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Business Entity Filing

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Questions & Answers

What is an agent for service of process?
Can I print the Article of Incorporation from my PC?
How do I get my corporation number?
Why is another organization collecting fees for the Secretary of State?
What if my PC crashes during my session?
When will I get a copy of my Article of Incorporation that I filed or amended?
What are the differences between Sole Proprietorships, General Partnerships, Limited Liability Companies, and Corporations?
Where do I get the forms to file a General Partnership, Limited Partnership, Limited Liability Partnership, Limited Liability Company, or Corporation?
I will be filing as a corporation and want to see if the name has been used?
I am looking for financing for my new business? Are there any loans or grants available?


What is an agent for service of process?

An agent for service of process is an individual (or another corporation) designated by a corporation to accept service of process if the corporation is sued. Kansas residency is the only requirement for an individual to be named as an agent for service of process.

• NOTE: A corporation cannot act as its own agent. Approval from a proposed agent should be obtained prior to designation.


Can I print the Article of Incorporation from my PC?

Yes. Once you have filed your Article of Incorporation, you will need to print it for your records: You will NOT have another chance to print the Article.


How do I get my corporation number?

After you have finished filing, you will see a button; that will allow you to view your Certificate for Article of Incorporation. On this page you will be given your corporation number, along with the Time of Transaction.


Why is another organization collecting fees for the Secretary of State?

Kansas.gov is acting as an agent for Secretary of State. We will collect payment and demographic information before passing that along to the Secretary of State.


What if my PC crashes during my session?

All information will be lost. You will need to start over from the beginning.


When will I get a copy of my Article of Incorporation that I filed or amended?

At the end of your session, you will view a page listing all of you transactions. At this page you will need to click the "appropriate link"; this will display the page with your official Article of Incorporation information. THIS IS YOUR FILING. PLEASE PRINT THIS PAGE.


What are the differences between Sole Proprietorships, General Partnerships, Limited Liability Companies, and Corporations?

It is advised that you seek legal counsel and/or a business account to see how a specific structure will impact your business. Below is a brief description of the business structures available in Kansas.

Sole Proprietorship
General Partnership
Limited Partnership
Limited Liability Partnership
Corporation
Limited Liability Company
Business Trust
Franchise
Nonprofit Corporation

 

Sole Proprietorship
Registration: None
Fee: None
The sole proprietorship is the most common form of business structure. A sole proprietorship is a business controlled and owned by one individual, and is limited to the life of its owner; when the owner dies, the business ends. The owner receives the profits and takes the losses from the business.

This individual alone is responsible for the debts and obligations of the business. Income and expenses of the business are reported on the proprietor’s individual income tax return, and profits are taxed at the proprietor’s individual income tax rate.

Kansas has no state requirements to register or file business names of a sole proprietorship. A selfemployed person, who does not expect to have employees, is not required to apply for a Federal Employer’s Identification Number through the IRS. Form 1040 (Schedule C) must be filed with the Federal Government and a Kansas tax return with the Kansas Department of Revenue, on or before the 15th day of the fourth month following the close of the taxable year.

Note: Sole proprietors and partnerships are required to make estimated income tax payments if their estimated Kansas income tax, after all credits, is $200 or more. Non-residents should consider only income from Kansas sources for meeting these conditions.

Advantages

  1. Few formalities and low organizational costs.
  2. Decision-making is made by the owner.
  3. Ability to do business in almost any state without elaborate formalities.
  4. Fewer reporting requirements to government agencies.
  5. Avoidance of corporate “double tax.”
  6. Business losses may be taken as a personal income tax deduction to offset income from other sources.
  7. All profits taxed as income to owner at the owner’s personal income tax rate.
  8. Registration of a trade name is available to prevent confusion resulting from deceptively similar business names.

