Division of Corporations

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Forming an S or C Corporation or Non-Profit

Are you thinking of forming a Corporation, but still need more information to help you make your decision? Use the following list of Corporation Frequently Asked Questions.

What is a Corporation?
What are bylaws?
What is the Structure of a Corporation?
Is the issuing of Shares required?
How long does it take to get a corporate entity set up in Florida?
Do I need an Attorney or CPA to form a Corporation?
How many Directors are necessary?
Can one person be an officer and director?
What is a Registered Agent and is one needed?
What is an S Corporation?
Why do I need a Federal Tax Identification Number (EIN)?
How do I begin the process of incorporating my business?
How do I go about naming the Corporation?
What is a professional corporation?
What are the costs to incorporate my business?

What is a Corporation?

A corporation is a separate legal entity that exists independently from its owners. A corporation comes into existence when articles of incorporation are properly created and maintained, filed with the prescribed fees, and accepted by your State’s Secretary of State.

Any entity that transacts business as a corporation is required to file documents of incorporation and pay the appropriate state filing fee.

Benefits of Corporations:

• LIMITED LIABILITY - One primary benefit of incorporating your business is limited liability. If you maintain a corporation's legal status properly, and avoid personally guaranteeing the corporation's obligations, the corporation, and not you personally, would be solely responsible for its obligations.
• The single most important reason people cite for forming a corporation when they do business is to safeguard the personal assets of the owners – that is the shareholders or stockholders of the corporation – against potential claims from creditors. Sole proprietors and general partners in a partnership are personally liable for all debts and obligations of their business, including loans, accounts payable, and liability from defective products. Stockholders typically are not liable for the ordinary debts and obligations of the corporation.
• Lower risk of personal liability by shareholders for the corporation’s debts or judgments against the corporation
• Can raise additional capital through the sale of stock
• May deduct the cost of benefits it provides to officers and employees
• Flexibility in terms of ownership
• Can elect S corporation status if it meets certain requirements. This allows it to be taxed at rates similar to a partnership (avoids double taxation).

A corporation is more complex than a sole proprietorship or a partnership but also has certain advantages over other business structures. A corporation is regarded as a separate legal entity and, as such, will normally shield its owners from personal responsibility for the losses of the business. A corporation has a life of its own and does not dissolve when ownership changes. In addition, although a corporation may have multiple owners, this is not required and one person may individually establish and own a corporation.

One of the biggest advantages of incorporating a business is the broad protection which is afforded the principals of the corporation from being held personally responsible for the debts and liabilities of the corporation. As indicated above, a corporation is a separate legal entity. This separation of ownership is what limits the owners' (shareholders') personal liability. As a result, creditors can access the corporation's assets but cannot ordinarily reach the personal assets of the corporation's owners. Note, however, that corporate officers can still be held personally liable for their actions, such as the failure to withhold and pay employment taxes. In addition, if a personal guarantee is made, such as is commonly required in a start-up situation to obtain a bank loan, this can result in personal liability for the individuals providing the personal guarantee. Finally, it's possible for those to whom a corporation is liable to try and "pierce the corporate veil", which essentially means to take action in order to set aside the corporation for the purpose of litigation such that the personal assets of the corporation’s owners can be reached. One justification a court might use to pierce through the corporate veil of liability protection, as an example, is if it can be shown that the corporation is a sham set up by its owners to facilitate fraud against third parties.

A key to maintaining the corporate veil (and thereby preserving the limitation of personal liability) is to accurately manage the record-keeping for your corporation. Corporations are required to hold scheduled shareholder meetings and to keep minutes of these meetings.

For more complete information regarding protection against personal liability, DivisionofCorporations.com recommends that you consult with your attorney.

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What are bylaws?

Incorporation bylaws are generally written to manage the corporation’s business and to conduct the corporation’s affairs. The corporation’s bylaws should not be in conflict with the articles of incorporation. A corporation maintains its own bylaws and is not required to file them with the State in which it incorporates.

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What is the Structure of a Corporation?

• A corporation is owned by stockholders.
• A stockholder may serve on the Board of Directors and also be an officer of the corporation.

Additional information:

In larger corporations, while stockholders may not directly manage the affairs of the corporation, they are able to influence corporate decisions through indirect actions such as electing and removing directors, approving or disapproving amendments to the articles of incorporation and voting on important corporate decisions. The members of the Board of Directors are responsible for managing the affairs of the corporation. Usually, directors make only major business decisions; however, they supervise and appoint officers who make the day-to-day business decisions of the corporation. Officers are responsible for the everyday management of the corporation. Typically, officers are appointed directly by the Board of Directors.

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Is the issuing of Shares required?

