This royal charter methodology of incorporation was brought to this country when our original colonies were founded and basically remained in effect until the Declaration of Independence. After independence, corporations were created by the acts of state legislatures. This process also was found to be inefficient because the legislative bodies only met a few times a year, and it was to time consuming, which still resulted in a small number of corporations being created.

By necessity, the process of corporation charters had become common throughout the United States. As these general laws increased, incorporation by special act died out. In fact today, many state constitutions prohibit such special acts. Today, all states have standard corporate formation laws under which business corporations are formed.

With all these years of corporate evolution, it amazes me, how many small business owners still seem to believe that charter accomplishes the formation of corporations. These business owners have the unfortunate and incorrect perception that the corporate entity is only available for the rich and powerful of the world. Most people feel that a corporation is unattainable for a one-person business making less than $100,000 a year, when in reality, everyone who makes more than $40,000 a year can and should have one, for the tax benefits and asset protection/estate planning features they offer.

Corporations are governed by State Laws?

A corporation is a statutory entity. The ability to do business as a corporation is given by the state and governed by the laws of the state of incorporation. A corporation must follow all statutory requirements to begin and continue to do business as a corporate entity.

The states business corporation statutes govern the affairs of all corporations formed under that specific state's laws. These laws state how corporations organize, How they dissolve, how the corporation is owned, and who may be involved in the control of the corporation. 


CORPORATE ORGANIZATIONAL TYPES:

There are several different types and hybrids of corporations but below are the most common:

Who are the Corporate Players?

The officers, like the directors are protected from personal liability for acts within the scope of their duties. If an officer ventures outside his or her duty as an officer, however, he or she can be held personally responsible. For instance: Officers can incur personal liability for failing to ensure that all payroll taxes withheld by the corporation are paid.

Because Nevada permits one-person corporations and only requires three officers for the corporations, the same individual can legally serve as President, Secretary, and Treasurer, and the one required director. Once a year, the corporation must file the name(s) of these corporate officers, as well as any director(s) with the State of Nevada.

The Advantages of a Corporation:

The exceptions to this immunity would be that if the corporation brings suit against its stockholders, directors, officers, and employees because the operation and/or activities related to corporate affairs have been and are being abused and fraudulently misused causing the corporation to suffer irreparable damages or to cause its very corporate existence to be in jeopardy.

Another exception would be that a corporation can be sued and can also be found guilty of committing criminal acts. However, the liability would not extend to the stockholders, directors, officers or employees, unless gross negligence or actionable fraud by such person or persons was the direct cause of the civil or criminal wrongs.

Enhanced ability to raise capital: A corporation has such a wide range of avenues available to raise capital, that the corporation's ability to raise capital is almost unlimited. Under the different states laws, there exist requirements that regulate the sale, pledging and issuance of corporate Stocks, Bonds, debentures, notes and other forms of debt instruments. These regulations are not intended to restrict fund raising by Corporations but rather slow down the unscrupulous from profiting from an unwary public. 

A corporation is permitted a broad range of deductions but recognizing which deductions are legitimate are often confusing. The rule of thumb for you to follow is: if the expense was incurred in the ordinary course of business, you have a good argument for claiming the deduction. However, you may also have to establish that the expense was necessary, reasonable and customary. Therefore, it is prudent to document or keep a detailed record of all your claimed deductions.

Examples of possible deductions include health and life insurance premiums, medical reimbursement plans, pension, profit sharing and Stock Option plans, travel expenses, entertainment, and other business related expenses. Below is a discussion of a few of the more common deductible expenses.

To substantiate your claim, document the name and address of the location of the entertainment, the type of entertainment provided, the purpose of the entertainment, and the names of the individuals present and their relationship to your business.

"Goodwill" type of entertainment at nightclubs, shows, sporting events can qualify as an entertainment deduction if business is conducted or the main purpose is to get new business and/ or encourage the continuation of an existing business relationship.

Documentation is very important to qualify meal deductions. You must be able to establish the exact amount spent, the specific date and place of the meal, the business purpose, and the business relationship of the individuals attending. Therefore, you must keep detailed records of business meals and entertainment. For expenses of $75 or more, documentary proof (i.e., a receipt) is required. Once the meal qualifies, only 50% of the actual expenditure can be deducted.

Be careful to document all material that may establish the business or professional nature of the trip. No deduction is allowed for your spouse unless your spouse is employed by you or by your company, and his or her travel is also for a business purpose.

Documentation is critical and should include the following: The expenditure, the destination and dates of trip, and the business reason of course; any convention brochures and nametags certainly should be kept.

Section 179 allows you to deduct up to $100,000 in 2005 as a current expense rather than an amortized expense for property purchased during the current year. The dollar ceiling on Section 179 expensing doesn't mean that you cannot expense property costing more than that amount, nor is it limited to one item of property. 

