Corporation Business Formation

Corporation Business Formation

A corporation is a legally separate entity from its owners, formed and regulated by state laws, providing limited liability protection for owners’ personal assets. It has a hierarchical management structure with shareholders, a board of directors, and officers, and can raise funds by issuing and selling stock.

Corporations must follow procedural requirements like holding meetings and maintaining records, and profits can be taxed twice at the corporate and shareholder levels, or some corporations elect pass-through taxation where profits are taxed only on shareholders’ personal returns.

The corporate form provides perpetual existence beyond individual owners and efficient transfer of ownership through stock trading, offering an advantageous structure for raising substantial capital from many investors while limiting personal risk.

C-Corp

A C Corporation is a distinct taxable entity separate from its shareholders, commonly adopted by larger businesses due to its ability to have unlimited shareholders, issue varied stock classes, and retain earnings. However, the double taxation aspect can reduce tax efficiency for smaller companies.

Key Points:

  • A separate legal entity apart from the owners (shareholders) of the corporation.
  • At least one shareholder
  • Corporate profits are subject to double taxation both as income to the corporation and as dividends distributed to stockholders.
  • Limited liability for the investment contributed to the business.
  • For compensation, managers can receive a reasonable salary.
  • Profits after tax can be distributed as dividends or reinvested in the company.

S Corporation (S-Corp)

An S Corporation passes corporate income, losses, deductions, and credits through to shareholders, allowing small businesses to enjoy limited liability while avoiding double taxation, as profits are taxed only once at the shareholder level. To elect S Corporation status, businesses must file IRS Form 2553, and S Corps are exempt from federal corporate income tax with profits and losses instead passing through to shareholders’ personal tax returns.

Key Points:

  • A separate legal entity apart from the owners (shareholders) of the corporation
  • From 1 to 75 shareholders
  • Corporate profits are subject to personal income taxation. The corporation itself does not pay taxes but files an informational tax return mentioning each shareholder’s portion of the corporate income.
  • Limited liability for the investment contributed to the business.
  • For compensation, managers can receive a reasonable salary.
  • Profits after tax can be reinvested in the company or distributed to shareholders based on their contributions.

Register the Business Name 

Register: Complete the Application for Reserved Name with the Nebraska Secretary of State.

Submit: Submit the completed form to the Nebraska Secretary of State via the Corporate Document Delivery System.

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Registered Agent 

When forming a corporation, it is required to appoint a Registered Agent who acts as the recipient for legal documents and government communications, specified in the Articles of Incorporation by name and physical address of the registered office. The Registered Agent role can be fulfilled by someone affiliated with the corporation, an external third-party individual residing in the state, or another corporation authorized to operate business activities in the state where the corporation is formed, with the registered office address precisely matching the agent’s business address.

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Articles of Incorporation 

Draft a Document: Nebraska does not provide a template for Articles of Incorporation, so businesses incorporating in the state can hire an attorney to prepare the document, draft it themselves, or seek guidance from an experienced business coach or mentor. Regardless of the approach, the Articles of Incorporation must contain the specific information outlined in Nebraska Revised Statute 21-220 to legally incorporate in the state.

Submit: Submit the completed form to the Nebraska Secretary of State via the Corporate Document Delivery System.

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Notice of Incorporation

Publish: Publish a notice of incorporation in a legal local newspaper of general circulation for three consecutive weeks.

Obtain: Request an Affidavit/Proof of Publication from the newspaper, which serves as proof that you have published the notice.

Submit: Within 45 days from the date your trade name is registered, send a copy of the Affidavit/Proof of Publication to the Nebraska Secretary of State.

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Draft an Operating Agreement

An Operating Agreement is an internal document outlining the rights, responsibilities, and operational procedures of a corporation, serving as a governing document for management, ownership, capital contributions, profit/loss distribution, and decision-making processes. While examples are available online, it is recommended to consult a legal professional to ensure the Operating Agreement is tailored to the specific corporation’s needs and complies with applicable state laws.

Resources:

Basic Information About Operating Agreements – U.S. Small Business Administration (SBA)


State of Nebraska Reporting 

Corporations operating in Nebraska must submit a biennial report every two years during designated periods to maintain active registration status, with corporations and professional corporations required to file their biennial occupation tax reports in even-numbered years.

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Federal Reporting

Effective January 1, 2024, many U.S. businesses including corporations, LLCs, and foreign companies registered domestically must report beneficial owner information once to FinCEN, with varying deadlines based on the company’s creation or registration date, unless updates are needed later. This one-time reporting requirement involves electronically submitting the beneficial ownership information through FinCEN’s website.

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Additional Considerations

Shareholders’ Responsibilities: Investors must adhere to certain organizational protocols, such as:

  • Facilitating equity distribution
  • Arranging periodic gatherings
  • Transcribing assembly proceedings
  • Appointing governing members
  • Executing corporate decisions via formal declarations

Stock Issuance: To commence the equity allocation process for your corporation, consult a financial professional. They can provide expertise on share valuation and outline the requisite procedures.


Additional Steps

Please refer to the Business Tax section of the Business Formation eGuide to learn about your federal and state business tax registration and requirements. For example, you will need to obtain a federal Employer Identification Number (EIN) and Nebraska Identification Number (Form 20). Individuals opting for an S-Corporation as their business entity type must fulfill an additional obligation. They are required to submit IRS Form 2553, also known as the “Election by a Small Business Corporation.” This three-page document serves as a formal request to the Internal Revenue Service, seeking recognition of the corporation as a small business corporation (S-Corp).