CORPORATE LAW USA
The United States has corporate laws at the federal, state, and local levels. All fifty states have their own state and local laws. The US Constitution allows corporations to incorporate in the state of their choice, regardless of where their headquarters are located. Most major corporations incorporate in the state of Delaware due to their low corporate tax.
There are many forms of entities in the United States but the four most common ones are listed below:
- Sole Proprietorship– It is the simplest business form. It is a business owned and controlled exclusively by one person. This person is responsible for the business, including all liability and any profit or loss.
- Partnerships– an association of two or more persons (people, corporations, other partnerships, LLC’s, trusts or others) to carry on a business for profit. Similar to a sole proprietorship, these individuals are responsible for the business including liability and any profit or loss.
- Limited Liability Companies – an extremely flexible business structure. It combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. It is not a corporation but instead a legal form of a company that provides limited liability to its owners in many jurisdictions.
- Corporations– Business becomes a separated entity and is chartered by the state in which it is located. A corporation can enter into contracts, pay its own taxes, and be sued. The owner becomes a shareholder and has the option to sell the business if things don’t work out for continued ownership.
Shares and Share Capital
A company limited by shares, whether public or private, must have at least one issued share. Companies may issue different types of shares called “classes” of shares, offering different rights to the shareholders depending on the underlying regulatory rules pertaining to corporate structures, taxation, and capital market rules.
The US tax law is very complex, and careful tax planning and counselling is necessary for all companies doing business in the US. Companies in the US are subject to separate federal, state, and local taxes. The federal government uses the IRS to collect income tax, capital gains tax, tax on dividends, interest, other passive income and employee payroll taxes. Businesses will also likely have additional tax obligations in the state in which they conduct business.
C Corporations vs S Corporations:
Corporations can choose between filing taxes as a C corporation or an S corporation. An S corporation is considered a “pass-through entity” which means the business itself is not taxed. Instead, income is reported on the owners’ personal tax returns. C corporations are separate taxable entities and they file a tax return and pay taxes at a corporation level. Below are the requirements for filing as an S corporation.
Income taxes for single-member LLCs
By default, the IRS treats a single-member LLC as a disregarded entity for federal income tax purposes. A disregarded entity means that the LLC is not required to file a separate income tax return to report income and expenses. The income and expenses will go directly on the member’s tax return.”
LLC payroll taxes
LLCs that have employees have to collect and pay payroll taxes. These taxes include unemployment taxes, social security taxes, and Medicare taxes.
LLC self-employment taxes
Members of an LLC are not considered employees. However, under the Self Employment Contributions Act (SECA), you still owe social security and Medicare taxes to the IRS. You’ll pay these taxes directly to the IRS in the form of self-employment taxes. The total self-employment tax is 15.3%, and it’s broken down into several parts:
- 12.4% social security tax on earnings up to $137,700
- 2.9% Medicare tax on all earnings
- 0.9% Medicare surtax on earnings over $200,000
Schedule SE will help you calculate your tax liability and should be attached to your tax return.
LLC sales taxes
If your LLC sells taxable goods or services, then you’ll need to collect sales tax from your customers and remit the tax to the state or local tax agency.
Choose a Name for Your LLC
Under Delaware law, an LLC name must contain the words “Limited Liability Company” or the abbreviation “L.L.C.” or “LLC.” In addition, the name can contain the names of members, or the words “Club,” “Foundation,” “Fund,” “Institute,” “Society,” “Union,” “Syndicate,” or “Trust.”
Your LLC’s name must not be deceptively similar to the names of other business entities already on file with the Delaware Secretary of State. Names may be checked for availability by searching the Department of State: Division of Corporations business name database.
An available name may be reserved for 120 days by paying a $75 fee. Reservations are made online on the Delaware Division of Corporations website, you may also print out the Application for Reservation of Limited Liability Company Name and file by postal mail.
Appoint a Registered Agent
Every Delaware LLC must have an agent for service of process in the state. This is an individual or business entity that agrees to accept legal papers on the LLC’s behalf if it is sued. If the LLC is physically located in Delaware, it may act as its own registered agent. A registered agent may be either an individual resident or business entity that is authorized to do business in Delaware. The registered agent must have a physical street address in Delaware. A list of Delaware registered agents is available at the secretary of state’s website.
Prepare an Operating Agreement
An LLC operating agreement is not required in Delaware, but is highly advisable. This is an internal document that establishes how your LLC will be run. It sets out the rights and responsibilities of the members and managers, including how the LLC will be managed. It can also help preserve your limited liability by showing that your LLC is truly a separate business entity. In the absence of an operating agreement, state LLC law will govern how your LLC operates.
Unlike most states, Delaware does not require LLCs to file annual reports.
If your LLC has more than one member, it must obtain its own IRS Employer Identification Number (EIN), even if it has no employees. If you form a one-member LLC, you must obtain an EIN for it only if it will have employees or you elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity). You may obtain an EIN by completing an online application on the IRS website. There is no filing fee.