Incorporate Your Business When To Do It And

With real-world examples, charts, and tables, this handy guide will help you calculate the benefits of incorporation for your business-before you decide to take the leap. For small business owners, with Incorporate Your Business you'll master all the fundamentals, including: Overall benefits of incorporation Tax changes under incorporation Various types of corporations Completing all the paperwork correctly Setting up a corporate structure Electing officers and setting up the board Holding important organizational meetings

ROBERT A. COOKE, CPA, has owned or co-owned three successful small businesses and is the author of six books, including Doing Business Tax-Free and How to Start Your Own S Corporation, Second Edition, both from Wiley.

CHAPTER 1 Why Should I Incorporate My Business?

1

(14)

What a Corporation Is, and What It Is Not

3

(2)

Who Starts and Who Owns a Corporation?

4

(1)

Reasons to Incorporate Your Business

5

(6)

Limiting Your Liability for Business Debts

5

(4)

Liability of Stockholders Who Are Also Employees of Small Corporations

7

(2)

Save Payroll Cash by Incorporating

9

(1)

Tax Savings

10

(1)

Prestige of a Corporation

10

(1)

Ease of Transferring Ownership

10

(1)

Reasons Not to Incorporate Your Business

11

(4)

Corporations and Other Business Forms Are Too Complicated

11

(1)

Corporations Cost Too Much to Set Up and Operate

12

(1)

My Business Is Too Small to Incorporate

13

(1)

A Corporate Form Does Not Entirely Protect Professionals

13

(2)

CHAPTER 2 How Incorporating Can Result In Tax Savings

15

(26)

Tax Savings In a Corporation? Maybe

15

(2)

The Organization of this Chapter

16

(1)

An Example of Tax Saving from a Corporation

16

(1)

Some Background, Concepts, and Explanations

17

(1)

How Your Business Tax Picture Changes When You Incorporate

18

(11)

How a Sole Proprietorship Is Taxed

18

(3)

How a Corporation Is Taxed

21

(2)

Double Taxation of Corporate Profits

23

(1)

How to Cope with Double Taxation of Your Corporation

24

(1)

Pay Dividends Between May 6, 2003 and December 31, 2008

24

(1)

Keep Earnings in the Corporation

24

(1)

Pay Salaries to Stockholders/Employees

25

(1)

The IRS Position on Salary Levels for Stockholder/Employees

26

(2)

Pay Interest to Stockholders

28

(1)

Alternative Minimum Tax on Corporations

29

(1)

What If the Corporation Has a Net Loss Instead of Net Taxable Income?

30

(1)

S Corporations

31

(6)

How Stockholders Take Profits out of an S Corporation

32

(1)

The Disadvantages of an S Corporation

33

(19)

Type of Stockholders

33

(1)

Number of Stockholders

34

(1)

Use of the Corporation's Loss, If It Has a Bad Year

34

(1)

Flow-through of Certain Tax Attributes to the Stockholder

35

(1)

S Corporations Are Limited to One Class of Stock

36

(1)

When to Use an S Corporation

37

(4)

CHAPTER 3 The Alternatives to Forming a Corporation

41

(10)

Sole Proprietorship

41

(1)

General Partnership

42

(1)

Limited Partnership

43

(1)

Limited Liability Company (LLC)

43

(2)

Other Entities With Limited Liability of the Owners

45

(1)

Passive Losses

46

(1)

Which Business Form Best Attracts Investors to Your Enterprise?

47

(4)

CHAPTER 4 How to Structure a Corporation

51

(14)

The Basic Corporation

52

(2)

Assets, Liabilities, and Equity

52

(2)

How to Invest In Your Corporation

54

(7)

Debt versus Equity

58

(2)

The IRS Position on Debt versus Equity

60

(1)

How to Invest In Your S Corporation

61

(1)

Keep Control of Your Corporation If Possible

62

(3)

CHAPTER 5 Planning Your Corporation

65

(28)

Do-It-Yourself Incorporation

65

(1)

Using Professionals

66

(2)

Choosing an Attorney

67

(1)

Choosing an Accountant

67

(1)

Planning the Specifics of Your Corporation

68

(21)

Decide on the Size of the Initial Investment in the Corporation

68

(2)

Size Your Investment to Qualify for Treatment as a Small-business Corporation

70

(1)

Who Will Be the Owners (Stockholders) of Your New Corporation?

71

(1)

Determine How Many Shares of Stock Will Be Authorized and Issued

72

(2)

Determine What the Price per Share of Stock Will Be

74

(3)

Determine Who Will Be the Directors and Officers, and Assign Duties

77

(2)

Prepare a Pre-incorporation Agreement

79

(1)

Determine Who Will Be the Incorporator(s)

79

(1)

Select a Resident Agent for Your Corporation

80

(1)

Have All Prospective Stockholders Sign a Stock Subscription

81

(1)

Determine the State in Which You Will Incorporate

82

(3)

Choose a Name for Your Corporation

85

(3)

Determine If You Can Use a Simplified Procedure

88

(1)

Prepare a Pre-incorporation Agreement

89

(1)

Prepare a Stockholders' Agreement

90

(3)

CHAPTER 6 Steps to Create and Run Your Corporation

93

(14)

Steps to Forming Your Corporation

93

(10)

Initial Action the Incorporator(s) Should Take

93

(6)

Hold Organizational Meetings

99

(1)

Organizational Meeting of the Stockholders

100

(1)

Organizational Meeting of the Board of Directors

100

(1)

Register Your Corporation with the Internal Revenue Service (IRS)

100

(1)

Register Your Corporation with Your State's (and Any Foreign State's) Tax Authorities

101

(1)

Elect S Status for Your Corporation If That Is Your Decision

102

(1)

Pay Particular Attention to the Initial Corporate Income Tax Return

102

(1)

Steps to Keep Your Corporation Alive

103

(3)

Hold the Annual Stockholders Meeting Every Year

104

(1)

Hold an Annual Board of Directors Meeting Every Year

104

(1)

Special Meetings of the Board of Directors (or of Stockholders If There Is No Board of Directors)

105

(1)

Live Your Corporate Life as If You Meant It

105

(1)

Nonprofit Charitable Organizations

106

(1)

APPENDIX A Useful Forms

107

(106)

APPENDIX B Useful Addresses

213

(14)

APPENDIX C Short Course in Corporate Finance Terms

227

(4)

APPENDIX D Glossary

231

(8)

INDEX

239

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Incorporate Your Business When To Do It And How

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Author Biography

Table of Contents

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