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HOW TO INCORPORATE

By Dan F. Schramm
CEO, Blue Planet Offices, Inc.

First, before we provide information on the incorporation process, let me tell you HOW NOT TO INCORPORATE.

Blue Planet President Dan Schramm You will find countless sites on the internet that provide incorporation services in some or all states. I can't speak for other states, but these businesses can NOT help you incorporate in Florida. It is illegal according to a recent opinion of the Florida Supreme Court.

Many states allow non-attorney practitioners or paralegals to help people fill out legal forms. Selling or providing a legal form is one thing. Helping people to fill it out or filling it out for them crosses the line in Florida into practicing law without a license.

The online incorporation service is required to have an attorney licensed to practice law in Florida fill out the form. This would not be practical obviously. If they did have an attorney to do this, the attorney is only getting part of the fee you are being charged and is not really going to care much about you or your incorporation.

The fee you pay them is in addition to the Secretary of State filing fee. All they do is take the information you enter into a form on their site and put that information into the form on the site of the Secretary of State. You are wasting your money. Just visit the Florida Sunbiz site and you can do it yourself in a couple of minutes. You also save the risk of giving strangers your credit card information.

Nevertheless, you might want to wait a bit and read the information on this site to help determine if you have a simple incorporation or if you need an attorney to help with the incorporation or other aspects of your business. Hiring a good corporate attorney for an incorporation might cost a bit of money, but it is usually well spent. In addition, you are beginning a relationship with that attorney and when you have other legal needs, and any corporation certainly will, you already have the attorney in your corner.

Why Florida?

A corporation is a legal person, a separate entity, in the eyes of the law. It can build its own credit, own property and do all the things a natural person can do. If the corporation fails or goes bankrupt, your personal assets are protected. There are some exceptions. If you use the corporation to engage in fraud, it is possible the corporate veil can be pierced and you and other officers can be held personally liable. If you fail to hold annual stockholder meetings, keep minutes and so forth, it is possible to pierce the corporation veil. In these situations, you are well advised to consult an attorney. Play by the rules and the rules will protect you.

If you are doing or going to do business in Florida, it makes sense to incorporate here. If you are operating in another state and plan to operate here in the future, then it makes sense to incorporate in that state and register in Florida as a foreign corporation. This is also called foreign registration and some states use other terms. This does not mean a foreign country, just another state. The corporation is a domestic corporation in the original incorporation state.

Registering here as a foreign corporation gives you all the rights and power of a domestic corporation and you are all set to do business here. Depending on the nature of your business you might need a state license. You will also need an occupational license in the county or city you are doing business from.

If you are doing business in another state then you will find many incorporation sites promoting Nevada, Delaware as well as Florida. These states have various benefits for corporations. Florida also has benefits for the individual. Florida has no personal income tax. In Florida, your home and car are protected from creditors. Florida is also, obviously, a much larger market than Nevada or Delaware. Florida is a big state with many cities and massive population. There is certainly more opportunity in Florida.

If you are not doing business in those states, it really does not make much sense to incorporate there. It only makes sense to incorporate in a state like Delaware or Nevada if you are setting up a large corporation that is going to have the funds to finance this. Nevada is also popular with penny stock companies and various scam operations. Delaware is popular with corporations whose stock is publicly traded as Delaware is business friendly and provides some protections against stockholder revolts and similar things. This hardly matters for the privately held corporation.

The immediate problem is that you double or triple your expenses. If you incorporate in Nevada, for instance, and you do not live there, you will have to pay for a registered agent in addition to the state fees. Then in the state where you will actually be operating you will have to register as a foreign corporation. This costs the same as any incorporation in many states, but some states charge foreign corporations much more and the annual report fees might be more. Carefully check the fees if money is a concern. You will need a registered agent there too. Should you need to change your articles of incorporation in the future, you will have to pay filing fees in both states.