Disadvantages

  1. Less able than corporations or partnerships to take advantage of certain fringe benefits afforded by the Internal Revenue Code.
  2. Business terminates upon death of owner.
  3. Investment capital limited to that of owner.
  4. Loans based on credit worthiness of owner.
  5. Owner’s assets subject to business liabilities. Thus, if a company truck is involved in an accident, the owner’s personal assets (i.e., bank accounts, cars, etc.) may be attached to compensate the injured party.

Tax Implications

  1. Profits are taxed as personal income on IRS Form 1040, Schedule C.
  2. For information on Social Security tax, refer to IRS publication 533, and use IRS Form SE.
  3. For estimated tax payments, refer to IRS publication 505.
  4. To receive a “New Business Tax Kit,” contact the IRS at (800) 829-3676.


General Partnership

Registration: Secretary of State — Optional, not required.
Fee: $75.00

A general partnership is a business owned by two or more persons (even a husband and wife), who carry on the business as a partnership. Partnerships have specific attributes, which are defined by Kansas statutes. All partners share equally in the right and responsibility to manage the business.

Each partner is responsible for all debts and obligations of the business. The distribution of profits and losses, allocation of management responsibilities, and other issues affecting the partnership are usually defined in a written partnership agreement.

For income tax purposes, a general partnership functions as a conduit, and not as a separate taxable entity. No tax is imposed on the partnership itself (K.S.A. 79-32,129 et. seq.). Those carrying on business as partners are liable for tax based on their percentage of ownership, and must file a Kansas Individual Income Tax Return (form K-40) (K.S.A. 79-3220). Each individual partner is subject to the same reporting requirements and tax rates as the sole proprietor or individual. The partnership must file a Kansas Partnership Return (form K-65) each year to enable the state to determine who should be paying taxes relative to the partnership.

Unemployment taxes need not be paid on the partners, or for services rendered by individuals who are the children under eighteen years of age, the spouse, or the parents of any partners. General partnerships may file different statements with the Secretary of State’s office. The filings are optional and not mandatory. The filing fee for partnership authority is $75 and the filing of any amendments to the general partnership agreement (such as the addition of a partner) is $20.

Partnerships are required to apply for a Federal Employer’s Identification Number, whether they have employees or not.

Advantages

  1. Easy to organize and few initial costs.
  2. Draws financial resources and business abilities of all partners.
  3. Quasi-entity status – may own assets; contract in partnership name; may sue and be sued in partnership name; and may file separate bankruptcy.
  4. Liability is shared by all partners.
  5. Partners may take business losses as a personal income tax deduction.

Disadvantages

  1. Each partner is personally liable for all the obligations of the business, not just his or her share. Thus, if a company truck is involved in an accident, each partner’s personal assets may be attached to help compensate the injured party.
  2. Each partner has the power to act on behalf of the business. This requires that partners be chosen with care.
  3. No continuity of life – if any partner dies or becomes incompetent, the partnership must dissolve and be reformed.
  4. All partners must pay tax on their share of partnership profits, although profits may be retained in the business.
  5. A partnership has more opportunity than a sole proprietorship, but less than a corporation, to take advantage of certain fringe benefits afforded by the Internal Revenue Code.

Tax Implications

  1. Each partner receives a K-1 which shows proportional profits to be declared on partner’s 1040.
  2. The partnership files a return using IRS Form 1065.
  3. Estimated tax payments may be subject to quarterly tax payments; refer to IRS Publication 505.
  4. Partners may be subject to self-employment withholding; refer to IRS Publication 533.
  5. For more information refer to IRS publication 541 on partnerships.


Limited Partnership

Registration: Secretary of State
Fee: $150.00 (Domestic/Foreign)

In a limited partnership, each partner is liable for debts only up to the amount of his or her investment in the company. Under Kansas statutes (K.S.A a56-1a, et seq.), a limited partnership must be formed in writing between one or more general partners and one or more limited partners.

In addition, limited partners have no voice in the management of the partnership. Limited Partnerships are ideal for property, or raising capital. Each limited partnership must have and maintain a registered office that may or may not be the place of business. Additionally, a Kansas resident agent must be appointed, which may either be an individual, a domestic corporation, or limited partnership.

