Hello Raptor ~
I am not an attorney licensed to practice law in the State of Arizona
and I don't play one on TV. The information below is readily
available, including explanatons of provisions in the Arizona Revised
Statutes and Nevada Revised Statutes, for informational purposes only.
Google Answers Researchers do not give legal advice. The information
is not intended to be legal advice and should not be substituted for
consulting with a competent attorney with your questions and concerns.
** 1. To answer your first question: "1. Under what form would you
incorporate and why? (LLC, C, S, LP, GP)?
I would incorporate as a corporation and make an S Corporation
election after the corporation is legally formed.
A "C" Corporation designation merely refers to a standard,
general-for-profit, state-formed corporation.
An S Corporation starts as a general for profit corporation upon
filing the Articles of Incorporation at the state level. The S
Corporation election is usually made for tax reasons. A "C"
corporation is required to pay income tax on taxable income generated
by the corporation.
On the other hand, an "S" Corporation (formed by submitting Form 2553
to the Internal Revenue Service) is taxed like a partnership or sole
proprietorship rather than as a separate entity. The income is
"passed-through" to the shareholders for purposes of computing tax
liability and a shareholder's individual tax returns will report the
income or loss generated by an S corporation.
An LLC is a hybrid between a partnership and a Corporation that
combines the "pass-through" treatment of a partnership with the
limited liability accorded to corporate shareholders. Unlike a
corporation which can have as few as one shareholder, most states
require that an
LLC consist of two or more members (owners), and Arizona requires a
limitation on the scope and duration of LLCs (see: A.R.S. §29-632 -
http://www.azleg.state.az.us/ars/29/00632.htm ).
Given that you are the sole owner/incorporator, etc., an LLC (Limited
Liability Liability Company) or a partnership arrangement is not
practical.
===================
** In answer to your question no. 2: "Would you incorporate in Nevada
and why/why not? (All business will take place in Arizona)."
It is usually less complicated and more cost effective to incorporate
in the state where you are planning to operate your business. If you
incorporate outside Arizona, you are still may be required to qualify
to do business in your home state. (See Arizona Corporation Commission
information -
http://www.cc.state.az.us/corp/faqmanual.htm#cf
The cost of incorporating in Arizona will usually be less than
incorporating in another state and then qualifying to do business
there "foreign" corporation.
The advantage to incorporating in Nevada is its privacy and liability
protection status and certain tax advantages. Nevada has no state tax
on corporate profits, no state annual franchise tax, or no state
personal income tax. Stockholders of a Nevada corporation are not
public record, allowing complete anonymity. However, if you
incorporate in Nevada while your business is located in Arizona, you
will need to qualify to do business in Arizona. (See Nevada Revised
Statutes - Section 78, "Private Corporations" -
http://www.lectlaw.com/files/sts04.htm )
In either case, tax-wise, if you make the S Corporation election, you
will still bear the responsibility as a shareholder for the federal
taxes.
Unless there was a compelling reason to form a Nevada corporation, I'd
form a corporation in Arizona.
** In answer to your question number 3: "You want to run the business
under a couple of different DBA’s. How easy is this to do and how do
you do it?"
Arizona allows you to do business under different names if you wish,
however, according to information provided by the Arizona Corporation
Commission, "If a corporation uses a DBA, however, the DBA cannot
include the word incorporated or an abbreviation thereof."
http://www.cc.state.az.us/corp/faqmanual.htm#cf
Search terms used:
Arizona Revised Statutes Corporations
Arizona Corporation Commission
Arizona corporations
incorporating in Arizona
Nevada Revised Statutes Private Corporations
Nevada corporations
incorporating in Nevada
Definition: S Corporation
I trust this answers your question, and good luck with your endeavors!
Yours ever so,
Serenata |
Clarification of Answer by
serenata-ga
on
08 Feb 2003 10:24 PST
Hi again Raptor -
Since a corporation is a legal entity that exists separately and
distinctly from its shareholders, officers, and directors, they are
not generally liable for the corporation's debts, unless they act as
the alter ego for the corporation.
