Online Incorporation MaxBlog

Getting your company incorporated can be a very busy time for you. Handling the legal matters is just another thing piled on to preparing business plans, marketing strategies, etc. There are few errors that can’t be reversed with the help of legal counsel but dealing with things correctly and professionally in the beginning can save you precious time and resources.

It’s important to institute a corporate structure that is easily adaptable to changing business and financing needs. Susan Schreter, a coach that helps entrepreneurs find reliable investors recently tapped into the expertise of Joe Whitford, a law partner with Davis Wright Tremaine and long-time advisor and advocate of productive venture building. He discussed the 6 most common mistakes he is often called in to correct. Take care to avoid these mistakes as you incorporate your business:

1. Only Authorizing Common Stock-It is recommended for young companies trying to raise capital should issue both common and preferred stock and business founders should only receive common stock. Depending on the state and the tax implications, 30 million common stock shares and 20 million preferred stock shares are recommended.

2. Over allocation of Shares-Many companies dole out too many shares to founders, initial employees, and consultants. This leaves too few for actually raising capital and growing the business. It is recommended that only ¼ to 1/3 of shares are allocated to these people in order to leave an ample amount for raising funds.

3. Establishing a High Initial Stock Value-The Internal Revenue Service requires stock recipients to pay tax on the estimated market value of the shares, which can be very costly if those valuations are set too high.

4. Granting too lenient shareholder rights-Entrepreneurs should not include provisions in the articles of incorporation that allow shareholders to acquire additional shares in future financing transactions. These rights should be negotiated on a per transaction basis.

5. Invention Assignment-Many companies do not take due diligence in documenting the ownership of inventions by founders and new employees. By not declaring an invention as being owned by the company rather than an individual, funding opportunities and technological alliances can be lost.

6. Not including shareholder agreements with company founders-It is always best to detail the duration of services with founders who receive stock in a company in order to retain certain rights to one or more individuals that may lose interest in a company.

Avoiding these 6 mistakes can save your company a lot of hassle. Turn to the online business incorporation leader MaxFilings to assist you with forming your company and find other important information in the Knowledge Center at MaxFilings.

Are you incorporating a new business?…Or looking for information on the various corporate structures available? Sometimes the jargon associated with different explanations found by general searches on the Internet can be difficult to understand.

Basically, the differences in various corporate structures lie in their tax treatment. An S corporation is a standard corporation that elects special tax status from the Internal Revenue Service through the filing of IRS form 2553.

Many of the benefits of an S corporation are the same as other corporate structures, such as:

- Limited liability of debts, obligations, and liabilities incurred by the business or stemming from legal action(s).

- Protection of shareholders’ personal assets

However, unlike a C corporation, an S corporation does not pay any income tax itself. Rather, it is more like a sole proprietorship, limited partnership, or LLC where an individual shareholder reports their share of the corporation’s income and loss on their personal tax return, also known as pass-through.

So why would you want to choose an S corporation over other options? Some points to consider:

- An S corporation is for those wanting limited liability and a formal corporate structure but with pass-through taxation of profits, thus avoiding double-taxation.

- By law, an S corporation is considered an individual entity, and separate from its owners/shareholders.

- Easier to raise capital since stock and other forms of financial securities can be issued.

Further explanation of an S corporation and the different factors to consider is described simply at the Knowledge Center at MaxFilings. And after researching with this useful resource and consulting with an attorney, MaxFilings’ online incorporation center can help you form whichever structure fits your needs.