In a limited partnership, each partner is responsible for filing a Kansas Individual Income Tax Return (form K-40), the same requirement as a General Partnership. A Kansas Partnership Return (form K-65) must also be filed. A Limited Partnership Certificate must be filed with the Secretary of State, and the limited partnership may be required to register the limited partnership’s interest in securities with the Office of the Securities Commissioner.

Advantages

  1. Investors have liability limited to their respective investments in the partnership.
  2. The limited partnership is a separate entity and may sue and be sued, own property, protect its limited partners from unlimited liability, may raise capital by selling interests in the partnership, borrow money, and exist independently of its partners’ mortality.
  3. The limited partnership does not have to be dissolved and reformed every time a general partner or limited partner dies.
  4. Ability to borrow money, develop general partner savings, raise funds from operations, plus sales of limited partner interests to generate capital.
  5. Managed by the general partner and not subject to investor interference.
  6. Partners pay the tax because profits and losses pass through the entity to the partners.

Disadvantages

  1. A limited partnership requires advanced accounting procedures
  2. Does not live in perpetuity, but lives for a stipulated period—usually for the life of the assets it owns.
  3. Limited partners have little voice in management once the investment is made in the partnership.
  4. If more than 20 partners are involved, or if sales commissions are given for interests, the limited partnership may need to register its securities before they are sold.
  5. Interests may not be freely traded; therefore, a limited partner must hold the investment indefinitely.
  6. A Certificate of Limited Partnership must be filed with the Secretary of State, annual financial reporting to limited partners, annual reports to the Secretary of State and franchise tax, as well as accounting for all monies received and disbursed.

Tax Implications

  1. The partnership files an IRS Form 1065, but individual partners pay taxes on their share of profits shown on K-1 via Form 1040.
  2. The partnership must obtain a tax identification number (FEIN, Form SS-4).
  3. For an explanation of taxation and forms, refer to IRS Publication 541.
  4. Partners may be subject to self-employment withholding; refer to IRS Publication 533.


Limited Liability Partnership
(LLP)
Registration: Secretary of State
Fee: $150.00

A limited liability partnership is a partnership in which a partner’s personal assets are shielded from claims for negligence, malpractice, or other wrongful acts committed by other partners, or the employees those partners directly supervise. LLPs do not shield partners against the partner’s own acts, omissions, or other partnership obligations.

In a limited liability partnership, no registered office is required, and no resident agent must be appointed. However, the address of the principal office or partnership agent must be listed.

Advantages

  1. Investors have liability limited to their respective investments in the partnership.
  2. The LLP is a separate entity and may sue and be sued, own property, protect its partners from unlimited liability, raise capital by selling interest in the partnership, borrow money, and exist independently of its partners’ mortality.
  3. The LLP does not have to be dissolved and reformed every time a partner dies.

Disadvantages

  1. An LLP requires advanced accounting.
  2. The LLP does not live in perpetuity, but lives for a stipulated period, usually for the life of the assets it owns.


Corporation

Registration: Secretary of State
Fee: $75/Domestic & Professional — $100/Foreign

The most complex business structure is the corporation. A corporation is a separate legal entity that is comprised of three groups of people: shareholders, directors, and officers. The shareholders elect a board of directors that generally is responsible for the debts and obligations of the business. In most cases, shareholders are insulated from claims against the corporation. The corporation, as a separate legal entity, is also a separate taxable entity.

The corporation may be taxed under Subchapter C of the Internal Revenue Code (a “C” corporation) or Subchapter S (an “S” corporation). Kansas law provides for comparable treatment. A “C” corporation reports its income and expenses on a corporation income tax return and is taxed on its profits at corporation income tax rates. Profits are taxed before dividends are paid.