For example, you bought a major piece of equipment for your business that costs $28,000 and placed it in service in 2005, you can deduct $28,000 of the expense in 2005. For property to qualify for section 179 election, the property must be "tangible personal" property, which excludes real estate (land, buildings, and their structural components). The only exemption that I am aware of is that your total 179 deductions cannot cause a loss, in other words the profit must exceed the total of your 179 deductions. The good part is that the excess can be carried forward to the next year. For instance: You only have $16,000 of income and thus, can only use $16,000 of your 179 deductions this year even though you have the full $100,000 to deduct.

DISADVANTAGES OF INCORPORATING

Though the advantages of incorporation far outweigh the advantages, I feel it is only fair to cover them. These disadvantages are namely: 

1. Initial Start-Up Costs: In addition to legal fees and necessary start-up capitalization, corporation start-up costs are somewhat higher than either a partnership or a sole proprietorship type of business organization. The increased costs are evolving around the drafting of the Articles or Certificate of Incorporation and the required Franchise or Registration fees payable to the State. There are also the legal publication cost and the recording fees. 

A typical sole proprietorship often requires nothing more than letting the public know you exist by advertising or hanging up a sign. The formation of a partnership and/or a Corporation can cost you up to $2,500.00 in legal fees plus the required filing fees which can range as low as $60 in some states, and up to $1,000 in other states. Even with all increased startup costs for corporations and/or partnership status, they are minor compared to the benefits gained by incorporating.


2. Greater Governmental Supervision: State Authorities require corporations to disclose information in regards to its business affairs and ownership. This results in a measure of supervision allowing State Authorities to determine if a corporation is operating within the letter of its Corporate Charter and State Laws. 


3. Record Keeping Requirements: There are certain record keeping requirements that are specified by corporate statues such as; Bylaws, minutes and resolutions that authorize actions taken by corporate officers, and financial records which show the financial operations and financial condition of the corporation.


4. Liabilities Exposure: Many times, if the corporation is small (financially), closely held (few stockholders), or fairly new, in order to obtain debt financing (bank loans, etc.) the principal(s) usually must execute personal guarantees, which effectively removes the corporate liability shield, as it pertains to those personally guaranteed debts. Keep in mind that a partnership and a sole proprietorship can never have limited liability, except under some forms of limited partnerships.


5. Higher Tax Rate: Corporate income tax rates are higher than individual rates in the lower levels of income. Also, if dividends are distributed to the stockholders of a corporation, those dividends are subject to double taxation on the corporation's net earnings because the corporation must pay income tax on its earnings, and then the stockholders must pay personal income tax on the dividends received. These two issues are the only reasons to even consider the election of a Subchapter S Corporation and even then, a combination of a Corporation and a limited partnership offers a much stronger asset protection/estate planning and operating vehicle while still retaining the tax benefits of a Subchapter S corporation


6. Reasons for "Piercing the Corporate Veil"
This phenomenon known as "piercing the corporate veil," which happens very rarely, can occur when a court looks beyond the corporation and holds the shareholders, officers, or directors liable for their actions on behalf of the corporation. The court will only look beyond the corporation if corporation fails to act like a corporation. For example: The corporation does not maintain required paperwork, or the corporation funds are co-mingled with personal funds, or the corporation is used to intentionally defraud another person or business. Individuals cannot be shielded from personal liability from a wrongful act; such as selling a product that the incorporators and directors know is defective, by forming a corporation. The general rule is that the corporate entity will be disregarded if it will achieve equity and justice, or to rectify fraud or injustice. The corporate veil will not be pierced, if doing so would result in inequities or injustice.

Whether the "Veil of the corporate entity is pierced," is considered on a case-by-case factual basis. There are no hard and fast rules as to when the corporate entity will be disregarded, but there are clearly established warning signs:

7. Failure to follow corporate procedures: Occurs when the corporate formalities required by state law are not maintained in a proper fashion. Documents might include: Articles of Incorporation, corporate bylaws, maintaining your corporate financial records, electing Officers, holding annual meetings, keeping minutes and documenting the actions of your corporation.

8. Failure to operate as corporate officer: When conducting corporate business, it is critical that the parties you do business with are aware that they are dealing with you in your corporate capacity, as an agent of the corporation, rather than you as an individual. The most common error is failure to sign as a corporate officer on behalf of the corporation. When conducting business on behalf of the corporation, you should always sign your name and state what capacity you are signing in by including your title and/or position. For Example: Jim Smith, VP of Ucan2 Inc. 

9. Under-capitalization: occurs when your corporation does not have enough capital or insurance to pay for the liability that its everyday activities can expect to create. A debt-to-equity ratio should not exceed 3 to 1.