There is another big problem the incorporation services are not going to tell you about. If you are incorporated in Delaware, for example, and actually doing business in another state, you might find yourself being sued in Delaware. This allows a plaintiff to go forum shopping. You will have to hire counsel in Delaware. Controlling a civil action from another state is certainly going to be a challenge and you will be at a disadvantage. If you have to appear in Delaware or have other employees appear there for depositions and for a trial, you will be spending many thousands of additional dollars.

Delaware is popular as its state laws and courts tend to lean in the direction of the corporation. This is really only important if you are publicly traded and have a large number of stockholders or are the subject of a takeover attempt. Certainly, if you are a small business, incorporating in Delaware if you do not live and work there is pointless.

The Importance of
Registered Agents

Allow me to say a few words about the importance of registered agents. If you live in the state where you are incorporating, you are probably the best registered agent there is. If you are incorporating in a state where you do not live, then you will need to have a registered agent in that state. There are businesses that act as professional registered agents. Blue Planet Offices, Inc. does that too, but no sales pitch here. If you use an attorney for incorporation, it is very possible the attorney or the law firm itself will act as the registered agent for a fee.

Whatever you do, do not use a friend or relative in a faraway state as your registered agent. The Secretary of State will send all official mail to that address. They have their own lifes and aren't really going to worry about your business. What if the mail is not forwarded and you miss a required filing? Your corporation could be dissolved. Even worse, you could find yourself with a default judgment against your business and even you personally.

A Cautionary Tale:
I know what I am talking about. I have first hand experience and understand the importance of a registered agent to your corporation or LLC.

Even people you think are responsible can let you down and that can have major consequences. I was the VP of a corporation many years ago. The board of directors really messed things up and we went out of business. Most members of the board and many stockholders were doctors and dentists. They thought they were business people but knew nothing about the business we were in. (I heard years later that this is called "a dumb doctor deal.") I had written the business plan and felt an obligation to the stockholders. I resurrected the business, had employees, was paying taxes and operating for over two years carrying out a number of federal contracts worth hundreds of thousands.

Well, it turns out the secretary of the corporation who was also the registered agent hadn't filed the yearly reports for a couple of years and the corporation was administratively dissolved. An old landlord found this out and sued me personally for $25,000 in unpaid rent though they previously had a judgment against the corporation. Due to the fact we were different parties, the previous judgment did not bar them and as the corporation did not exist, the court treated it as an unincorporated business and held me personally liable.

In an LLC why would any one of the partners trust another partner or their friend or relative to be the registered agent. I can tell you now, many LLC's end very very badly, especially without a well written management agreement. Do you want to trust anyone besides yourself, an attorney or a commercial registered agent service? (Would the other people trust you or your attorney?) The answer is to use an independent third party. I certainly learned my lesson. Trust me. You don't want to learn this lesson down the road when you least expect it.

If someone commences a civil action against you, they will have it served on the registered agent and other documents will be sent to the address of the registered agent. It is critical that the registered agent then promptly forwards that to you. Consider, if your friend or relative forgets about it, you will not be able to answer the complaint in the required 20 days. You might wake up one day and find a massive default judgment has been entered by a court against your corporation and your credit rating is in the toilet. It simply is not worth it. It is much like borrowing money from a friend or relative. Always a bad idea. If a law firm did this to you, they at least have malpractice insurance and can be punished by the Florida bar. You would also have a solid legal issue for appeal or other relief.

I also urge caution signing up for a registered agent on some internet site. They seldom tell you who is going to be your registered agent or anything about them. Most don't even tell you who is responsible for the site, much less providing pictures and telephone numbers. Blue Planet can be easily researched as can Dan Schramm, Blue Planet president. We have been in business for many years. We urge you not to spend your money at some faceless website. Most of them are just resellers anyway and you have little idea who they are fronting for until after you spend your money.

Consider the Fees and More!

The incorporation fee in Florida is $70.00. In many states this is typical, but in some states the filing and related fees can run into many hundreds of dollars. If you need to amend the Articles of Incorporation, the amendment fee is also $70. Consider, if you do the filing yourself and then find out you made a mistake and have to amend your filing, you will end up spending another $70 and still might make another mistake. You could have mostly paid a qualified corporate attorney.

