1) Should I protect my home and personal assets by incorporating my business?
Typically, yes. The single most important reason for incorporating is the fact that debts of the corporation and claims against the corporation will not adversely affect your home and other personal assets.
2) What is the difference between a corporation and a limited liability company (LLC) in Rhode Island?
Both a corporation and a limited liability company (LLC) provide asset protection against claims against your personal assets. The main difference between the two involves the treatment of profits and losses for income tax purposes. A corporation is a taxable entity and pays taxes on its profits. A limited liability company does not pay taxes on the corporate level, but its profits and losses are taxed on each member's own tax return. In a corporation the owners are referred to as shareholders and in a limited liability company the owners are referred to as members. The Chief executive officer of a corporation is the President. The Chief executive officer of a limited liability corporation is the Manager.
3) What will my lawyer need to know at our first meeting in order for him to incorporate my business?
You will need to provide the attorney with two or three potential names for the business so that he can determine if any of them are already used. The attorney will need to know the name of your accountant so that he can discuss with the accountant whether you should be a corporation or a limited liability company. The attorney will need to know the names, addresses and social security numbers of each of the shareholders / members of the corporation or limited liability company.
4) If I incorporated, will I need to do anything each year to keep the corporation in good standing?
Yes. An annual report filed with the Secretary of State is required each year listing the address of the business and the current shareholder / member. Typically, an attorney prepares this report and updates the corporate minute book by preparing the minutes of the annual meeting.
5) If I am operating a business with another person, should I form a partnership or incorporate?
If you are in business with another person, at the very least you should have a partnership agreement indicating who owns the business and how decisions are made in the operation of the business. Another crucible aspect of the agreement will be determining what happens upon the death of one of the owners. Often, it is preferable to set up a corporation or limited liability company so that your personal assets will be protected from the debts of the partnership and for any claims for injuries or property damage resulting from the other partner.