10. Co-mingling of corporate funds: Your corporate accounts should be kept separate from your personal accounts. Do not use corporate funds to pay for personal expenses.

Deciding Where to Incorporate
You have decided to incorporate, now what? The first step in organizing a corporation is to determine its domicile or the state of incorporation. Each state has it's own "corporation laws" which are made up of statutory provisions under which private for-profit business corporations are organized and the court decisions. The state of incorporation is very important because that state controls the rights and responsibilities of the corporation and shareholders and determines the taxes imposed for doing business in the state. In deciding what state to incorporate your business, the following elements should be considered.

1.) Does the state Favor corporations: Delaware used to be the number one choice for incorporating because of the state's friendliness and corporate laws, but now Nevada and Wyoming are the states of preference. We heavily stress Nevada as the state of choice hands down, though Wyoming is an upcoming competitor. 

2.) Initial and recurring taxes, fees, and other costs:. - Initial and recurring taxes, fees, and other costs vary widely from state to state. You should check both the tax and general corporation laws of the state in which you choose to cooperate. Some states are more liberal with respect to taxes and other costs.

3.) Restrictions: - Does the states incorporation laws contain any overly restrictive provisions? Do such restrictions affect the proposed corporation's plans? Does the state have restrictions on the naming conventions and is the name available in all the states of intended registration? Does the state have limits on your business purpose clauses? What incorporator rules do they have? How many incorporators are required and can they be other corporations or partnerships? Must the incorporators also be stockholders? Do the directors have to be US citizens or residents of that state? Does charter determine the number of directors? Must they be shareholders? Does each of the directors' names and addresses have to be listed in charter? How many are required? Does the state have requirements for the Articles of Incorporation which include any special provisions concerning directors, such as their right to value no-par shares, their control of bylaws, indemnification rights, permissive variations in statutory quorum and voting requirements, and/or the creation of executive or other committees? What latitude for classes of shares (if more than one class is allowed) including preferences, limitations, and relative rights of each permitted class of stock? Does the address for a principal or registered office of the corporation be set forth in the charter. Does the address for process, or the naming of a resident agent, or registered agent must be set forth in the charter. Can the corporation be perpetual or limited? If limited, is it renewable? What capitalization is required? What kind of stock issuance is allowed? Does the corporate existence commence when it files with the Secretary of State, upon issuance of the certificate by the state, or upon filing with the County Clerk or other local officer? Can you amend or dissolve the corporation by majority, 2/3, or ¾ stockholder vote.

Why You Should Be Living a Corporate Lifestyle Even
If You Don't Have a Business or a Large Amount of Assets 

Under the law, a corporation is an artificial "person," completely separate from the people who own and operate it. This is different from an individual or sole proprietorship, where the owner bears full and complete financial responsibility for his actions. Because it is an independent entity, a corporation's debts and and taxes are separate from those of its owners, officers, and directors. Therefore, a corporation provides an individual, whether in business, salaried, or on commission, with the greatest personal liability protection and the greatest tax advantages.

If you take a look at living a Corporate Lifestyle, you will discover that you will have far more spendable cash because of the way a Corporation is taxed. In a normal job, you get taxed on your income, and then you get to spend what is left over and you have very limited deductions available. When you live the Corporaate lifestyle you spend first and then pay taxes on what is left over. So you can apply all the deductions above as a corporation before you pay taxes, such as car, dining expenses, entertainment, insurance, pension funds and on and on and on. Then if your left over income is under $50,000 you only pay 15% tax. It is the only way to go.

Your corporation can maximize profits by taking advantage of the tax laws. A corporation can write off most purchases of goods, vehicles, and services as expenses. By organizing your activities so that much of the profit goes to a corporation in tax-free Nevada, you can dramatically increase your net income. You pay the government less - and take home more!


Flexibility
A corporate structure allows you to place different projects under separate corporations. You retain complete control of all projects. But if one runs into trouble, it won't suck the profits away from the other, more successful projects. Without incorporation, your profitable projects would have to pay the debts of any unsuccessful ventures!


Estate Benefits
Because a corporation's existence is perpetual, your corporation can outlive you. By using estate-planning strategies that are possible, you may be able to pass your estate to your heirs without going through probate. This can save both legal costs and inheritance taxes.

We Recommend Incorporating in Tax-Free Nevada
Because of the Unique Advantages
Only A  Nevada Corporation Can Offer!

Nevada Offers Complete Privacy
There is a reason why almost all successful people choose to incorporate. It permits them to manage their assets anonymously. Their private corporate lives are never made public. Only in Nevada can a corporation be set up so that, while you own and control your corporation, your identity and ownership can remain a total secret. Some individuals choose to have separate corporations for their larger assets such as a home, brokerage account, rental property, boat, or recreational vehicle. Asset Protection Alliance can even structure your corporation so that you Social Security number is never disclosed.

