Incorporate Your Business

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? 1What a Corporation Is, and What It Is Not 3Who Starts and Who Owns a Corporation? 4Reasons to Incorporate Your Business 5Limiting Your Liability for Business Debts 5Liability of Stockholders Who Are AlsoEmployees of Small Corporations 7Save Payroll Cash by Incorporating 9Tax Savings 10Prestige of a Corporation 10Ease of Transferring Ownership 10Reasons Not to Incorporate Your Business 11Corporations and Other Business Forms AreToo Complicated 11Corporations Cost Too Much to Set Up and Operate 12My Business Is Too Small to Incorporate 13A Corporate Form Does Not Entirely Protect Professionals 13CHAPTER 2 How Incorporating Can Result In Tax Savings 15Tax Savings In a Corporation? Maybe 15The Organization of this Chapter 16An Example of Tax Saving from a Corporation 16Some Background, Concepts, and Explanations 17How Your Business Tax Picture Changes When You Incorporate 18How a Sole Proprietorship Is Taxed 18How a Corporation Is Taxed 21Double Taxation of Corporate Profits 23How to Cope with Double Taxation ofYour Corporation 24Pay Dividends Between May 6, 2003 and December 31, 2008 24Keep Earnings in the Corporation 24Pay Salaries to Stockholders/Employees 25The IRS Position on Salary Levels for Stockholder/Employees 26Pay Interest to Stockholders 28Alternative Minimum Tax on Corporations 29What If the Corporation Has a Net Loss Instead of Net Taxable Income? 30S Corporations 31How Stockholders Take Profits out of an S Corporation 32The Disadvantages of an S Corporation 33Type of Stockholders 33Number of Stockholders 34Use of the Corporation’s Loss, If It Has a Bad Year 34Flow-through of Certain Tax Attributes to the Stockholder 35S Corporations Are Limited to One Class of Stock 36When to Use an S Corporation 37CHAPTER 3 The Alternatives to Forming a Corporation 41Sole Proprietorship 41General Partnership 42Limited Partnership 43Limited Liability Company (LLC) 43Other Entities With Limited Liability of the Owners 45Passive Losses 46Which Business Form Best Attracts Investors to Your Enterprise? 47CHAPTER 4 How to Structure a Corporation 51The Basic Corporation 52Assets, Liabilities, and Equity 52How to Invest In Your Corporation 54Debt versus Equity 58The IRS Position on Debt versus Equity 60How to Invest In Your S Corporation 61Keep Control of Your Corporation If Possible 62CHAPTER 5 Planning Your Corporation 65Do-It-Yourself Incorporation 65Using Professionals 66Choosing an Attorney 67Choosing an Accountant 67Planning the Specifics of Your Corporation 68Decide on the Size of the Initial Investment in the Corporation 68Size Your Investment to Qualify for Treatment as a Small-business Corporation 70Who Will Be the Owners (Stockholders) of Your New Corporation? 71Determine How Many Shares of Stock Will Be Authorized and Issued 72Determine What the Price per Share of Stock Will Be 74Determine Who Will Be the Directors and Officers, and Assign Duties 77Prepare a Pre-incorporation Agreement 79Determine Who Will Be the Incorporator(s) 79Select a Resident Agent for Your Corporation 80Have All Prospective Stockholders Sign a Stock Subscription 81Determine the State in Which You Will Incorporate 82Choose a Name for Your Corporation 85Determine If You Can Use a Simplified Procedure 88Prepare a Pre-incorporation Agreement 89Prepare a Stockholders’Agreement 90CHAPTER 6 Steps to Create and Run Your Corporation 93Steps to Forming Your Corporation 93Initial Action the Incorporator(s) Should Take 93Hold Organizational Meetings 99Organizational Meeting of the Stockholders 100Organizational Meeting of the Board of Directors 100Register Your Corporation with the Internal Revenue Service (IRS) 100Register Your Corporation with Your State’s (and Any Foreign State’s) Tax Authorities 101Elect S Status for Your Corporation If That Is Your Decision 102Pay Particular Attention to the Initial Corporate Income Tax Return 102Steps to Keep Your Corporation Alive 103Hold the Annual Stockholders Meeting Every Year 104Hold an Annual Board of Directors Meeting Every Year 104Special Meetings of the Board of Directors (or of Stockholders If There Is No Boardof Directors) 105Live Your Corporate Life as If You Meant It 105Nonprofit Charitable Organizations 106APPENDIX A Useful Forms 107APPENDIX B Useful Addresses 213APPENDIX C Short Course in Corporate Finance Terms 227APPENDIX D Glossary 231INDEX 239