In both Arizona and Nevada, corporations - even closely held
corporations - are expected to adhere to certain formalities, such as
holding regular meetings of the board of directors and of
shareholders, etc. As the sole director and shareholder of the
corporation you propose to form, it is easy to fall into the habit of
managing the corporation in a more informal manner. Care should be
taken to formally establish and maintain the corporate identity as
being totally separate, and not merely the alter ego, of its directors
and shareholders.
If directors act in "good faith" as a "reasonably prudent person"
would on behalf of the corporation, he will be personally exempt for
liabilities of the corporation. As a sole director and shareholder, it
is important to formally maintain the separate structure of the
corporation to prevent third parties from piercing the corporate veil
and attaching liability to you personally.
If creditors or third parties find themselves unable to pursue their
claims against a corporation, they may ask a court to ignore the
corporate status and impose liability upon the shareholders. This
action isn't taken lightly by courts, but they are more likely to
grant it when the business has a seriously inadequate financial base
for operations, or when it would be unfair not to do so.
Arizona Revised Statutes 10-830(D), "General standards for directors;
presumption" states in part, "A director is not liable for any action
taken as a director or any failure to take any action if the
director's duties were performed in compliance with this section."
(See: A.R.S.10-830 - http://www.azleg.state.az.us/ars/10/00830.htm )
In Nevada, no director "is individually liable for a debt or liability
of the corporation, unless the . . . director . . . acts as the alter
ego of the corporation." NRS 78.747(1).
(See http://www.leg.state.nv.us/NRS/NRS-078.html )
Corporations are formed to conduct business and protect the directors
and shareholders from personal liability. This can be accomplished in
your case if the corporation's identity is formally structured and
separate from you as the sole director and shareholder.
Some actions undertaken by the corporation which should be formalized
are discussed on Active Filing's Checklist at:
http://www.activefilings.com/resources/content/corporate_actions.htm
Other information which may be of interest are "An Analysis of Close
Corporation Legislation In The United States" at
http://www.law.asu.edu/HomePages/Karjala/Articles/AzStLJFall1989.html
A loose discussion of questions when forming a corporation can be
found at
http://www.savvychicks.com/incqa.html
Search terms:
Arizona - piercing corporate veil
Nevada - piercing corporate veil
corporate liability
I apologize for misundertanding your question before.
Serenata
|
Request for Answer Clarification by
raptor55-ga
on
08 Feb 2003 10:43 PST
Good answers, although I am still not sure what the difference
(BENEFIT) is in incorporating in an S-Corp vs. and LLC or why I should
choose S-Corp over an LLC. I don't believe you have articulated the
"why" part of my question well.
According to the info you have provided, both offer pass through of
profit/loss to the individuals 1040.
I would guess that just by the name, an LLC offers more protection
from liability, but you have not articulated that in your answer.
You can try again, or leave your answer as is and I will rate it from
there.
Thank you,
Raptor.
|
Clarification of Answer by
serenata-ga
on
08 Feb 2003 15:12 PST
Hello again Raptor
As I stated, Google Answers Researchers do not give legal advice ...
1. I believe I addressed in a clear and concise way that I would
incorporate under a corporation within the state in which I did
business. In Arizona, there is no limit on duration of a corporation,
so complying with the necessities to maintain the corporation as a
separate identity with all the rights of citizenship (except voting)
is fairly straight forward and easy.
An limited liability company is in effect a limited partnership, more
narrowly defined in its scope and focus, and its duration. The limits
on liabilities are also more narrowly defined to remain within the
scope of the partnership's stated purposes and duration.
Since it is often difficult to predict where the winds of fate may
lead, and small businesses often find their scope or focus changed
within a short time to encompass a niche never anticipated, I would
incorporate under the general corporate structure to lawfully conduct
business within the state of Arizona. To form a straight forward
corporation with an S Corp election is infinitely easier and less
limiting and affords the ability to bend with conditions that can't be
foreseen.
Since the personal liability issue for my business is basically the
same whether as an LLC or a corporation, I would afford myself the
broader scope of a corporate structure for purposes of flexibility.
I hope this clarifies your answer,
Serenata
|
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