7 Facts About Setting Up a Corporation
BY CORY A. LEVINE, ESQ.
One of the primary reasons to set up a Corporation or LLC is for personal asset protection.
However, your personal assets might not be protected if you fail to form the entity correctly or if you fail to perform certain acts at the proper time.
Some facts about setting up a Corporation:
1. What is a Corporation?
Answer: A Corporation is a separate legal entity formed by its owners. A Corporation is created when papers are filed with the proper state authority.
2. What are the benefits of forming a Corporation?
- Personal Asset Protection: A Corporation will allow you to separate and protect your personal assets. If the Corporation is properly structured and managed, you should have limited personal liability for business debts and obligations.
- Additional Credibility: Adding "Inc." or "Corp.” after your business name can add instant credibility. Consumers, vendors, and partners often prefer to do business with an incorporated company.
- Attractive Investment: The built-in stock structure of a corporation makes it attractive to investors and easier to transfer portions of ownership.
- Name Protection: Other businesses cannot use the same corporate name in the same state.
- Perpetual Existence: Corporations continue to exist, even if ownership or management changes. Sole Proprietorships and Partnerships simply end when an owner dies or leaves the business.
3. How is a Corporation organized?
- Shareholders- The Shareholders own the Corporation, but they do not directly manage the Corporation.
- Board of Directors- The Board of Directors (who are elected by the Shareholders) manages the Corporation and makes the major business decisions.
- Officers- The Officers (who are appointed by the Board of Directors) make the day-to-day decisions of the Corporation and are responsible for everyday management.
4. Who should form a Corporation?
Answer: An experienced Business Law Attorney
- A Business Law Attorney- Will assume the responsibility of complying with New York State Law requirements of forming the Corporation and will complete the corporate book
- Not Accountants, Non-Business Law Attorneys and online services- These services will usually have the papers filed, but will not assume responsibility of complying with New York State Law requirements. They typically provide an incomplete corporate book. You are then responsible to prepare and complete the Bylaws, Organizational Minutes, and Stock Certificates, other papers and arrange for publication if required.
5. How should the Corporation identify itself?
- Stationary, Signs, etc.: All stationary, invoices, business cards, online materials and signs should reflect the exact name of the Corporation including the word "Corp.", "Inc." or "Ltd.".
- Telephone Listing:Your telephone listing should be reflective of your corporate status (i.e. that your name includes "Inc." or "Corp.")
- Signing Documents: When documents are signed by the Corporation, the name of your Corporation and corporate capacity of the signer should be reflected, i.e. “XYZ Corp. , By, Ms. Smith, Title (President, Treasurer, etc.)"
6. Should the Corporation keep personal and corporate matters separate?
Answer: Yes. After the business has been incorporated, the Corporation must remain financially and legally separate from any of its Shareholders in order to preserve the benefits and protections of corporate legal status. You should keep specific records and accounts, file necessary government documents, and hold regular Shareholder meetings or get written consents or waivers from Directors and Shareholders when needed.
7. Once the Corporation is formed, who else should be contacted?
- Accountant: The Accountant will obtain an Employer Identification Number (EIN) and discuss whether or not to make an S Corporation tax election.
- Insurance Company: Every Corporation that has an employee in New York State is required to have Workers' Compensation and Disability Insurance coverage. Certain exemptions apply to principal Shareholders.
- Post Office: Notify the Post Office of the new name of your Corporation and its proper address for delivery of mail.