Dividends are taxed to shareholders, who report them as income, resulting in “double taxation” of profits, which are paid as dividends. If the corporation meets the statutory requirements for “S” corporation status, the shareholders may elect to be taxed as an “S” corporation. The “S” corporation is taxed in the same manner as a partnership (i.e., the “S” corporation files an information return to report its income and expenses, but it generally is not separately taxed). Income and expenses of the “S” corporation flow through to the shareholders in proportion to their shareholdings, and profits are taxed to the shareholders at their individual income tax rate. To elect to be an S Corporation, a corporation must file Form 2553 with the IRS.

A “domestic” corporation is one incorporated within the boundaries of Kansas. A “domestic” corporation must file Articles of Incorporation with the Secretary of State. This application carries a $75 filing fee.

A “foreign” corporation is a business incorporated in another country, state, or jurisdiction other than Kansas. In order to conduct business in Kansas, a foreign corporation must file a Certificate for

Authority to engage in business in Kansas. This application carries a $100 filing fee. A business is required to apply for authority to engage in business in Kansas, if they are a place of business opening an office or distribution point, or delivering wares to resident agents in Kansas for sale, delivery and/or distribution (K.S.A. 17-7303).

The “professional corporation” is comprised of a single professional, or group of professionals, who file both Articles of Incorporation and a certificate from their specific professional regulatory board with the Secretary of State with a $75 filing fee. Shareholders of a professional corporation are limited to members of that specific profession.

It is advised to have your legal counsel and/or accountant explain the advantages and disadvantages of each type of business structure.

Advantages

  1. No shareholder, officer, or director may be held liable for debts of the corporation unless corporate law was breached.
  2. Interests in the business may readily be sold by the transfer and sale of shares in the corporation.
  3. The ready transferability of shares facilitates estate planning.
  4. If desired, the corporation may be taxed as a Sub-chapter S under the Internal Revenue Code.
  5. Shares of the company may be sold to investors in order to obtain capital financing.
  6. Corporations, to a much greater extent than sole proprietorships and partnerships, may take advantage of pension plans, medical payment plans, group life and accident plans, and other fringe benefits available under the Internal Revenue Code.
  7. The corporate form provides for a great deal of flexibility with respect to tax planning. For instance, income between the corporation and its shareholders may be adjusted, within reasonable limits, to obtain the most favorable tax treatment for each individual.
  8. The entity exists forever, so long as corporate regulations are met. There is no need to cease operations if an owner or manager dies.

Disadvantages

  1. Cost of organization, legal fees, and state filing fees can be expensive depending on the complexity and size of the business.
  2. Control is vested in a board of directors, elected by shareholders rather than the individual owners. Thus, a shareholder who owns less than 50 percent of the stock may have no effective voice in how the business is run.
  3. The possibility of double taxation exists. Income from the business is taxed at the corporate level and again when the individual shareholders receive profits in the form of dividends.
  4. The corporation must qualify in each state in which it chooses to do business.
  5. Unlike sole proprietorships and partnerships, individual shareholders may not deduct corporation losses unless the corporation has elected to be taxed as a Subchapter S corporation.

Tax Implications

  1. Read IRS Publication 542 on corporate taxation.
  2. Corporations file an IRS Form 1120 and report earnings and taxing profit.
  3. Corporations may be subject to quarterly estimated tax payments; refer to IRS Publication 505.

Tax Consideration

There are two ways to tax a corporation: as a C corporation or as a Subchapter S corporation. In an S corporation, salaries of officers are deductible expenses and therefore reduce the amount of income subject to corporate income tax, but they are also subject to individual income tax. If salaries become too high, the IRS may treat a portion as a dividend from the corporation. In a C corporation, dividends are not deductible by the corporation, resulting in double taxation, because the same money is taxed as a part of the corporate profit and as income to the individual.

In order to qualify under the Internal Revenue Code as a Sub-chapter S corporation, the corporation must file Form 2553 with the Internal Revenue Service and meet the following requirements:

  1. Have at least one, and no more than 75 shareholders (husband and wife can count as one shareholder);
  2. Have no shareholders who are nonresident aliens;
  3. Have only one class of stock;
  4. Have no more than 80 percent of its gross receipts from outside the United States; and
  5. Have no more than 20 percent of the corporation’s gross receipts from royalties, rents, dividends, interest, annuities, and gains on sale or exchange of stock or securities.

