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Mancuso, Anthony. Incorporate your business : a legal guide to forming a corporation in your state / By Anthony Mancuso.—6th ed. p. cm. Includes index. Summary: “Explains the advantages, disadvantages and tax consequences of incorporation plus provides step- by-step guidance for incorporating in all 50 states.  e 6th edition is updated to cover recent changes in the law, including state, federal and tax law changes”—Provided by publisher. ISBN-13: 978-1-4133-1388-8 (pbk.) ISBN-10: 1-4133-1388-4 (pbk.) ISBN-13: 978-1-4133-1493-9 (epub e-book) 1. Incorporation—United States—Popular works. 2. Corporation law—United States—Popular works. I. Title. KF1420.Z9M36 2011 346.73'06622—dc22 2010052790 Copyright © 2001, 2004, 2005, 2007, 2009, and 2011 Anthony Mancuso. All rights reserved.  e NOLO trademark is registered in the U.S. Patent and Trademark O ce. Printed in the U.S.A. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior written permission. Reproduction prohibitions do not apply to the forms contained in this product when reproduced for personal use. For information on bulk purchases or corporate premium sales, please contact the Special Sales Department. Call 800-955-4775 or write to Nolo, 950 Parker Street, Berkeley, California 94710. Please note We believe accurate, plain-English legal information should help you solve many of your own legal problems. But this text is not a substitute for personalized advice from a knowledgeable lawyer. If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea—consult an attorney licensed to practice in your state. Acknowledgments anks to Diana Fitzpatrick for editing this edition of the book and to all the Noloids for their help in making this book a reality. About the Author Anthony Mancuso is a corporations and limited liability company expert. Tony graduated from Hastings College of Law in San Francisco, is an active member of the California State Bar, writes books and software in the elds of corporate and LLC law, and has studied advanced business taxation at Golden Gate University in San Francisco. He also has been a consultant for Silicon Valley EDA (Electronic Design Automation) and other technology companies. Currently, he is working at Google. He is the author of many Nolo books on forming and operating corporations (protmaking and nonprot) and limited liability companies. Among his current books are How to Form a Nonprot Corporation, Form Your Own Limited Liability Company, Your Limited Liability Company: An Operating Manual, e Corporate Records Handbook, and LLC or Corporation? His books have shown over a quarter of a million businesses and organizations how to form and operate a corporation or an LLC. He has lectured at Boalt School of Law on the UC Berkeley campus (Using the Law in Non-Traditional Settings) and at Stanford Law School (How to Form a Nonprot Corporation). He taught Saturday Morning Law School business formation and operation courses for several years at Nolo Press oces in Berkeley. He has also scripted and narrated several audio tapes and podcasts covering LLC and corporate formations and other legal areas for Nolo as well as e Company Corporation. He writes articles for and hosts the Nolo blog, LLC and Corporation Small Talk (www.llccorporationblog.com). He has given many recorded and live radio and TV presentations and interviews over the years covering business, securities, and tax law issues. His law and tax articles and interviews have appeared in e Wall Street Journal and eStreet.Com. Tony is a licensed helicopter pilot and has performed for years as a guitarist in various musical idioms. To access Tony’s LLC and corporation blogs and podcasts, plus links to his books and software, go to www.nolo.com, click on “About Nolo,” then “Nolo Authors,” then “Anthony Mancuso.” Table of Contents Your Legal Companion for Incorporating 1 Choosing the Right Legal Structure for Your Business e Different Ways of Doing Business 4 Comparing Business Entities 27 Nolo’s Small Business Resources 32 2 How Corporations Work Kinds of Corporations 36 Corporate Statutes 41 Corporate Filing Offices 43 Corporate Documents 43 Corporate Powers 45 Corporate People 46 Capitalization of the Corporation 63 Sale and Issuance of Stock 65 Stock Issuance and the Securities Laws 70 3 Understanding Corporate Taxes Federal Corporate Income Tax Treatment 90 Corporate Accounting Period and Tax Year 96 Tax Treatment of Employee Compensation and Benefits 97 Employee Equity Sharing Plans 101 Tax Concerns When Stock Is Sold 115 Tax Treatment When Incorporating an Existing Business 117 4 Seven Steps to Incorporation Step 1. Choose a Corporate Name 130 Step 2. Prepare and File Articles of Incorporation 138 Step 3. Set Up a CorporateRecords Book 145 Step 4. Prepare Your Bylaws 147 Step 5. Appoint Initial Corporate Directors 161 Step 6. Prepare Minutes of the First Board Meeting 162 Step 7. Issue Shares of Stock 177 5 After You Form Your Corporation Postincorporation Tasks 194 Tax and Employer Registration Requirements 199 Ongoing Corporate Meetings 201 6 Lawyers and Accountants Lawyers 206 How to Look Up the Law Yourself 209 Accountants and Tax Advisers 210 Appendixes A State Incorporation Resources 211 B How to Use the CD-ROM 215 Installing the Files Onto Your Computer 216 Using the Word Processing Files to Create Documents 217 Using Print-Only Files 218 Files on the CD-ROM 219 C Forms Included as Tear-Outs and on the CD-ROM 221 Forms for Incorporating Request for Reservation of Corporate Name Iowa Articles of Incorporation With Instructions Nebraska Articles of Incorporation With Instructions Cover Letter for Filing Articles Bylaws Incorporator’s Statement Minutes of First Meeting of Board of Directors [...]