Questions:

• What is a corporation?
• What is "limited liability" and why is it important?
• How are corporations different from partnerships, sole proprietorships, and LLCs?
• Who should form a corporation?
• How do I form a corporation?
• Does running a corporation involve more paperwork than running other types of businesses?
• How is corporate income taxed?
• What is double taxation? Does it mean that corporate income is taxed twice?
• What is a professional corporation?
• Do I need to worry about securities laws when I issue stock in my corporation?

Answer:

Do I need to worry about securities laws when I issue stock in my corporation?

Securities laws are meant to protect investors from unscrupulous business owners. These laws require corporations to jump through some hoops before accepting investments in exchange for shares of stock (the "securities"). Technically, a corporation is required to register the sale of shares with the federal Securities and Exchange Commission (SEC) and its state securities agency before granting stock to the initial corporate owners (shareholders). Registration takes time and typically involves extra legal and accounting fees.

Fortunately, many small corporations can skip the registration process because of exemptions provided by both federal and state laws. For example, SEC rules don't require a corporation to register a "private offering," which is a non-advertised sale of stock to either:

• a limited number of people (generally 35 or fewer), or
• those who, because of their net worth or income earning capacity, can reasonably be expected to take care of themselves in the investment process.

Most states have enacted their own versions of this popular federal exemption.

If you and a few associates are setting up a corporation that you'll actively manage, you will no doubt qualify for an exemption, and you will not have to file any paperwork. For more information about federal exemptions, visit the SEC website at www.sec.gov. For more information on your state's exemption rules, go to your secretary of state's website; you can find links to each state's site at the website of the National Association of Secretaries of State, www.nass.org.