Should You Incorporate Your Registry Business?
The short answer is yes! When starting a new nurse registry business, you are entering into a legal business environment that requires you to take steps to protect your personal assets, such as your home, your savings, and your retirement. With this in mind, you need to determine which legal form you are going to take for your new registry. Some of the common choices are a sole proprietorship, a partnership, a limited liability partnership (LLP), a limited liability company (LLC), and a corporation. Each business form has its pro's and con's, set up costs, and tax filing requirements. Because of increased litigation in the nursing field, I will focus on the corporation in this article, because of the legal protection it can provide.
So, what is a corporation? A corporation is a separate and distinct legal entity, which can open a bank account, hire employees and do business, all under its own name. The primary advantage of forming your nurse registry as a corporation is that you will not be personally liable for the debts and liabilities of the corporation. A corporation is composed of a board of directors, officers, and employees. You will most likely find yourself in all three of these roles. The board of directors of your nurse registry is responsible for making major business decisions and overseeing the general affairs of the corporation. The officers, who run the day-to-day operations of the corporation, are appointed by the directors. The directors can also appoint themselves as the officers, which is usually the case with most small corporations. As a small business owner, you will find that you must, “wear many hats,” from Chairman of the Corporation, to the Human Resources Clerk.
The biggest disadvantage you will face when incorporating is double taxation. A traditional corporation, known as a "C-corporation," pays a corporate tax on its corporate income. Then, when the C-corporation distributes profits to its shareholders, and the shareholders (you) pay income tax on those dividends. To avoid this double taxation, your registry can make a special election to be taxed as a pass-through entity, like a partnership or a sole proprietorship. Corporations that make this tax election are known as "S-corporations." Not every company can make this election because of the restrictions imposed by the IRS. As a small nurse registry, you should be able to make this election by completing IRS Form 2553, but check with your CPA. So let's look at some of the advantages and disadvantages your new nurse registry will face when incorporating.
Advantages:1.) After incorporation, you are not liable for the nurse registry's debts and liabilities. This is the most important aspect of a corporation. In a sole proprietorship and partnership, the owners are personally responsible for the debts and liabilities of the business. If the assets of the sole proprietorship or partnership cannot satisfy a debt of the business or of a lawsuit, creditors can go after each owner's personal bank account, house, etc. to make up the difference. This is why it is important to incorporate, and to carry proper insurance. Even under the laws of incorporation, you may still be held personally liable:
2.) Your nurse registry corporation will have a continuous life. The life of your registry, unlike that of a partnership or sole proprietorship, does not expire upon the death of its shareholders, directors or officers. As you get ready to retire, your legacy as a founder can live on through the nurse registry. In most cases, you can pass on your ownership to your children.
- If you personally guarantee a debt.
- If personal funds are intermingled with corporate funds.
- If your nurse registry fails to have director and shareholder meetings.
- If your nurse registry has minimal capitalization or minimal insurance.
- If your nurse registry fails to pay state taxes or otherwise violates state law.
3.) It is easier to transfer ownership of your nurse registry. If you decide to sell your registry, you can transfer the ownership of the corporation without having to disrupt the usual flow of business, and without the new owner having to change bank accounts, and business practices.
Disadvantages:1.) Corporations cost more to set up and run than a sole proprietorship or partnership. For example, there are the initial formation fees, filing fees and annual state fees. These costs are partially offset by lower insurance costs.
2.) Your corporation can only be created by filing legal documents with the state, and as such you must adhere to technical formalities. These include holding director and shareholder meetings, recording minutes, having the board of directors approve major business transactions and corporate record-keeping. If these formalities are not kept, you risk losing your personal liability protection. While keeping corporate formalities is not difficult, it can be time-consuming.
Forming a CorporationThe life of your nurse registry corporation will begin upon acceptance of the articles of incorporation with the state corporation commission. Prior to filing the articles of incorporation, the following issues need to be considered.
1.) The location of the corporation. You can incorporate in any of the 50 states. Delaware is a popular choice because of its history, experience, recognition and pro-business climate, but it is recommended to incorporate in your home state. Doing so may save you money because corporations are required to register as a "foreign corporation" in each state where they do business.
2.) The name of your corporation. The name of your corporation must end with "incorporated," "corporation," "corp." or "Inc." A name will not be accepted if it is likely to mislead the public or if it closely resembles the name of another corporation formed in that state.
3.) The registered agent of your corporation. Your Registered Agent is the person designated to receive official state correspondence and notice if the corporation is "served" with a lawsuit. The registered agent must be either (1) an adult living in the state of formation with a street address, or (2) a corporation with a business office in the state of formation which provides registered agent services. One of the advantages of forming a corporation in your home state is that any officer or director can act as the registered agent.
4.) The ability to hold your corporation meetings. Your nurse registry is required to hold an annual meeting of shareholders to elect directors. The minutes of these meetings must be carefully maintained. If the corporation has only one or a few shareholders, it may make sense to hold the meetings by conference call or simply by having the stockholders sign a statement indicating what actions are approved.
