Announcer: Welcome to this evening's broadcast of the Small Business Review, sponsored by Inc Plan USA of Wilmington, Delaware. Our host for this broadcast is the editor of the Inc Plan Review, Jacques Luben. The topic of this program is, How Do I Know if I should Incorporate My Business? Jacques Luben: Thank you and good evening. Tonight's topic should be of special interest to anyone who either operates or is thinking of starting their own business. We all know that being self-employed can be great fun. After all, each entrepreneur is on a special mission to gain the personal independence and financial rewards that will sustain a pleasurable way of life. There are of course, many issues to consider as you develop successful strategies for your particular adventure. One of the most basic questions that needs to be addressed by every business person is, should I form a corporation to separate my business venture from my personal assets? Does a corporate structure offer me any special tax benefits? How expensive and difficult is it to form a corporate entity for my business? How do I establish a bank account for my new corporation or limited liability company? To answer to these and other questions, I will be talking to Caroline Quigley, Executive Vice President of Administration for Inc Plan USA. Caroline has been with Inc Plan since 1995. She devotes a substantial amount of her time every day to working with individual entrepreneurs who are establishing their corporations and LLCs in all 50 US states. Caroline, welcome to the show.
Caroline Quigley: Thank you Jacques. It's great to be here.
Jacques Luben: I'd like to start with the first question that I posed earlier, which is, we know that a lot of business people start corporations to separate their businesses from their personal assets. What does that mean to the average entrepreneur?
Caroline Quigley: That's an excellent question. People start businesses hoping for success and for the most part they are successful. But should there be any bad outcome, the last thing you want to do is be in the position of your personal assets being at risk, which they are if you are an unincorporated entity. And corporations solves that problem. No one can go after your personal assets and you can feel secure that your family's well being and your personal financial well being is not at risk.
Jacques Luben: I suppose what you're saying is, that it makes you litigation-proof.
Caroline Quigley: Yes. And we live in very litigious times.
Jacques Luben: Okay. In terms of tax benefits, we often here that incorporating a business can reduce the business person's taxes. How does that work?
Caroline Quigley: Well it can work in two different ways. If you have a standard C corporation, you can deduct many, many expenses. You can deduct your medical expenses. You have a whole range of business related costs that become deductible. If you opt for an S corporation which is often the choice of small businesses and in fact it's a special status allowed only to small businesses by the IRS, the benefits can become even greater. And the way an S corporation works is that the profit and loss from your corporation flows through to the individual shareholders. And what that means is that if you own 10 percent of a company, you own 10 percent of the profits or 10 percent of the losses. Now 10 percent of the losses may not sound like that wonderful a thing, but if you have other income, then you can use that loss to offset your other tax obligations. And that is the reason S corporations are really, I would say, the most popular with new incorporations.
Jacques Luben: In terms of international businesses, entrepreneurs who are offshore, many of them elect to set up companies in the United States. What are the benefits that you see to a foreign business owner, setting up a corporation in the United States?
Caroline Quigley: Well there are several benefits. One is, there is an element of prestige. For example, a Delaware corporation is recognized around the world and it's considered a desirable entity. The second thing is, they can reduce country risk for themselves. They can upstream income to the United States entity, secure finances that way.
Jacques Luben: Now do most of them set up standard corporations or do they go with limited liability companies?
Caroline Quigley: They go both ways. They can either have a C corporation; they are not able to have S corporations. S corporations are restricted to residents of the US, people who pay taxes in the US. Or, the entity that's really becoming very exciting and popular for people is the LLC, the limited liability company.
Jacques Luben: Is it necessary to spend a lot of money to form a corporation or can it be done at a relatively modest price?
Caroline Quigley: That depends. If you do your homework and you find a good service company, it can be done at a very modest price and with a very good professional outcome.
Jacques Luben: To many business people, it seems very frightening to set up a corporation. And the question I have is, if it's not that expensive to establish a corporation, how expensive is it to operate it once you've set it in place?
Caroline Quigley: Well again, if you're willing to do your homework and to be a little energetic, you can operate it very inexpensively. There are certain requirements that you'll have to meet. In every state there'll be a minimum franchise tax, a minimum tax just for-- by virtue of having a corporation in that state. You'll also need a registered agent, although in many states you can serve as your own registered agent. And the other thing you'll have to do is, you'll have to keep good records, which can be hard for most people. But if you're systematic about it, then it's not too difficult. You'll have an annual meeting every year. And a lot of people say, well it's just me you know, do I need an annual meeting? And I say, yes, even if you spend 10 minutes muttering to yourself, document it and your paper trail is part of what makes your corporation sound.
Jacques Luben: Thank you so much.
