Incorporate Your Business – When To Do It And How

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