The state of Utah is known for its hard working citizens, and business-friendly environment, which is fitting since the state’s motto is “Industry”. When it comes to incorporation, it is among one of the top states. While it doesn’t serve as the best state to start a Limited Liability Company (LLC) in, it does have a good draw for entrepreneurs to establish a business entity and protect personal assets.
A corporation is a legal entity that can provide several benefits to those looking to conduct business operations in Utah. When you create a corporation, you form a new entity with many of the same rights and responsibilities as an individual. This new business entity can loan or borrow money, own property, hire workers, pay taxes, or even enter into contracts and sue individuals or other corporations.
Owners of a corporation are individuals, stockholders, shareholders, or even other business entities, who have invested finances or other resources into the formation of the company. The goal of a company is to earn a profit and divide those earnings among its owners while keeping personal assets protected.
Corporations operate just like any other business. They provide a separation between the owners and the company, protecting the owner’s individual assets. Once established, a corporation is governed by a board of directors who write and implement a set of company bylaws. The board also manages the actions of the corporation, ensuring it adheres to these bylaws and functions within the boundaries of the law.
Shareholders and stockholders can serve as members of the board of directors, but that doesn’t necessarily mean all board members are as such. During early formation stages, a temporary board is declared initially, and a formal board of directors as well as corporate executives are voted in during annual board meetings. Corporate executives work directly underneath the board, enforcing the desires of the shareholders and acting in the company’s best interest.
Creating a corporation is similar in a lot of ways to forming an LLC. Both have an initial $70 filing fee as well as a $20 recurring annual report fee, but a corporation is more complex to start and maintain. There are five steps to take when constructing a corporation in Utah:
Starting a company begins with a name. It must be unique and comply with Utah corporation naming requirements. Your name must:
More information is available online in regards to Utah corporation naming guidelines on the Utah Legislature website.
When you register your corporation with the Department of Commerce, you must also appoint an official Utah registered agent. This designated entity serves as a liaison between the government and your company, accepting legal documents such as a service of process on behalf of your corporation. A registered agent can be an individual, a business, a professional registered agent service, or a member of your corporation. However, they have to meet the following requirements:
You must have a registered agent according to Utah state law. Having a service handle your registered agent needs can ultimately be worth the cost.
Before filing the Articles of Incorporation in Utah, you need to create bylaws, appoint initial directors, decide on a share structure, and execute an incorporator’s statement.
These are the base operating rules set by shareholders and the board of directors that establish the legitimacy of the company. After creation, there will need to be a designated main office to store these and other important documents.
Until the first board meeting is held, there will need to be designated bodies to serve as a temporary board. Add the names and addresses of these individuals to the incorporator’s statement and store a copy with other important legal documents.
Ownership of a corporation is determined by shares of stock. Each share embodies a percentage of ownership of the corporation. They can be structured into different classes that hold their own sets of rights and privileges for each class. Utah allows you to indicate whether your share class is common (granting shareholders voting rights) or preferred (no voting rights, but have priority being paid dividends).
This document includes the names of the initial board of directors as well as their names, addresses, and signatures. It’s essentially the document that contains the information established during the initial organizational meeting, and a copy should be kept with all other important documents.
Your company will finally take shape after you file the Articles of Incorporation. You can accomplish this by either submitting it by mail, by fax, in person, or online with the Utah Department of Commerce, and paying a $70 filing fee. This document should contain all of the information discussed in the organizational meeting, as well as the name of the company and the registered agent.
An Employer Identification Number (EIN), or Federal Tax Identification Number (FTIN), is a number provided by the federal government for the purpose of legally recognizing a business by providing them what is basically a social security number (SSN). This is required for your company if you plan to open a business bank account, hire employees, and it’s necessary to have one in order to pay federal and state taxes.
The costs involved with incorporation are the same as an LLC in Utah. A corporate model might be more beneficial than an LLC, but for most startup companies, it is going too far too fast. There are some common reasons to form a corporation, including:
If you want your company to seem legitimate, being a corporation is one of the best ways to accomplish this. More people understand what a corporation represents as opposed to an LLC, so it might be a better option if you’re trying to appear as professional as possible.
The Tax Cuts and Jobs Act sets corporate tax rates at a consistent 21% on a federal level. This can be beneficial depending on the level of profits your company earns.
The main reason to form any company is to protect your personal assets by separating what is yours versus what belongs to or works for the company. If a person sues your business, they can only reach the assets within the scope of your company’s practices.
There are three main types of corporations: C corps, S corps, and Nonprofits. All are considered business entities and each provides different benefits and downsides. LLCs can elect to be taxed like a corporation, which gives it a flexibility advantage over the corporation. Any of these types can provide limited liability protection.
A C corporation is the standard format when you form a corporation for profit. It has shareholders and is generally run by a board of directors and executive officers, with employees handling the daily business activities. It falls under a specific bracket of taxable entities with certain advantages and disadvantages. The main downside of a C corp is being subject to double taxation.
Alternatively, an S corporation can instead be taxed as a pass-through entity, meaning the company itself isn’t taxed, and that responsibility passes through to the shareholders. An easier way to gain this benefit is to form an LLC since it comes with the same benefit. A C corporation can gain this benefit by filing Form 2553 with the IRS.
Nonprofits (also known as 501(c)(3) organizations) are those formed for religious, scientific, literary, educational, or charitable purposes. These chartered legal entities have special tax treatment benefits which might be offset by licensing fees. Forming a non-profit can be more complicated than forming other types.
An LLC is a different kind of business structure that can accomplish all of the things corporations can do. They tend to be more appealing to smaller businesses, but can also provide a new company with everything a corporation can. The cost difference to create and maintain an LLC is the same as a corporation, but it can be easier to create and maintain.
A corporation serves to act as its own entity, keeping investors and shareholders separate from the actions of the company. Since it has many of the same rights individuals do, it takes responsibility over the actions performed for business purposes.
Since a corporation’s actions are separate from the owners of a company, only the business is liable in the event of a lawsuit. That means the personal assets for the owners are granted limited liability protection. This barrier is the most important protection a business owner needs to guard their assets.
Because a corporation uses stocks to represent its existence, it’s very simple to extend the life of the business by passing ownership from one person to another. It’s harder to set up, but it’s much easier to keep a corporation alive.
Incoming revenue for a C corporation is subject to double taxation, since the company is taxed first on its profits, then the shareholders are taxed on the dividends paid.
It takes more work to maintain the documentation involved with a corporation than it would for an LLC, since the business structure is much more complex.
Forming a corporation in Utah is simple, compared to most other states. However, based on your needs, forming an LLC can be easier to start and to manage, with all of the same benefits. Before deciding to form a corporation straight out of the gate, it’s highly recommended to check out the benefits of forming an LLC instead.