|Forming a United States Corporation
A corporation is a legal entity or "person", separate from its officers, directors, shareholders and employees. One advantage of doing business in the corporate form is to prevent the corporation's obligations from becoming the obligations of its officers, directors and shareholders. Each year, we help business owners create hundreds of corporations across the United States. With our large immigration client base, many non-resident clients have asked questions about their ability to form a corporation.
A citizen from a country other than the United States may form a United States corporation. The corporation is formed by filing Articles of Incorporation with the Secretary of State. Each state has slightly different filing requirements, but the main provisions of the Articles of Incorporation are generally uniform. Once your corporation has been registered, the secretary of State will review and approve the Articles of incorporation. You will receive a certificate of incorporation
within three weeks.
Forming a corporation means that the business must follow some corporate formalities. Generally speaking, the corporation must be treated as a separate entity from its owners in order to maintain limited liability status.
The name of your corporation should reflect the industry of your business. Corporate names are protected so the name of your corporation must be unique.
In order to enjoy the benefits of a corporation, such as limited liability, you must let others know that you are operating under the corporate form. For example, you must identify the business as a corporation by including the words "corporation," "incorporation," "company", “inc.”or “co.”
It is essential that the separate existence of the corporation be continually recognized and respected and that any business be done by the corporation acting in its status as a legal person and not by the individuals involved. The corporation should exercise care to hold itself out to the public at all times as a corporation. All letterheads, billheads, advertisements, business cards and telephone listings should use the corporation's full name which indicates its corporate status.
When the name of the officer or any employee is signed to a letter, contract, or check for the corporation, or printed on a business card, you should make certain that the agency capacity of the individuals so signing is clearly indicated. It is not enough that you sign a letter on the corporation's letterhead. You should clearly indicate that it is the corporation's letter which is being signed for the corporation; i.e., agreement should be, CEO, or CFO.
All bank accounts should be established in the corporation's name, and signature cards should be executed by the appropriate corporate officials in their corporate capacities and on behalf of the corporation. Any assets transferred to the corporation become its property and must be treated as such. All actions by the corporation's board of directors or shareholders must be evidenced by resolutions adopted by the board of directors or the shareholders as the case may be. All directors or shareholder's meetings must be held upon the notice as set forth in the by-laws, and any persons entitled to but not receiving such notice must waive notice in writing.
Finally, it is extremely important that the property of the corporation be clearly understood to belong to the corporation and not to any individual shareholder or officer or other corporation.
The corporation is not simply a separate pocket of its shareholders, but is rather a distinct legal entity. The failure of the shareholders, officers, or directors of a corporation to recognize that their corporation's cash or other assets are not theirs can cause significant an unpleasant encounters with the Internal Revenue Service.
For example, a shareholder who takes money or property from his or her corporation should know that the only legal way to transfer property from a corporation to a shareholder is by way of:
Likewise, cash or property made available to the corporation by its shareholder will either be considered contribution capital or a loan. If such loans are not properly documented it may be extremely difficult to get the assets back out of the corporation without the imposition of a tax.
- A dividend (taxable to the shareholder and not providing a deduction to the corporation);
- Wages or salary; or
- A loan (loans from a corporation to its shareholders are extremely suspect by the IRS and, unless completely documented, have questionable chances surviving an IRS audit).
Finally, every corporation must designate a "registered office" in the U.S. and a "designated agent for service of process" in any state that the corporation does business.
There are three major corporate forms.
A “C” Corporation generally refers to a larger corporate entity. The major draw back to the C Corp is that it is doubly taxed.
“S” Corporations may be formed by filing a form with the Internal Revenue Service. By making a subchapter S election, the corporation chooses a different taxation method. In essence, the S corporation is taxed much like a partnership. The profits of the corporation are claimed by the shareholders as income on their individual taxes based on the percentage of ownership. To qualify as an S corporation, there are several requirements:
LIMITED LIABILITY COMPANIES (LLC).
- There may be only one class of stock;
- There can be no more than thirty-five (35) shareholders;
- Each shareholder must be a person, not a corporation or partnership;
- Each Shareholder must me a U.S. resident for tax purposes (a person who lives in the U.S.
for six months or more each year).
Limited Liability Companies are formed in a fashion similar to the S Corp and the C Corp. However, Articles of Organization are filed with the secretary of State rather than Articles of Incorporation. Another significant difference is that the owners are referred to as “Members” rather than shareholders. One of the major benefits to this form of business is that the governance rights may be separated ownership interests. That means that control over the corporations daily activities may be concentrated on the hands of a minority owner. In most
states, you must have a no less than two members to form an LLC. Members do not have to be U.S. citizens or even U.S. taxpayers.
Obtaining a Federal Tax Id Number.
Before conducting any business in the United States, a corporation must have a Federal Tax ID number. A Federal Tax ID number may be acquired by calling the Internal Revenue Service at 1-816-926-5999. In order to qualify for a Federal Tax Id number, an officer or member of the corporation must fill out an application called an SS-4. The officer must provide to the IRS as part of that form an individual social security or taxpayer identification number. If that person does not have a Social Security Number, then a copy of his foreign passport must be attached to the application. If the corporation will have employees, it may be required to file for an EIN number as well as a State Tax Id number. This particularly true if the corporation intends to sell products within a state.
For additional information, please contact us at (612)
240-8005 or review our "Do-It-Yourself" forms.
For a consultation call (612) 240-8005
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