Forming Corporations

[Alex]

Does anyone know how to make a corporation (LLC or otherwise)?

I want to transfer my stock assets to a corporation, so that I can continue to invest and increase their value and gain the tax breaks that corporations get.

[Adrian]

I've formed a few in IL, one in GA, and am working on one in NH, but I wouldn't dream of undertaking this without an attorney (to help me decide best form of incorporation: LLC, S- or c-corp, etc.) and what state is best to incorporate in ...

... on the other hand, if you have already decided on (e.g.) a sole proprietorship LLC in your home state, then other members may be able to point you to companies that provide these sorts of docs cheaply and "off the shelf"?

[KC]

Hi Alex - what a great subject for discussion !

I've seen a slew of books with titles like "Incorporate yourself" as a general method to be used in your quest to become more wealthy, not (I would guess) specifically as a vehicle exclusively for your investments only.

You could really help the rest of us if you'd get hold of a few of the titles listed on Amazon below and post reviews of them for the rest of us - maybe look at your local public library website online and see if any of the following titles are on their shelves: just an idea. (Normally I would do it myself to help out, but these US books are often hard to find here in the UK).

Anyway here's the link to an Amazon.com search using "incorporate yourself":

Incorporate yourself on Amazon.com

Speaking from the UK, we've always been told that the best breaks in the whole US were from incorporating in Delaware.

To maybe generalise the discussion a bit, it would be useful if someone could spell out the reasons why it's thought that it is such a good idea to incorporate yourself. I remember the "Rich Dad Poor Dad" guy Kiyosaki always explained it in terms of whether you get to receive pre-tax, or post-tax, dollars.

If you own a company then you have the full dollar to spend on whatever you want to spend the dollar on, as you are taxed at the end of the tax year.

If you're just taxed normally, like from your salary, then they take the tax at the start, before you've even seen the cash. So for every dollar you earn, you only get to actually spend 70 cents (here in UK, tax and National Insurance remove about 30% of your earnings).

So incorporation increases your spending-power considerably.

Of course employees have no choice: their employer is legally obliged to do the tax-collecting for the State, and indeed with so many companies going offshore, the only people who are paying any of the taxes that the government has available to spend for roads and wars, are the ordinary employees, because their earnings are so easy to get hold of.

So you get the crazy situation where the McDonald's worker walking along a US street has paid a higher proportion of their wages to the cost of the turnpike that the businessman is driving down in his Rolls Royce.

But if that's the law, then that's the law. We'd be mad not to take advantage of this, wouldn't we?

(Some people believe this is inherently unfair, and point to the example of Bono of the pop group U2 - some people say:

"How can he urge governments to give more money to help the poor of the developing world, when he moves his business to Holland to reduce his own tax burden?"

He's telling them to spend more, when he's taking steps to contribute less himself - which means he's urging governments to spend more of other people's money, not his own!)

U2 tax avoidance methods

Anyway, great question; I look forward to hearing what you, and others, find out on this important topic through this discussion board - thanks.

KC

[Alex]

Right, at the moment its less about tax purposes than financial aid purposes. Colleges uniformly take 20% of student assets as an expected student contribution (whereas parent assets beyond the 30-45,000 normally given shelter are assessed at an expected 5.64% contribution). My parents won't help me move my assets around because they think its unethical to pay the college less than we can afford to pay, regardless of whether following loopholes is legal or not. This really screws my plan, which is to have 75,000 built up in stocks by graduation, because if the college takes 20% every year I will never get there (and won't be able to donate 100k or even 1 million when I get there to my college!) So I am left with three other options: either buy stocks that I think won't move for the next two years, but will grow like crazy after that (if only I could predict the future that well...), transfer my account to someone else who is not in college (or they'll have the same problem as me), who understands taxes well enough to realize that they don't have to declare gifts under 10k and do have to report whatever trades we decide to make, and who is trustworthy enough to sign the account back over to me after the end of my Junior year, or to form a corporation that is not a personal asset and thus won't be required to be listed on the FAFSA and transfer my assets to the corporation. Which sets me up for after college anyway, since I want to start a company.

[KC]

Sorry Alex - I wasn't "having a go" at you in that piece about Bono.

What I was trying to say is that it may well be sensible to exploit these seemingly unfair arrangements, and as you have shown in your explanation, by doing just that, you may well end up as a most valuable benefactor later on !

So I too am keen to investigate this whole area for the very reason you quote, namely that if it gets us to our number quicker, then that gives us more chance to donate our wealth philanthropically.

Have you seen any of those "incorporate yourself" books in the bookstore ? I'd love to know what your immediate impressions of them are, after just 10 minutes flicking through them in bookstore or public library.

Following Adrian's advice, I guess you'll be searching for a budget incorporation attorney too - I'm sure we'd be interested to hear how that search goes too.

Anyway, I fully applaud that you're considering this particular route to get to your number quicker, so that then you'll be in a way stronger position to be philanthropic.

KC

[KC]

Saw this review on Amazon.com:

The Book Saved Me Money, November 24, 2004
By John Matlock "Gunny" (Winnemucca, NV) - See all my reviews
(REAL NAME)

This book is, to me, misnamed. It's really about how taxes are collected on various types of business structures. It discusses the various business organizations such as sole proprietorships, limited liability companies (LLCs), and corporations. Under corporations both C and S corporations are covered. (I can't think of a catchy title to say that, so I guess the book can stay named as it is.)

Most of the book is on the S corporation. This makes sense as most small business should probably be S corporations. The small business isn't going to attract large numbers of investors. By shifting the income of the business to an S you can often save several thousand dollars in taxes by shifting between salary and dividends or what the IRS calls earned income and passive income.

When I got the book I had a couple of questions in mind like "how much salary should I pay myself." These questions aren't answered in most "how to incorporate" type books. What I wanted was two answers, what does the law say, and what are the real rules. I got both answers quickly and easily.

For me, the information I wanted was covered in about 10% of the book, the rest of the material I either knew or didn't care about. That 10% that I needed saved me many, many times the cost of the book.

about the book "How To Start And Run Your Own Corporation: S-Corporations For Small Business Owners" which sounds cool, although I admit not directly related to creating a shell for investments.

Amazon link to Peter Hupalo book

KC

[KC]

A puppeteer suggests in this brief video just calling up the Department of State.

Expert Village incorporation of puppeteer video

Although you may think that's laughable, it often is the cheapest way to find general information to see what booklets and leaflets the government has produced.

He claims that 12 years ago it cost $99 and they talked him through the process, but I think I can hear Adrian yelling: "Don't do it without professional advice!"

I see TaxCafe have some free stuff on S-corporations and LLC's at:

TaxCafe free stuff

and for $17 they claim to have a brilliant download called:

"The Best Tax Busting Business Structures - LLC Tax vs S Corp Tax vs C Corp Tax" - By Nick Braun EA PhD

from this webpage:
TaxCafe's Tax Busting Corps download


KC

[Debbie]

I'm not sure about the college ramifications you've mentioned, but I used legalzoom.com to form my LLC to save on attorney costs and as far as I can tell I think everything has gone well :) You can choose how you want the business taxed (pass through entity, s-corp...) There are other online companies and attorneys who make it possible to set your business structure up, but you will need to research which form of business to set up in order to get the tax breaks you're looking for and to make sure it works with the goals for your college financing.

[Trey & Juliana]

So...my hubs and I have a small swap meet business. I think it might be advantageous to form a corporation and pay ourselves a salary instead of just taking the leftover money at the end of the day and spending it on living expenses, using my paychecks to purchase inventory........ I finally opened a second bank account hope that we can finally separate the business and personal monies. Does anyone know if forming a legal corporation would help us at this point? We only bring home $500-$1000 each weekend. Or should I wait until we are more established?

[Adrian]

From a tax perspective, it still may be worth while, even on $500 - $1000 and costs very little on, say, legalzoom.com ... the catch being, you get the advice that you pay for ;) You may choose the wrong entity ...

On the other hand, my attorneys seem to be setting everything up for me as IL (my 'home' state) LLC's, so that might be good enough for you. I am setting up a new one in Delaware, so that still seems to be a good place to be (although, with your business, you may want to be locally based?).

There is also liability to think about: operating your type of business opens you up to all sorts of legal liability from 'slip and fall' to 'loss of business', so having a company structure may limit your personal liability a lot.

Finally, I create LLC's for my businesses at ZERO INCOME (startup stage) ... so, now MAY be the right time for you?

[KC]

---

Looking for free LLC or Corporation ?

I saw blogger MyJourney left nice comments about Adrian's new look over at 7million7years and so I clicked on his link to go on over to his blog.

Did a search there using the word "corporation" and one of his blog-posts mentions free incorporation (and I bet he will insist "Please read his disclaimer" !)

Blog-post to free incorporation offer

It might also be worth clicking his "Contact me" link at the home page and asking about the general point of trying to use incorporation to shelter investments, and to use it to distance them from your personal net worth. Just an idea.

KC

[Debbie]

Yes, except it's not really "free". They will set up the paperwork for you without the additional charge for doing that, but you will still pay to file with the government (whichever state you choose, and there are huge differences in what states charge. For example, when all was said and done I saved over $1000 by filing in Pennsylvania where my partners are over filing in NY...). Some states, like NY, require that you announce the business entity in the newspapers as part of your filing requirements. Each newspaper charges a fee for that, and if I remember correctly, I think the 3 newspapers and 8 consecutive week filing they required was going to cost me close to $900- in NEWSPAPER announcements! That no one reads!! Required!! Oh right. that's not the subject of this post.

If you're going to form an LLC or corporation it's worth checking into the different state costs and features. They're not all the same. And you don't have to file your business in the state you live in/do business in (usually).

KC said:

---

Looking for free LLC or Corporation ?

I saw blogger MyJourney left nice comments about Adrian's new look over at 7million7years and so I clicked on his link to go on over to his blog.

Did a search there using the word "corporation" and one of his blog-posts mentions free incorporation (and I bet he will insist "Please read his disclaimer" !)

Blog-post to free incorporation offer

It might also be worth clicking his "Contact me" link at the home page and asking about the general point of trying to use incorporation to shelter investments, and to use it to distance them from your personal net worth. Just an idea.

KC

[Adrian]

@ Alex - ... and, I just reread your question and noticed that you said: "I want to transfer my stock assets to a corporation" ...

... if this means that you already own the stock, you might find that you need to pay capital gains tax when you transfer it out of your personal name into your corporation's name; you should definitely talk to your accountant before moving on this.

Of course, it still may be a good idea to set up a corporation for FUTURE stock purchases (again, after seeking your accountant's advice), assuming that you intend to move into this 'big time'.is