By definition, a Corporation is owned by its Shareholders. Though not required, it is a good practice to issue stock as evidence of ownership. Where no shares are issued, no individual owns the corporation. Ownership must appear in the company's minutes and on its stock transfer records as may be applicable.

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How long does it take to get a corporate entity set up?

It is possible to have the filing completed within two to three business days (which includes expedited delivery).

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Do I need an Attorney or CPA to form a Corporation?

No. An attorney or CPA is not legally required to form a corporation.

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How many Directors are necessary?

A corporation is only required to have at least one director, however you are permitted to have more. That same person may also be the only shareholder and officer.

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Can one person be an officer and director?

Yes, one person may be President, Secretary, or Treasurer (or any combination of officers) of the corporation as well as the sole Director of a corporation.

The corporation's bylaws may prescribe additional qualifications for directors so long as they are not in conflict with the articles of incorporation.

Officers: The bylaws may either list the officers or state that they will be appointed by the board of directors. The bylaws or the board may also delegate the responsibility of preparing minutes and maintaining corporation records to one of the officers. As stated previously, one person may hold one or more officer positions for the corporation at the same time.

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What is a Registered Agent and is one needed?

Most States require that an individual, or service company, be responsible for receiving important legal and tax documents. This service is provided by an "agent" of the corporation who is "registered" within an individual state, thus the term "Registered Agent."

The registered agent for the corporation must have a valid street address within the State and be available during normal business hours to receive documents. The services performed by a registered agent may include:

• Receiving and forwarding legal documents;
• Receiving and forwarding franchise tax and annual report forms; and,
• Accepting and forwarding service of process.

A Registered Agent must be an adult, residing within the State and provide a physical address, (no P.O. boxes).

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What is an S Corporation?

Most new corporations filed elect S corporation status. An S Corporation is a corporation that has elected a special tax status. This tax treatment permits the income of the corporation to be "passed through" to the shareholders. Thus, shareholders report the income or loss which is generated by an S Corporation on their individual tax returns. In order to be considered an S Corporation, the stockholders of a properly filed corporation must elect such status within 75 days of formation for the current tax year, or at any time during the preceding tax year. This election is made by filing Form 2553 with the Internal Revenue Service (IRS).

To qualify for S Corporation status, the corporation must be a domestic corporation; have only one class of stock; and, have not more than 35 stockholders, who must be individuals, estates or certain trusts.

If you have any questions regarding election of S corporation status, please consult your tax advisor prior to making this election.

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Why do I need a Federal Tax Identification Number (EIN)?

An Employer Identification Number (EIN), also known as a federal tax identification number, is a nine-digit number that the IRS assigns to business entities.

• This number is used to identify a business entity and to identify taxpayers that are required to file various business tax returns.
• A business will need to apply for a new EIN if the business is sold or is otherwise transferred.

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How do I begin the process of incorporating my business?

Articles of incorporation must be filed together with the required fees. After the articles of incorporation are filed and accepted, your corporation must hold an organizational meeting at which acts taken and resolutions adopted by the incorporation director are approved and recorded, bylaws are adopted, shares of stock are distributed and officers elected.

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How do I go about naming the Corporation?

The name of your corporation must comply with your state's requirements. As a minimum, keep the following points in mind as you select your corporate name:

• The name cannot be the same as another corporation on file with the State.
• The name should not be confusingly similar to that of an existing corporation, i.e., the name should be distinguishable.
• The name must end with a corporate designator (Inc., Incorporated, Corp., Corporation, Co., or Company) unless this is a Professional Corporation (described below).
• May not contain language implying that the Corporation is connected with a government agency or that the corporation is chartered under United States law.

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What is a professional corporation?

Professional Corporations: A professional corporation/professional association is an individual or group of individuals, who are licensed in their profession as required by law, and have incorporated for the purpose of rendering the same professional service (doctors, dentists, architects, etc.). Professional corporations generally may not conduct any other business, must comply with particular conventions in their choice of corporate name (Example, Johnson & Apple, P.A.), and must comply with regulatory requirements of their respective regulating agency. A professional corporation may be taxed as either a traditional C corporation or as an S corporation. Membership requirements: All members must be licensed to provide a given professional service. See the specific regulating agency for additional state licensing requirements that may apply to your profession.

Professional Corporations (Tax Implications)

It is important to note that a professional corporation can receive many tax benefits over operating as a sole proprietorship or partnership, while at the same time avoiding filing as a C corporation with the IRS. While sole proprietorships and partnerships are currently able to deduct only a portion of health insurance costs from their taxes, a professional corporation is able to fully deduct the cost of accident and health insurance plans for its employees and their families. Additional medical expenses, as well as life and disability insurance, may also be deducted.

What are the costs to incorporate my business?

The filing fees for S or C corporations are listed below by state: