Incorporating Out of Your Home State

This is a recurring question from people calling to our offices: Does it really matter where I incorporate my business? or Where should I incorporate my business? and this answer is yes. It does really matter.

First of all, you should incorporate in the State where your office is physically located. If you incorporate in another state such as Delaware, Nevada or Wyoming, you may need to submit an application to qualify as a foreign corporation or LLC in the State where you are located. This tends to be more trouble than it is worth for a small busines.

Through our life, we have seen entrepreneurs making big mistakes, thinking that they would save money in taxes by filing in "tax heavens" like Delaware, Nevada or Wyoming. Later, when they  realized about their mistake, they ended dissolving the foreign company or filing foreign qualification documents in their home states. In both cases, their errors turned out to be good business for us.

A number of years ago, there were some pretty motivating reasons why you might want to incorporate in States like Delaware and Nevada. However, times change and so do State laws. For companies that are privately owned (closely held), there are no substantive differences anymore between the corporate laws of States. If you incorporate for the purpose of owning and operating a business, the general rule is that you should incorporate in the state where your main business office is located.

For large corporations the answer is different. Nearly half of the corporations listed on the New York Stock Exchange are Delaware corporations. Many of these corporations conduct business throughout the US and abroad. They must, of course, conform to the laws of any jurisdiction they enter, but they have no problem to file foreign qualification documents in each state where they operate.

Active Filings can assist you in qualifying your corporation or LLC in any state of  your choice. Our foreign qualification service will provide you more information about how to expand your business.

When should you have a DBA? (and what the heck is a DBA?)

If the name used by a business differs from the one registered with the state, or your personal name, or the name of your partners, or LLC, a fictitious business name must be filed.

Some states use different terminology for a fictitious business name. Many refer to a “DBA” (Doing Business As), but a “trade name” or “assumed business name” have the same meaning.

However, having a DBA does not provide any extra protection from financial liability. Forming a corporation or LLC is the only way to legally protect different businesses or individuals from liability in the event of a bankruptcy or other financial debt.

Many new corporations may look to expand by opening several divisions or locations, and sometimes use different names. This is also a good idea to test a product or service without having to invest on the business formation (if the product or service starts to pick up, you can always form a legal entity to manage the new business).

In some states you register your assumed name with the Secretary of State, but in most of the cases , registration is handled at the county level, and each county may have different forms and fees for registering a name. Beyond the fact that counties and cities are not very efficient handling these filings, to register a DBA filings represent less hassle than to form a corporation or LLC.

Keep that in mind and start thinking about your next DBA, assumed name, trade name or simply, a fictitious name.

From Laid-off to Entrepreneur

 The economy isn’t what it used to be but maybe that isn’t all bad.  We’ve heard for far too many years now that the opportunities that Americans once had are either overseas or in the hands of computers and robots but that isn’t entirely true.

Generation Y, the current younger workforce who have suffered the lion’s share of the effects from the 2008 and 2009 economic collapse, may have lost their jobs in large numbers but that has created a need breed of entrepreneur that has stopped looking for jobs and instead, created their own.

They’ve learned that relying on somebody else for their income isn’t as safe as it used to be so they’ve taken to entrepreneurship. The economy is relying on this new breed of business owners!

If you’re considering becoming an entrepreneur but don’t know where to start, think about your talents. What did you do at your old job before getting laid off? Do you have hobbies that could turn in to a business? Maybe you’re a good with repairing electronics, writing, or carpentry. Maybe you have a knack for decorating or you’re great with kids. If you find what you really love to do, that’s probably where most of your talent lies and chances are, you can turn that in to a business if you’re willing to work hard.

With new technology, starting a business can be very inexpensive. Freelancers can often start service oriented businesses with basic office equipment, an internet connection, and some contacts within the community. It’s best to register your business as an LLC or S Corporation with your state and obtain mandatory county permits but after that, concentrate on building your business.

Entrepreneurship isn’t for everybody. Some people enjoy the structure of a traditional work environment but for those who have always wanted to start their own business, a recent layoff may be the perfect reason to dive in and follow your dreams.

Free Name Availability Search

Are you thinking about starting a business? Did you know that we offer a free name search of up to two business names in the state of your choice? Check out our free name availability search and get the results -most of the times- in a couple of hours.

Use Effective Delayed Dates to Avoid 2013 Taxes

New Year, new life. Many use the beginning of the year as a way to start something new. Maybe it’s losing weight, starting an exercise regimen, or fulfilling their lifelong dream of starting a business. If forming an LLC, Corporation or other business designation is one of your New Year’s resolutions, you’re not alone and you should read the rest of this article.

The state office charged with registering businesses is the Secretary of State’s (or Department of State) office and at the beginning of the year they’re inundated with people just like you who want to form their business.

Timing is everything when forming a business and because of that, you don’t want to be caught in the beginning of the year rush. When volume is high turnaround time rapidly increases. For those who need this process completed so they can start a business account at a bank or sign a lease as a company, the increased turnaround time can be a major issue.

Also during this time, mistakes are more rampant because states hire temporary workers who have little experience and don’t have the incentive to do their best job since they won’t be permanent employees.