Caroline Quigley: You're welcome.
Jacques Luben: We'll be right back.
Announcer: This broadcast of the Small Business Review is sponsored by Inc Plan USA, a Delaware based service company that helps entrepreneurs form corporations and other business structures in all 50 US states. We are proud to offer highly personalized services at competitive prices. Our clients who are located throughout the world, can reach us in person or by phone, fax and internet. Inc Plan USA is headquartered in Delaware because this state is home to over half a million companies that operate throughout the world. We are proud to be online with the Delaware Secretary of State. This normally allows us to form corporate entities while we are on the phone with our clients. In addition to our extensive incorporating serves in 50 states, we also provide entrepreneurs with a wide selection of business products that are described on our website, www.incplan.net. Our phone number is 800-462-4633 or for international callers, 302-428-1200.
Jacques Luben: Caroline, now in terms of opening a bank account, how simple is it to open a bank account if you've established a corporation?
Caroline Quigley: In most cases, it's very simple. You'll need a few basic things. You're going to need your corporate documents. You'll probably need a corporate seal, which is-- that serves as a signature of your company. You'll need some kind of photo ID and you will in most cases, need a resolution. And what the resolution does, is indicate who will have authority and what authority will they have over the account in the name of the corporation?
Jacques Luben: In terms of the service that you offer, you get calls all day from people all over the world asking you questions. Are you in the business of giving out legal or tax advice?
Caroline Quigley: Well I'm not an attorney and I'm not an accountant. What I am is a filer of corporations. So I can give people a certain amount of guidance and I can talk from my experience. But I urge them at every turn to seek professional guidance from their attorneys or their accountants.
Jacques Luben: So effectively what you're saying is, you can keep the cost of the service down because you're fulfilling a very specific role.
Caroline Quigley: That's right. We serve a fairly narrow role. We do it well. We do it for a lot of people. We have thousands of clients and that's what allows us to give a quality product at a very modest price.
Jacques Luben: Now you say that you offer registered agent service. What does that actually mean to the average business owner?
Caroline Quigley: Well what a registered agent is, is the point of contract between the corporation and the state. It's a legal requirement in every state. The registered agent is there to receive any documents the state may want the corporation to have and it's also there to receive any legal process that may be served upon the corporation. So it's a liaison in effect between the Secretary of State and the corporation.
Jacques Luben: Now in addition to standard corporations and limited liability companies, what other types of entities do you form?
Caroline Quigley: We form limited partnerships, limited liability partnerships. We can prepare documents relating to really all aspects of corporate life from beginning to the end. We can file your corporation. We can change the name of your corporation and we can dissolve your corporation when you no longer have use for it.
Jacques Luben: Do you advise business people on where they should form their corporation in terms of whether it should be Minnesota, Delaware, Nevada or do you leave that pretty much to the business person?
Caroline Quigley: What I like to do is provide a few guidelines for people. I don't know anyone's specific situation. I'm not as I've mentioned, an advisor. I am not their attorney. I'm not their own accountant. A certain few rules are true across the board. One is, if you're doing an active business in you're state, or business that requires licensing, get incorporated in that state. Your life will be much easier in the long run. On the other hand, if you have more of an international business or a business that exists to hold a passive asset, an internet business, a business that's more fluid in its location, then a Delaware or Nevada corporation may be right for you. Delaware is excellent. It has extremely corporate-friendly laws. It allows a great degree of privacy. It's very well respected and known around the world. Delaware is a great state for incorporating. Nevada also is extremely popular, again, because it's very corporate- friendly.
Jacques Luben: Now in some cases you would advise or at least allow someone to know that their Delaware or Nevada corporation can be accompanied by a bank account in those states. How does that work?
Caroline Quigley: Sometimes people find it more convenient to locate their bank account in the same domicile as their corporation. And in that case, we can assist in opening a bank account. Nowadays it's very easy to have a bank account anywhere. So much can be done online. And that's a real boon for people who choose to incorporate in states that are not necessarily where they live.
Jacques Luben: Well this has been extremely helpful. Obviously, anyone listening to this broadcast knows where the website is for Inc Plan USA. Could you just mention how someone can contact you by phone or telefax?
Caroline Quigley: We can be reached by phone at 1-800-462-4633. We have an excellent website that's just full of information. I'm very proud of it and I think people who go to it like it a lot. It's www.incplan, I-N-C-P-L-A-N.net or you can fax us. I'll give you our fax number. It's 302-428-1274.
Jacques Luben: Thank you for coming by. I encourage our listeners to contact Inc Plan USA so they can talk to you or your staff and learn more about how they can incorporate and make themselves litigation proof. Thank you so much.
Caroline Quigley: You're welcome.