... to: • prepare and file articles of incorporation in any of the 50 states • prepare bylaws for your corporation • prepare minutes for your first board meeting • issue shares of stock to your initial investors, and • take care of post-incorporation filings and tasks Appendix A explains how you can contact state offices online to obtain the latest incorpo­ ration forms and information If a state does not... control, manage, or operate it The state corporation and federal and state tax laws view the corporation as a legal “person.” This means the corporation is capable of entering into contracts, incurring debts, and paying taxes separately from its owners Advantages of Incorporating Let’s start by looking at the advantages that flow from this separate entity treatment of the corporation The first and foremost... They also realize that if they begin making more money than each needs to take home, they can convert their LLC to a corporation later to obtain lower corporate income tax rates on earnings kept in the business or, as an alternative, make an IRS election to have their LLC taxed as a corporation without having to change its legal structure at all 14 | incorporate your business The Series LLC A Rising... personal use tip A corporate comparison Earnings retained in a corporation are not taxed on the owner’s individual income tax return Instead, this money is taxed at separate corporate income tax rates Because corporate tax rates are sometimes lower than individual income tax rates, business owners who leave earnings in their businesses often save tax dollars by incorporating We discuss this feature of corporations—called... shares What’s more, owners of a small corporation can set their sights someday on making a public offering of shares Even if your corporation never grows large enough to interest a conven­ tional stock underwriting company in selling your shares as part of a large public offering, you may be able to market your shares to your customers or to individual investors by placing your company’s small offering... million to $10 million annually by making a limited public offering of shares Of course, raising equity capital by selling stock is not the only way that corporations shine Incorporated businesses also have an easier time in obtaining loans from banks and other capital investment firms, assuming a chapter 1 | choosing the right legal structure for your business | 23 corporation s balance sheet and cash... annual added gross receipts fee of up to $12,000 per year on each LLC formed or operated within the state The Board has stated that it will treat each series in many outof -state LLCs as separate LLCs (see FTB Form 568 and FTB Publication 689 at www.ftb.ca.gov) This means that a Delaware series LLC that operates or owns property in California may have to pay the annual California franchise and any added... operated separately—for example, each series can have separate owners and managers, a separate operating agreement that specifies a separate division of profits and losses associated with the series, and other separate formation and operation characteristics And, under some state statutes, there is also a separation of legal liability between each series within an LLC A number of series LLC states allow... you want to operate your partnership, you lose a great deal of flexibility Instead of being able to make your own rules in a number of key areas—for example, how partnership profits and losses are divided among the partners—the lack of a written agreement means that, by default, state partnership law will come into play These state- based rules may not be to your liking—for example, state law generally... decide to incorporate instead of electing corporate tax status for their unincorporated business By changing to a corporate legal entity, they get corporate income tax splitting plus the other advantages the corporation provides, such as access to capital, capital sharing with employees, taxdeductible employee fringe benefits, and built -in management formalities See below for more on these advantages . Preparation ELLEN BITTER Index JEAN MANN Printing DELTA PRINTING SOLUTIONS, INC. Mancuso, Anthony. Incorporate your business : a legal guide to forming a corporation in your state / By Anthony. states •preparebylawsfor your corporation •prepareminutesfor your rstboardmeeting •issuesharesofstock to your initialinvestors, and •takecareofpost-incorporationlingsand tasks. Appendix A explains how you can contact state oces online to obtain the latest incorpo- ration forms and information retained in a corporation are not taxed on the owner’s individual income tax return. Instead, this money is taxed at separate corporate income tax rates. Because corporate tax rates are sometimes