Then comes the yearly renewal when you have to file the annual report. The fee in Florida paid when the annual report is filed is $150.00. The deadline is April 30. If you miss the deadline you will have to pay $500.00 to file your annual report. Many business people have enough trouble keeping track of things in one state, much less two or even multiple states. At that point, you will need someone managing all the filings that you will have to make.

If you are considering incorporating in any state, don't just look at the filing fee for incorporation, be sure to check the annual report filing fee. In some states you will be in for a big surprise.

Select Your Company Name

Incorporation is a fast, affordable process. It benefits the business owner by protecting personal and family assets from the risks and debts of the business. These guideliness apply to LLC formation as well, but our primary interest is in forming a corporation.

Your company name can identify the type of products/services your business provides, or it can simply be the name of the founder, or a combination thereof. The main requirements for a company name are that no other entity in the same state may have the same or similar name. A name can not be deceptively similar to another corporation in the state. Secondly, every state requires that the name must include an ending such as company, incorporated, or corporation. Some states allow "limited." Abbreviations are also acceptable. Some words such as "bank" or "insurance" can only be used with approval from the appropriate state agency.

Picking the name is perhaps the most important step in forming your corporation. Names can be generic or specific. The more specific the name is, the easier it will be to protect. In my view the name should tell people something about your business. Using English words is the simpliest approach, but if the nature of your business will work with a coined name, that may be the way to go. There are many examples of coined words, such as "koin" for coin, "ez" for easy. Zerox, Exxon and similar corporate names are coined words. These are not real words, they were invented to use as a company name. Inventing a word offers benefits in trademark protection, but without major advertising support, it is worthless. Word invention is not for small businesses.

Nevertheless, no rule is written in stone. Coined names used with other words can be distinctive and descriptive at the same time. Take for example a name I created: "Quaterra." Terra is pretty well known as the Latin word for "earth". "Qua" is Latin, meaning in the character of. So even though this is a coined word, the full name was descriptive: "Quaterra Communications Corporation." It does not provide detail on the nature of the business but gives some clues. Sometimes a name can create the feeling you want or put emphasis on the character of the business more than what it actually does. A name can also spell out the character of a business or its main feature, such as "Low Cost Auto Sales", "Reliable Plumbing" or "Icy Air Conditioning." You'd need to add something distinctive to those if you ever wanted to get any trademarks.

When you have decided on one or more names, the next step is to do some research. If your business will only operate in one state, a search of state registered trademarks may be adequate. Simply because another company is not incorporated with the same name does not mean that someone does not have a state trademark on that name. If another company in another state has the same or very similar name and has a federal trademark registration and decides to operate in your state, you may end up in U.S. District Court and face losing your name.

I strongly recommend doing state and federal trademark searches in addition to a name availability check with the secretary of state. If you do not already have the internet domains you need, be sure to check name availability there. If your business already exists, there is not much you can do if you don't have the .com name of your choice. If you are forming a new company, in my opinion, pick a name you can get the .com for, as well as any other TLD extensions you need.

Whatever you do, don't proceed with a name that is even close to being a trademark violation, especially if the owner of the trademark has the money to sue you into the ground. Sooner or later that is exactly what is going to happen regardless of how smart or clever you think you are.

Using a name that is free and clear is the best approach in the long term.

Check Your Name in Florida

Do You Need an Attorney?

Well, frankly, an attorney is the best one to answer this question. A consultation is usually free. If you have a simple incorporation and don't plan on selling stock to anyone and are not going to have any employees, then you might want to handle it yourself. The incorporation part might be simple, but there is much more to it than that. You might well want to take care of any DBA's and state trademarks at the same time. There can be many complications in the life of a business corporation and it is probably best to get a good corporate attorney on your side right from the beginning.

If you are thinking right now that you want to save that money, then you better rethink the idea of going into business at all. The worst thing you can do is be undercapitalized and skimping on legal representation can be a recipe for disaster.

If you don't need an attorney you can incorporate in a couple of minutes either right now, or read the rest of our site and then return to this page.

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