Why form a South Dakota Corporation?
There are many advantages to forming a South Dakota Corporation for your business. First and foremost is the liability protection of your personal assets. When you form a corporation it helps separate your personal assets from that of your business. A legal corporate entity exists separately from its owners or shareholders. Typically, shareholders (owners) are not liable for the debts and obligations of the corporation or from any litigation where the company is the defendant.
Naming tips for your corporation
A corporation’s name must include Corp, Inc, Incorporated, or Corporation. Also, a South Dakota Corporation cannot have the same name as an existing Limited Liability Company or a Limited Partnership. The name of the Corporation must be distinguishable upon the records of the Secretary of State. To determine distinction, the Secretary of State will ignore certain words and articles such as “an”, “the” “a”, etc… The Secretary of State will also ignore the use of capitalization, punctuation, spaces, and plural forms of words or special characters. Also certain words will be regulated and prior approval may be needed in order to use the word in a corporate name.
C - Corp vs. S - Corp
When you form a corporation in any state, by default the corporation has a C- Corp status. This means that the corporation will have double taxation in which the corporation pays a tax and then any profits distributed to its shareholders is taxed again. The difference in the S Corp is that the tax structure changes to be similar to a LLC. In the S Corp, the corporation has pass through taxation which means the corporation no longer pays a corporate tax. All the profits reported by the corporation are passed through the corporation and reported on the income of the individuals. There is a major drawback but not as significant for small business. The S-corp limits the number of shareholders the corporation can have to 75. Therefore when the company goes public or raises additional capital and is forced to have more than 75 share holders, the company must change back to a C-Corp. In most cases, businesses are small and therefore may never have more than a few shareholders.
Officers
A corporation is run by its officers. The most common officers for a corporation are the president, secretary, treasurer and director. These officers are usually mandatory for all corporations. However, other officers can be established for the corporation. When filing for the corporation, most states don't ask for any officer information but the names and officers are required information on the bylaws of a corporation.
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