Effective Solutions
from Creative Lawyers

Business Start-Ups FAQ

How many people are needed to form a corporation?

You can have many people or as few as one person to form a corporation. Keep in mind that if there are many shareholders in the corporation, you may have to comply with state and federal security laws.

Should I incorporate my business in Delaware?

Probably not. Unless you are doing business in Delaware there is little reason to incorporate in that state. In fact doing so could cost you more money in the end. Probably the best place to incorporate is the state in which your corporation will be doing business most of the time.

What does the board of directors do?

The board sets the general agenda for the corporation. It elects the officers. It, in turn, is elected by the shareholders. The officers operate the day to day business of the corporation. Often, in small corporations, the shareholders, board of directors and officers are the same individuals. However, it is always important to know which "hat" you are wearing at the time you act on behalf of the corporation.

What is a Limited Liability Company?

As with corporations, limited liability companies or LLCs are created by the laws of the states in which they are set up. You must file Articles of Organization. The owners of the LLC are known as members. The members can run the LLC or allow other people called "managers" to run the business of the LLC. Limited liability companies share characteristics of corporations and partnerships. Like corporate shareholders, the members of the LLC are not personally liable for the debts of the LLC. However, like partners in a general partnership, one member can take steps that bind the LLC without necessarily obtaining the authorization of all the other members. The members of an LLC should have an Operating Agreement. It performs some of the functions of the bylaws and shareholder agreement for a corporation.

How is a Limited Liability Company taxed?

If it is a qualified LLC, its members may be taxed by the federal government in the same way that partners in a partnership are taxed, that is any net income or losses are passed through directly to the members, as the LLC is not considered a taxable entity. However, this kind of tax treatment may not be available to the members with respect to their state income taxes.