No Reciprocity or Exchange of Information with the IRS
Nevada has a long history of asserting its independence from outsiders, including the federal government. With legal prostitution, gambling, and the twenty-four-hour lifestyle that goes with it, Nevadans have always been viewed by the feds as a bunch of pirates, mobsters, or worse. Although most casinos are now owned by publicly traded companies with traditional reporting requirements, there is a huge, underground cash economy the IRS would love to get its hands on. To prove the point, the IRS audits a higher percentage of Nevadans than residents of any other state. The Bugsy Siegel days may be over, but Nevada still resents government intrusion into its unique lifestyle.

In 1991, then Governor Bob Miller specifically refused the IRS's request to use state computers to find tax cheats. He also refused to open up employment, motor vehicle, and other records to the IRS because "... there is too great a potential for abuse of people's right to privacy." Miller went on to order Perry Comeaux, Director of the State Department of Taxation at the time, to notify the IRS office southern Nevada that state records will not be shared. Comeaux stated flatly, "I told them we weren't going to do anything to expand any cooperative effort with the Internal Revenue Service." That attitude continues to this day.

Most states routinely share unemployment records, welfare and social services records, workers' compensation records, driver registrations, and even motor vehicle registrations with the IRS. Nevada is the only state that does not comply with IRS requests for information.

As and example, California residents who routinely file individual or corporate state income tax returns will have their financial information checked against their federal return without their knowledge. Many states have agreed to this arrangement because the sharing agreements allow the states to have access to IRS records to verify state personal and business tax returns.

There are also reporting agencies and credit bureaus, such as Dun & Bradstreet, that are permanently linked by computer to the various government offices across the country. They keep track of judgments recorded, bankruptcies filed, even the names of the parties in some lawsuits if the information is available.

What if the IRS forces Nevada to sign an information-sharing agreement? Let's assume the worst and assume an information-sharing agreement is signed. Similar to my testimony concerning corporate owners, Nevada can only give the IRS the information it has: the name and address of the officer(s), and director(s) of the corporation all of which are already a matter of public record and posted on the Nevada secretary of state's Web site! An information-sharing agreement with the IRS would have no impact on the privacy of Nevada corporate owners as long as a nominee officer/director and bearer shares are being used. A Nevada corporation by itself does not reduce or eliminate anyone's federal tax liability, but it does provide its owners with anonymity and asset protection.

Operate Tax-Free

• Business-friendly Nevada is Tax Heaven for Companies and Individuals
• No corporate income tax
• No gross receipts tax
• No tax on issuance of corporate shares
• No stock sale or transfer tax
• No estate tax
• No personal state, city, or county income taxes
• No inventory tax
• No franchise tax
• No capital stock tax
• No succession tax 
• No stamp tax
• No gift tax
• No inheritance tax
• Lower property taxes than most states

You Can Be Completely Anonymous.
Nevada still believes in the independence of the old west. The people of Nevada believe in small government that doesn't meddle in the business of its citizens - including its corporate citizens. Many other states now allow lawsuits to "pierce the corporate veil," and enforce personal liability for the debts and actions of the corporation on its officers and directors. Nevada law clearly makes the actions of a corporation's representatives exempt from personal responsibility except in cases of outright fraud.

A Nevada corporation is required to list only the names and addresses of its president, secretary, treasurer, and director(s) with the Secretary of State. And that is all. All of these positions may be held by one person. Asset Protection Alliance can provide a nominee to fill all of these positions - ensuring your complete privacy. The names and addresses of any vice presidents need not be listed, however.

Nevada law does not require stockholders to register with the state. Therefore, you can won all the shares in your Nevada corporation, maintaining complete control of operation, while designating representatives as your officers and directors - and your identity will be kept completely secret.

Nevada Is the Only State That Allows the Use of Bearer Shares for Privacy  of Ownership. Nevada is also the only state that permits corporations to issue Bearer Shares, the form of stock best suited to guarantee the owner's anonymity. The stock certificate is issued to the Bearer and may be redeemed by anyone who has it in his or her possession - just like cash. The person who has possession of the Bearer Shares of a corporation is legally the owner of the corporation. This makes it almost impossible for anyone to track down the ownership of your corporation.

Use Your Nevada Corporation to Lower Your Taxes.
If you have a corporation in your home state and a corporation in Nevada, you can use a perfectly legal strategy to cut your taxes. Just have your Nevada corporation sell services, such as advertising, marketing, or consulting to your home corporation. Properly done, the sale of services will absorb the profits of the home corporation. With no profits, the home corporation will owe no tax in the home state. The Nevada corporation shows the profit, but owes no taxes in tax-free Nevada. And you save a bundle.

Plus These Other Advantages in Nevada