The best way to avoid this situation is to file before the end of the year, that is NOW.

However, even if your company will not transact any business this year (the rest of 2013), at the beginning of 2014, you will have to pay annual fees to your state and file an annual report (and you will have to file a tax return too).

Most states have a process called an “effective delayed date” which is similar to postdating a check. This allows you to form an LLC or Corporation in November or December of 2013 but not officially open for business until the following year.

If your state doesn't allow effective delayed date filings, we can prepare your documents and hold them until January 2^nd of 2014. You can minimize the beginning of year rush since we guarantee that your documents will be on the state hands by the first week of January.

This is one of those money saving tricks that experienced business owners already know. Now, you can take advantage of the effective delayed date too.

Avoid the beginning of year rush and avoid paying the 2013 franchise tax (also called Annual Report). Visit ActiveFilings.com for more information.

List of the States Accepting Effective Delayed Dates

State	Corps *	LLCs *
AL	90	90
AK	10	10
AZ	NO	NO
AR	90	90
CA	NO	NO
CO	90	90
CT	NO	NO
DC	NO	90
DE	90	90
FL	90	90
GA	90	90
HI	NO	NO
ID	90	90
IL	NO	NO
IN	30	30
IA	90	90
KS	NO	NO
KY	90	90
LA	NO	NO
ME	NO	NO
MD	NO	NO
MA	30	30
MI	90	90
MN	NO	NO
MS	30	30
MO	90	90
MT	90	90
NE	80	90
NV	NO	NO
NH	90	90
NJ	80	90
NM	NO	NO
NY	90	90
NC	90	90
ND	90	90
OH	NO	NO
OK	90	90
OR	90	90
PA	90	90
RI	NO	NO
SC	90	90
SD	NO	90
TN	60	60
TX	90	90
UT	30	30
VT	30	30
VA	15	15
WA	90	90
WV	NO	NO
WI	90	90
WY	90	NO

* Effective Delayed Days

Time of Fake Compliance Requests

Several businesses have reported receiving a deceptive letter that would appear to come from an official government source. The letter solicits an annual fee of $125 or $150 and claims it will be used for record keeping and processing of a company’s annual minutes.

This is a time of the year where corporations and LLC in all 50 states face similar scam attempts.
Across the country, the Division of Corporations are warning business owners about this dishonest solicitations. It is common to find messages like “Do not confuse “Annual Minutes” or “Annual Corporate Record Forms” notices with the required Annual Report filings.  These notices, which solicit a fee are NOT from the Department of State or any other state or federal agency.  Please disregard these notices.  Neither form is required by this office or any other state or government agency”

It happens year after year and there are always new business owners that are unaware of this deceptive practices.

Hopefully you will not be the next.

Advantages and Disadvantages of Being Tax Exempt

Understanding the advantages and disadvantages of tax exempt status is critical to determining whether this is an appropriate business structure for your organization. There are a number of pros and cons to becoming tax-exempt.

Advantages of Tax Exempt Status

Organizations that qualify for tax exempt status under the Internal Revenue Code section 501(c) (3) are exempt from federal incomes taxes.   This is clearly the most common and well known benefit.  In addition, there are other benefits associated with tax exempt status. These include the eligibility to receive tax deductible charitable gifts under IRC section 170 as well as a high possibility of being exempt also from state and local taxes not to mention bulk postage rates.

For an organization that plans to take in a significant part of its operating budget from contributions and grants the ability for donors to make tax deductible gifts is significant.  This can be a powerful reason for seeking tax exempt status.  In fact, many foundations and government agencies as well as corporations limit their donations to public charities.

In addition, a nonprofit organization is recognized as a legal entity separate from the founder and therefore can put its own interests and mission ahead of the desires of the people associated with it.  It also follows that a nonprofit tax exempt organization possesses the benefits of corporate status protecting the founders and managers from personal liability associated with the operation of the organization.  This is also important to keeping the mission of the organization as the top priority.  Individuals concerned with their own legal liability may not operate in the best interests of the organization’s mission or goals.

Disadvantages to Consider

While there are advantages to tax exempt status there are also a number of drawbacks or disadvantages that should be considered.

First of all, forming a tax exempt organization takes time and money in terms of registration, record keeping and annual filings.  It is a legal entity and must comply with various federal, state and local laws.  It may be necessary to hire an accountant and attorney to provide assistance.    A business document filing service can also be helpful in filing the appropriate forms and documents.

Secondly, nonprofit and tax-exempt organizations are not able to divide profit among the members beyond paying a reasonable salary. They also often have limitations on the use of organizational assets which must support and justify the tax exemption.

Go out and Start Something!

“Go out and start something!” That is what New York Times reporter and best selling author Thomas Friedman is telling the country’s citizens these days as the global economy shows very little sign of recovery.

Never heard of him? Thomas Friedman is widely credited for introducing us to globalization. In his book, “The World Is Flat: A Brief History of the Twenty-First Century”, Friedman argues that the days of America being its own economy largely separated from the rest of the world is long gone, never to return. The Internet may be the single biggest driver of globalization as well as the amounts of goods we import and export on a daily basis. On top of that, looking at how world economic events affect the United States investment markets are proof that the economy is a world economy and no longer an American one.