5.) The amount and type of stock you are issuing. The most basic level of stock is called "common stock." Sometimes, there is another level of stock, known as "preferred stock." The preferred stock generally has greater rights over the common stock when it comes to receiving dividends and/or assets from the corporation. The articles of incorporation must state the maximum number of stock shares that can be issued by the corporation. There is no need to actually issue the maximum number of shares – you can issue a lesser number. There is no maximum on the number of shares that can be authorized, but be advised that some states base their annual corporation fee on the number of shares authorized. In some states, a value, known as the "par value," must be stated. This value is simply for accounting and tax purposes, since stock can be sold at whatever price a buyer is willing to pay. The corporation, however, cannot sell stock for less than its par value. And since some states base their annual corporation fee on the total par value of the stock, it is advisable to choose a low par value, such as $.01 or even $.001.
Checklist for New Corporations
If you have any further questions, or would like to talk with Joe Caracci about assistance setting up your nurse registry, please call him toll free at (866) 211 - 1167 or visit http://www.nursingentrepreneurs.com/caracci
- Establish a corporate banking account. You will need a copy of your articles of incorporation and your Federal Employer Identification Number (EIN).
- Contact the Internal Revenue Service for information on filing your federal tax schedules. This will vary depending on the formation that you choose. You will also need to contact the Federal Government to obtain your Employer Identification Number (EIN).
- Find out about Workers' Compensation Insurance. If you decide on a Personnel Employer Organization (PEO), they should provide your Workers' Compensation Insurance.
- Order any required notices (advertisements you have to place) of your intent to do business in the community. You can receive a list of approved publications from the state corporation commission.
- Get adequate business insurance. You will need General and Professional Liability Insurance.
- Get tax information such as record-keeping requirements, guidelines for withholding taxes, information on hiring independent contractors, facts on estimating taxes, forms of organization, etc. Setting up Quick books with your CPA will keep you on the right track.
- Have business cards and stationery printed.
- Get your website up and get an email address.
About The Author:
Joseph Caracci is the Co-Founder and Former President of StaffingMedical USA, Inc in Phoenix AZ. Mr. Caracci is currently the President of NursingCorp, an Arizona based company that assists serious investors successfully enter the nurse registry business. Mr. Caracci is listed in the 2004-2005 Strathmore's Who's Who for his demonstrated leadership and achievement in New Business Start up and Operations.
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Our Newest article is from an Arizona Nurse Entrepreneur:
Should You Incorporate Your Registry Business? By Joseph Caracci, RN:"The short answer is yes! When starting a new nurse registry business, you are entering into a legal business environment that requires you to take steps to protect your personal assets, such as your home, your savings, and your retirement. With this in mind, you need to determine which legal form you are going to take for your new registry. Some of the common choices are a sole proprietorship, a partnership, a limited liability partnership (LLP), a limited liability company (LLC), and a corporation."
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- Article Index:
- Eight Tips for Aspiring Healthcare Entrepreneurs by Megan Malugani, Monster.com:"You may dream about being your own boss, but are you really ready to take the plunge into healthcare entrepreneurship? Besides having a winning idea or service to offer, you must be self-motivated, persistent and energetic, say successful healthcare entrepreneurs. Faye Berger Mitchell, a nutritionist in private practice since 1988 in Chevy Chase, Maryland, and Thom Golden, a former emergency room nurse who founded Doctor Baby Proofer in 1986 in Dallas, offer eight tips to aspiring entrepreneurs:
- How to Use Other People's Money for Your Business, By Matthew Lesko
- The New Power of Advertising, By Jay Conrad Levinson
The Story of the Hypnotic Writing Monkey, by Joe Vitale
- The Truth Must Be Told, Ted Nicholas
Interesting Reading For Nurse Entrepreneurs, Actual or Soon To Be:
Nurse Entrepreneurs: Tales of Nurses in Business:"This book is vey inspiring! Learn how 50 different nurses brought their vision to reality! Learn some great tips on starting your own business. Nurses don't have to just work at the bedside. Read this book and you will be thinking of how you can make your dream a reality!"
Own Your Own Corporation: Why the Rich Own Their Own Companies and Everyone Else Works for Them:"Rich Dad's-"Own your Own Corporation" is a must read for anyone comtemplating a new business-or someone who already owns their own business. Garrett's direct yet simplistic explanations of the different business entities,the proper and best suited entity for your business-is followed by real-life scenarios which helps drive home the importance of corporate ownership in today's business world. Use Garrett's legal expertise to establish a successful, legally responsible and fiscally protected business...And understand the why's and how's of that ownership."
21 Success Secrets, Success Secret #4- "Do What You Love to Do." Get your FREE CD and find out the other 20 secrets of self-made millionaires.:"Order your FREE CD ($4.95 S&H) from Brian Tracy's acclaimed 21 Success Secrets series. Start with 21 Success Secrets of $elf-Made Millionaires - full of techniques practiced by all men and women who go from rags to riches in one generation. Brian Tracy is a noted success expert. He's trained over 2 million people in 23 countries how to achieve their financial goals faster than ever before."
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Make Your Words Sell:"What Do YOU Sell? Want to Sell More? Selling software on the Net? Infoproducts? A service? Million dollar cables for suspension bridges? If you want to sell more... Use the right words. Because words sell, not graphics. If you have any doubts, try this simple experiment."
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Nurses' Station:"The idea for the Nurses' Station Catalog was conceived in 1989. After searching the marketplace in response to customer inquiries, it became obvious that there were no catalogs of this type serving the nursing profession. To be sure, there were several catalogs offering nurse's uniforms and a smattering of professional items. But there weren't any catalogs at the time offering a range of gifts, clothing, professional items, name badges, shoes and scrubs for nurses. It took two years of hard work to gather samples and put a together a catalog of the most unique and high-quality items for nurses."
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