Thinking of Forming a Corporation or LLC for a New Business in 2012? Nationwide Incorporators Discusses Significant Costs That Are Often Overlooked

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Online incorporation services have made it simple and inexpensive to form a corporation or LLC for a start-up business. Nationwide Incorporators reports that many entrepreneurs are unaware of the additional expenses required to maintain a corporation or LLC after it’s formed that can easily exceed any tax advantages that have been obtained.

Many entrepreneurs about to start a business in the coming weeks will make a costly mistake of forming a corporation or LLC to operate their business.

Many entrepreneurs about to start a business in the coming weeks will make a costly mistake of forming a corporation or LLC to operate their business. Forming a corporation or LLC online today can often be done quickly and inexpensively, but it can also be an expensive trap for the unwary entrepreneur, according to Nationwide Incorporators, an attorney-operated incorporation service.

Mike Ross, an attorney and founder of Nationwide Incorporators, says these expenses can easily run $1,000 to $2,000 annually and include items such as state franchise taxes, additional accounting expenses for payroll tax reports and corporation or LLC tax returns, and possibly annual fees for registered agent services and annual state reports.

Money is a precious commodity for many start-up businesses and every dollar counts. “We’re bombarded with TV ads showing testimonials endorsing an online service used to incorporate or form an LLC for a start-up business. It creates a misimpression that everyone starting a business should immediately form a corporation or LLC because it’s quick and inexpensive,” says Ross. “It’s important to get professional advice before simply rushing to complete an online questionnaire because there are still decisions to be made about the best type of entity and tax classification for each specific business,” advised Ross.

Ross uses the example of Frank Barrett (not his real name) who contacted Nationwide Incorporators to form an S Corporation in California to be ready to go in January. “After losing his job, Frank received training in Internet marketing and is about to launch his website. He decided to form an S Corporation because he wanted the personal liability protection and read about the S Corporation tax advantages.”

Frank’s actions may be premature and unnecessarily costly according to Ross. “The first thing Nationwide Incorporators does is learn about the background of the company, the objectives of the owner, and discuss the advantages and disadvantages of different types of entities and tax classifications,” says Ross. “We help them decide on the best entity for their particular business and if it’s prudent to postpone their incorporation or LLC formation.”

Ross explained to Frank that his corporation would be required to pay an annual minimum franchise tax of $800 to remain in good standing even if his business operated at a loss. Frank would likely pay another $800-1,200 or more each year for accounting expenses for payroll tax reports, separate income tax returns and other services.

Since Frank was starting a new business and had no idea when or how much income the business would generate, Ross advised Frank to postpone his decision to form a corporation or LLC until he was generating a regular cash flow. “He's starting a low risk business and his primary objective was saving taxes. I explained that until his profit reached a certain level, he wouldn't save enough to cover the formation costs much less the maintenance expenses that would follow,” said Ross.

About Nationwide Incorporators

Nationwide Incorporators is an online incorporation service offering exclusively attorney-provided complete formation services in all 50 states for business corporations, professional corporations, nonprofit corporations and limited liability companies. Services are provided through comprehensive, step-by-step questionnaires on the company’s website as well as by phone. Free phone consultations with an attorney are offered. Appointments can also be scheduled in the company’s offices at 2591 Dallas Parkway, Suite 300, in Frisco, Texas. Michael A. Ross is the president and founder of the company. He is a California licensed attorney admitted to practice in 1972 and a graduate of Loyola University School of Law in Los Angeles.

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Michael Ross
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