, research, sports or some other endeavor.
Under the Federal Tax Code Section 501(c), a tax-exempt corporation cannot pay dividends and, upon dissolution, must distribute its remaining assets to another nonprofit group.
What is a Professional Corporation?
If your corporation will be engaging in what your state might call "professional services," the Articles of Incorporation must bear special language and the corporation must be formed pursuant to certain statutory provisions.
"Professional Services" according to most states usually consists of the following activities:
Legal Services and Representation
Accounting and Financial Services
Other services may be included in this list depending on your selected state of incorporation
It is important to note that most states vary in their requirements regarding licensing of professional activities, therefore, we encourage you to seek the advice of an attorney if you fall within the "Professional Services" statute of your state.
Once you make your decision to incorporate as a professional, AFS can assist you with the corporate filing, and save you further legal fees.
Simple and inexpensive to create and operate. Owner reports profit and loss on his or her personal tax return.
Owner personally liable for business debts.
Simple and inexpensive to create and operate. Owner (partners) reports profit and loss on his or her personal tax return.
Owner (partners) personally liable for business debts.
Limited partners have limited personal liability for business debts as long as they don't participate in management. General partners can raise cash without involving outside investors in the management of the business.
General partners personally liable for business debts. More expensive to create than general partnerships. Suitable mainly for companies that invest in real estate.
Owners have limited personal liability for business debts. Fringe benefits can be deducted as a business expense. Owners can split corporate profit among owners and corporations, paying lower overall tax rates.
More expensive to create than partnership or sole proprietorship. Paperwork can seem burdensome to owners. Separate taxable entity.
Owners have limited personal liability for business debts. Owners report their share of corporate profit or loss on their personal tax returns. Owners can use corporate losses to offset income from other sources.
More expensive to create than partnership or sole proprietorship. More paperwork than for a limited liability company which offers similar advantages. Income must be allocated to owners according to their ownership interests. Fringe benefits limited for owners who own more than 2% of shares in the S-Corp.
Owners have no personal liability for malpractice of other owners.
More expensive to create than partnership or sole proprietorship. Paperwork can seem burdensome to owners. All owners must belong to the same profession.
Corporation doesn't pay income taxes. Contributions to charitable corporation are tax-deductible. Fringe benefits can be deducted as a business.
Full tax advantages available only to groups organized for charitable, scientific, educational, literary or religious purposes. Property transferred to corporation stays there, if corporation ends, property must go to another nonprofit.
Limited Liability Company
Combines a corporation's protection from personal liability for business debts and pass-through tax structure of a partnership. Significantly easier to maintain than a corporation. IRS rules now allow LLCs to choose between being taxed as a partnership or corporation.
More expensive to create than partnership or sole proprietorship. State laws for creating LLCs may not reflect latest federal tax law changes.
Limited Liability Partnership
Owners (partners) aren't personally liable for the malpractice of other partners. Owners report their share of profit or loss on their personal tax returns.
Unlike a LLC, owners (partners) remain personally liable for many types of obligations owed to business creditors, lenders and landlords. Not available in all states. Often limited to a short list of professions.
Incorporate at an Affordable Price
AFS offers you the benefits of incorporating or forming an LLC—at an affordable price.
Forming a business with us is a cost-effective way to protect your personal assets and gain potential tax savings
Our incorporation services start at just $149 (plus required government fees)
Lawyers charge, on an average, over $250 per hour. With our document filing services, you'll know exactly what you are getting, and how much it costs from the very beginning
And… you could file all the necessary documents yourself. However, when you consider the time involved for filing, administering and maintaining all the documents necessary to keep your business running legitimately… why would you? There are definite savings when you think about your valuable time and what it's worth.
What We Do & How We Do It
Our goal is to help streamline business-filing processes before you incorporate, when you incorporate and after you incorporate.
How do we do this? By offering:
• Savings in Time — We Do It Right!
Your incorporation is conducted by a team of filing experts here at Adams Financial Services. AFS has been processing incorporation documents for nearly ten years. We know how to save you time and money—things you need to dedicate to your business.
We've helped hundreds of small businesses and real estate investors form corporations or LLCs
All the right forms are filed with the right state agencies
We meet the latest published legal requirements for forming a business
In other words, we do it right!
• Business Documents with Your State
We file all the paperwork and business documents that are required by law in your state for forming a business.
We handle the interactions with your state agencies or representatives. If questions come up, we'll contact you immediately.
Your business could be complex with many documents, or fairly simple—requiring only a few filings. We'll offer various packages so that you can meet your business needs.
• Updated Every Step of the Way
We keep you updated every step of the way either by phone, when appropriate, and always by email.
Regular Filing Service: Each state has its own regulations about the time it takes to process documents with the Secretary of State. This time frame could be from 2-7 weeks. You can find this out on the order form when you fill out our application.
Rush Filing Service: You could receive your "Articles of Incorporation" and your "Bylaws" within two days. With our rush filing service, we hand deliver the documents to the appropriate state office—greatly reducing your waiting time.
• Other Services to Help Maintain Your Business
Once the filing is complete and you are off and running, we are still here to assist you with additional business filings. Many of these services are mandatory business filings in your state.
Making this important step is often a hassle for the majority of small business owners who are busy running the company. Eliminate this stress factor and let us do it for you!