The wisest way to start your business is to create it as a corporate structure. The reason this is smart is because it will exist as a separate entity. What that means is there are very few limitations, but its’ legal rights are similar to an individual. You can incorporate in the state you intend to do business, or you can save money by incorporating in a state like Wyoming.
Wyoming does not keep records on file of the officers nor do they ask for any personal information. They do not share the information they have with the Internal Revenue Service. Lastly, they have very low rates for companies who incorporate which could save you several hundred dollars. The best way to incorporate in Wyoming is to use Polly at Wyoming Discount Registered Agent.
Having said that, you may need to file for “qualification” in the state you intend to do business. This can be done by logging onto the Secretary of States’ site and downloading the appropriate paperwork. One of the things many of the states require is to have a “Certificate of Good Standing” attached to the application.
A Certificate of Good Standing just says that you did everything you needed to do to start your corporation. It also says you have the ability to do business in their state. The certificate can be accessed through the Secretary of States’ site. Some states charge a fee, but Wyoming does not, and it is very easy to look up and download as a PDF.
Once you have set up your corporation, you can transfer stock to the shareholders who will in exchange invest cash or other assets. It is suggested the shareholders have an annual meeting to vote for the corporation’s board of directors.
Most commonly the board of directors consists of a president, secretary and treasurer. However, if there are more shareholders there can be several vice presidents. The board of directors handle the day to day business of the corporation. They may also create bylaws for the corporation which is approved by the shareholders.
One of the benefits of having a corporation for the shareholders is it insulates them for any damages or suits that may be filed against the corporation. The worst thing that can happen is they could lose some of their investment, their personal assets cannot be seized.
A buy-sell agreement is recommended to protect all of the shareholders. This contract will specify that in the event of the death of one of the shareholders, the other shareholders have the first right to purchase that individuals stock. Many times, these agreements are backed by life insurance policies which pay for the remaining shares.
Larger corporation that have a lot of shareholders may need to register with the Securities and Exchange Commission or the states regulatory commission. Smaller corporations are not subject to this filing they can just put it in their corporate minutes on how a shareholder can leave.
Keep in mind that the corporation will be liable for its own taxes. While it can write off the salaries, there is still the tax liability. The shareholders are liable for their own taxes as well and will receive a W-2 in the beginning of the year.