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Incorporating a business

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All you serial entrepreneurs and startup addicts who have incorporated or are thinking of incorporating a business have undoubtedly heard of services like Bizfilings, Legalzoom and incorproate.com. I have personally used two of the three services for several of my own businesses and wanted to cut through the marketing jargon and find out if these services could really compete or “save money” for the average entrepreneur over picking up the phone and calling a lawyer to help you incorporate.

I recently had the opportunity to interview Karen Kobelski, general manager of BizFilings about some common questions and concerns Startup Addict Musings had regarding incorporating a startup.

SA: What makes your company different and sets you apart from the competition like incorporate.com and LegalZoom?

We truly emphasize customer service and have a 98% customer satisfaction rate. This is because we have a tenured customer service team that goes through constant training and certification. We are quality-driven and work to continuously improve our product and service delivery so when you incorporate online with BizFilings, you know it will be done right.

We also focus exclusively on business filings and have a true expertise in this area instead of trying to provide every type of legal service possible without having depth and expertise in each one.

Our prices are better than both of those competitors which, when coupled with our expertise and outstanding customer service, makes us the best value in online incorporation.

Finally, we own all components of service delivery nationwide so we can ensure quality. We don’t outsource major components of service such as registered agent service to other companies like some of our competition does.

SA: What types of business structures are the most popular on BizFilings?

Right now, the LLC or Limited Liability Company is by far the most popular business structure with our clients, and this has been true for the past couple of years. We believe people are choosing to form an LLC because it provides the limited liability protection of a corporation, but it has fewer compliance requirements and provides pass-through tax benefits so you only pay income taxes once. Since personal income tax rates have fallen in recent years, the popularity of the LLC has risen. If personal income tax rates rise over the next few years, we may see a flight back to corporations.

S Corporations are popular as well because they also provide the pass-through tax benefit, and they provide some self-employment tax advantages that are not available to an LLC. Also, the stock of an S Corporations is freely transferable while the membership interest of an LLC is not transferable without the approval of all the members.

SA: Customization of documents can be an issue in your industry for some startups, what does BizFilings do to ensure any type of startup can utilize your service effectively?

We have streamlined our order process so that anyone can enter the key information we need to prepare and file business formation documents for any new startup in three easy steps.

In addition, many startups do not realize that they need to create and maintain certain documents for their new corporation or LLC. We recognize this and now include a CD of sample bylaws and customizable forms in every incorporation package.

Our packages also include a corporate kit and seal which is a customized binder with the new corporate name that includes, in addition to customized stock certificates and a stock ledger, sample bylaws, meeting minutes, waiver of notices and resolutions.

We also provide a DVD called “After the Inc Dries” which walks you through your corporate kit and provides a further explanation of the sample documents included to assist you with fulfilling these compliance requirements.

SA: Have you see in increase in new company creation or startups in the current economic climate?

Yes. In this environment, there are many reasons why people choose to form a corporation or LLC. Many people who have lost their jobs and cannot find another one are deciding to strike out on their own. Others want to have a Plan B alternate source of income if their current job does go away. Many women are choosing to start a home-based business to supplement household incomes that are stretched in this difficult economy. We are also seeing a rise in manufacturing startups – “Necessity is the mother of invention” and the current recession provides motivation to those who have an interesting idea for a new product to take action to turn that product into a new business.

SA: Do you feel BizFilings can replace legal counsel for startups? If so how do you address difficult documents like shareholder agreements etc.?

BizFilings is not a law firm and does not provide legal advice. We do recommend that you seek the advice of a lawyer if you are unsure which entity to form or to structure complex documents like shareholder agreements. But when you know which legal entity to form, you do not need to pay a lawyer to prepare and file the business formation documents. In fact, our customer list includes hundreds of attorneys and accountants from across the country that trust BizFilings to assist with formations and other filings for their clients. In many cases, we’ll work directly with the clients of our accountant and attorney partners, while other times we provide the filing support directly to attorneys and CPAs.

SA: What are some common mistakes entrepreneurs creating startups should look out for in new company creation?

We have designed our processes to ensure our clients avoid many common startup mistakes, but if you do not work with BizFilings, you could make the following mistakes: .

1.Failing to qualify your new company in your home state if you form a corporation or form an LLC in Delaware and Nevada. State rules vary, but if you have a physical presence in a state such as property or employees, you must qualify your business in that state even if you formed your company elsewhere.

2.Failing to obtain necessary business licenses: Formalizing your business structure by forming a corporation or LLC does not always mean you are free to legally operate your new business in your state, county or municipality. Many jurisdictions have licensing requirements for specific business types. BizFilings provides a service that identifies the business licenses you need to operate your specific business type in the jurisdictions where you are doing business and provides you the forms to obtain those licenses.

3.Failing to file annual reports or franchise taxes. Once you have formed a corporation, each state has annual compliance and tax requirements that you are obliged to fulfill. Many people file incorporate and then do not take the steps necessary to keep their new corporation in good standing. If you do not file your annual reports and pay your franchise taxes, the state may revoke your corporate status Reinstatement costs can be significant. If you select BizFilings as your registered agent when you form your corporation, we will send you alerts and reminders that these reports and taxes are due and provide online tools to easily file your annual reports and pay your taxes. We also monitor your company status each month and alert you if your company is no longer in good standing with the state.

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