In a recent CNBC interview, Friedman said that for those who are waiting for a giant corporation to move in to their town and hire hundreds or thousands of workers, those days are over. Because businesses are looking to the world to lower labor costs as well as larger companies increasingly using robots for manufacturing, American workers need to be more proactive. They need to “go out and start something”.

The way to solve the employment problem is for more workers who have skills that they used at another job or a hobby that is marketable to start a small business. If you’re a laid off computer programmer, start your own business. If you’re an investor who used to work at a bank, start your own wealth management practice and if you’re an ex plumber, start a small plumbing business. It’s ok to start small but as Friedman says, just start something.

How do you start a business?

First, form an LLC or sole proprietorship. It’s an easy process when you elicit the help of a business registration service. Some services offer these services for well under $100. If you form an LLC, it will protect your family’s assets should something happen to the company.

Second, pound the pavement for new customers. Do some free online advertising, reach out to old contacts, and find those customers. They’re out there and enthusiastic about hiring a good worker.

Last, do an incredible job. Good isn’t good enough. Your work has to be eye catching so those customers will recommend you to others.

Those three steps will get you started but the most important thing to do is to start. Don’t wait any longer. As Friedman says, “start something!” There’s plenty of help out there for you.

Things to Consider Before You Register an LLC

A limited liability company is born when the articles of organization are filed with the Secretary of State’s office. In some states they are called the certificate of organization or certificate of formation.  Before you file your articles of organization and formally create an LLC there are a few things to consider.

Where to Form an LLC

A Limited liability company can be created in any state. Most people choose to form their LLC in their home state.  If you register in another state you will need to register as a “foreign LLC” which can be more expensive and will require having to pay someone to serve as a registered agent. You need to have a very good reason for going out of your home state.

Choosing a Name

Although the rules can vary a little bit by state generally the name of a limited liability company will end with the words Limited Liability Company, LLC, or Ltd Liability Co.  It is permissible to use someone’s name as part of the company name but the name should not be misleading in any way or be too close to the name of an existing LLC.

It is important to do some research to see if the name that you want to use has already been taken. If you’re using a business registration service to help with registering your LLC they may also have a service available to help you check the availability of your desired name.

Members and Management

A limited liability company is managed by one or more of the members. In an LLC a member is synonymous with an owner. The members are responsible for operation of the company. The specifics of each individual member’s responsibilities are typically outlined in the articles of organization. A manager is usually a person who has been chosen by the members of the LLC to operate as a manager of the company

Officers

A limited liability company is not required to have officers. With that being said, members may choose to appoint officers to handle business operations.

Registered Agent

Every LLC is required to have a registered agent. The registered agent is the person who has been designated to receive notice if the LLC is sued. The registered agent must be an adult living in the state where the LLC is formed or a company that is registered with the Secretary of State’s office in the state of formation.

These are a number of important considerations before proceeding with filing the articles of organization or Limited Liability Company.

Understanding Tax Exempt Status

Having a thorough understanding of the implications of tax exempt status is important for any organization considering this status. Tax-exempt organizations are subject to various state and federal regulations and tax laws.

Tax Exempt

Nonprofit and tax-exempt organizations typically seek to be exempt from federal income taxes, state income taxes as well as local taxes.  Obtaining tax-exempt status can have a major impact on the finances of a nonprofit organization.  One of the primary reasons for this is because it makes the organization eligible for tax-deductible charitable gifts under Internal Revenue Service code section 170.  Many organizations including corporations and individuals are more likely to give if their donation is going to be tax deductible.

Qualification

In order to qualify for tax-exempt status under Internal Revenue Service code 501 (c) (3), an organization must be operated exclusively for exempt purposes. These purposes can include such things as scientific and educational as well as charitable endeavors.  In addition the earnings by the organization may not be distributed to its directors, members or any individuals with the exception of the payment of reasonable salaries to employees of the organization.  In addition, there are regulations regarding lobbying and other types of political activities.

How to File

In order to file for tax-exempt status an organization must first be incorporated as a nonprofit corporation.  You must have an employer identification number and there must be bylaws created for your Corporation. There must also be a Board of Directors and officers appointed.  Upon meeting these requirements you must file a 20 page IRS form 1023 and other related forms with the appropriate filing fees.  The completed application should also be accompanied by a copy of the organization’s articles of incorporation as well as a copy of its bylaws.  It is recommended that a professional who is experienced in nonprofit incorporation review all documents and the application before they are submitted to the Internal Revenue Service. Is important to remember that even if you become tax-exempt under section 501(c)(3) of the internal revenue code you may also still have to comply with state laws to be considered tax-exempt in your particular state.


Before filing for tax-exempt status you’ll want to decide whether it makes sense for your organization and whether you will qualify. An accountant, legal counsel and a document filing service can be helpful in guiding you through the process. It is important to make sure you understand the process and the ongoing federal and state requirements before moving forward.