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Q: What is the difference between a C Corporation and an S Corporation?
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A: All corporations begin their lives as a C corporation. The owners can elect to become an S corporation by filing a form 2553. This new status allows the owners to be taxed like a partnership or a sole proprietorship. The income of the corporation "passes through" to the owners without the corporation being taxed. The S corporation does come with additional limitations, though, namely a shareholder limit of 100 and U.S. residency requirement for shareholders.
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Q: What is "piercing the corporate veil"?
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A: In some cases, courts have allowed plaintiffs to pursue the owners' assets of the corporation to satisfy a judgment against the corporation. This defeats the liability protection that owners typically have with the corporation. It is only in the most severe cases that courts allow plaintiffs to pierce the corporate veil. Some instances may include: fraud, intermingling of owner and corporate funds, improper formation, and practices to the point where the corporation can no longer be viewed as a separate entity. This is also known as "alter ego liability."
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Q: What is a "registered agent"?
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A: A registered agent provides a local address for the receipt of service of papers and for contact by the Secretary of State and other agencies. A corporation and LLC need registered agents because even though they are separate legal entities, they cannot receive paperwork, so they need someone to receive information on their behalf.
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Q: Do I need permission to conduct business in another state when I am already incorporated in my own state?
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A: Yes. A foreign corporation wishing to do business in another state must qualify to do so. Information on the process may be obtained from the Secretary of State in the state that the company is going into.
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Q: Is there a benefit to incorporating in Nevada or Delaware?
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A: Generally, no. There used to be significant benefit to incorporating in Delaware or Nevada, but with the changes in state laws those reasons no longer exist.
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Q: What is a non-profit corporation?
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A: A non-profit corporation is a corporation that is carried out for a charitable, educational, religious, literary or scientific purpose. A non-profit corporation does not pay either state or federal taxes because the government deems the actions of th corporation to be for the betterment of society.
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