When it comes to deciding upon a corporation or an LLC for your business, it’s important to do things buy the book. This will ensure your personal liabilty protection. With a corporation, however, there is significantly more book than with an LLC.
Structuring your Business as a Corporation
A basic corporate structure will have the following:
- shareholders – they own the company via stock and are responsible for electing members to the board of directors.
- the board of directors – these individuals represent the interests of the shareholders and guide the company. They appoint the officers.
- officers – these people take on the daily duties of managing the company.
If you are setting up as a corporation, you can take on all three of these positions yourself.
Appoint Yourself as Director
If your company has one shareholder – you – then states will allow the company to have a single director too.
To appoint yourself as director, you’ll need to prepare relevant minutes to show that you – in your shareholder role – elected yourself sole director of the board. This might sound strange, but if you’re going to be a corporation, you have to look like a corporation on paper.
File Articles of Incorporation
Filing your company’s articles of incorporation with your state officially forms your business entity. Whether you prepare this document yourself or have a professional do it for you, you’ll need to sign yourself as Incorporator or Promotor, depending on what state you are in.
As well as being sole shareholder and director of your company, you’ll need to designate yourself as the officers: president, CFO/treasurer, and secretary.
Also, you will be required to include the name and address of the person who will serve as the corporation’s registered agent, who must be available during business hours. Again, you can take on this role, too.
Keep Meeting Minutes
Even though you are wearing all the hats, you need to keep your paperwork up to date. Document your decisions as director, including appointing yourself CEO, CFO/treasurer, and secretary. Whenever you make a major decision regarding the direction of your company, record minutes.
Corporation vs LLC
Keeping up with the documentation of your corporation’s minutes can be tedious. It might seem unnecessary. For some, it will be easy to let it slip. Failing to keep updated minutes, however, risks your liability protection, which could cost you severely.
Double taxation (corporate tax, followed by individual tax) can be avoided by electing S Corporation tax status, but there are certain requirements for this and they can limit its usefulness. Taxation can be a problem for many individuals who structure their business as a corporation. For some businesses, however, it will make sense, even though it may seem counterintuitive.
An LLC is easier to form than a corporation. If you are forming an LLC, you will need to file ‘articles of organization’ rather than articles of incorporation. Normally, you only need to include the company’s name, address, and state that you are the owner. As with setting up a corporation, you will be required to provide the details of someone who will act as registered agent. Like a corporation, an LLC’s structure still separates an individual from his or her business to minimize personal liability. It is more flexible than a corporationm however, as an LLC can choose how it is seen by the IRS.
If you’re worried about future legal issues, however, a corporation is generally considered a surer bet than an LLC, because the structure has been around a lot longer. States differ in their treatment of LLCs, so where your business resides will influence your decision on what kind of legal entity your company should be. You should not be afraid to ask for professional help, if you require guidance on the best business type for your situation. By considering your own business under the different structures, however, you are likely to see which structure is best for you.