Note: Every Corporation must make a declaration of its estimated income tax for the taxable year, if its Kansas income tax liability can reasonably be expected to exceed $500 (K.S.A. 79-32,101). Any corporation who began business in Kansas during this period is not required to file a declaration for this period, and no underpayment of estimated tax penalty will be imposed. Subchapter S Corporations must file a Kansas Small Business Corporation Form (form 120S) and report income on individual income tax forms. Corporations doing business in Kansas, or deriving from Kansas sources, must file a Kansas Corporate Income Tax Return, Form K-120. The corporate tax rate is four percent of Kansas taxable income, with an additional tax of 3.35 percent on income over $50,000 (K.S.A. 79-32,110).



Limited Liability Company (LLC)

Registration: Secretary of State
Fee: $150 (domestic/foreign or professional)

A limited liability company is a business entity that combines the limited liability of a corporation with the flexible management options of a general partnership. In 1990, Kansas was the fourth state to authorize the creation LLCs. Each member of an LLC enjoys liability limited to that of the investment in the business, and pays taxes in proportion to ownership; thus avoiding the corporate malady of double taxation. Every limited liability company formed in Kansas must have the words “limited company,” or their abbreviation “LC,” “L.C.,” “LLC,” or “L.L.C.” included at the end of the company name.

An LLC must maintain a resident agent and file annual reports. Members of an LLC may be involved in the management of the business without incurring personal liability. If properly structured, an LLC may receive pass-through income tax treatment similar to a partnership. Articles of organization and other filings must be filed with the Secretary of State. A foreign LLC must file an application for authority to do business in the State of Kansas with the Secretary of State.

The professional LLC is comprised of a single professional, or group of professionals, who file both articles of organization and a certificate from their specific professional regulatory board with the Secretary of State’s office. The certificate must state that each member is duly licensed and that the company name has been approved. No special wording denoting that they are different from a regular, nonprofessional LLC is required.

Advantages

  1. Liability of members limited to amount invested.
  2. Very flexible management options.
  3. May be taxed as partnership.
  4. An LLC can be perpetual.

Disadvantages

  1. Limit on the life of the company.
  2. Articles of organization must state a date upon which the company will dissolve.
  3. LLCs are not available in every state, thus the limited liability of the interest holder(s) may not be recognized by the courts of those states.
  4. LLCs are complicated to form legally and require substantial accounting work.
  5. Limited transfer of interest - an investment is illiquid since all members must vote to transfer a member’s interest.

Tax Implications

  1. An LLC must obtain a Federal Tax Identification Number.
  2. Although the business structure resembles a corporation, LLCs can be taxed as though they were a partnership. The IRS has the ultimate say on taxation, but new treasury regulations allow the LCC to indicate how it is to be taxed when filing.
  3. In a limited liability company, each member must report income on individual income tax forms and file a Kansas Partnership Return (Form K-65).


Business Trust

Registration: Secretary of State
Fee: $50

The business trust has filing requirements similar to those required of corporations. Specific questions about establishing a Kansas business trust should be directed to the Corporations Division within the Kansas Secretary of State’s office.



Franchise

Registration: None
Fee: None

There are no registration requirements at the state level for the establishment of a franchise. However, some cities have occupational licensing for business establishments. Businesses are, for the most part, categorized according to the federal Standard Industrial Classifications (SIC) code.

There are no distinctions made between a business that has a national franchise agreement and one that is independently owned.



Nonprofit Corporation

Registration: Secretary of State & Internal Revenue Service
Fee: $20

There are three main characteristics that distinguish a nonprofit organization from a business enterprise, they are:

  1. Significant amounts of revenues are received from providers or entities that do not expect to receive either repayment or economic benefits relative to the amounts provided;
  2. There is no defined ownership that can be sold, redeemed, or transferred; nor is there entitlement to a share of the assets if the organization is liquidated; and
  3. The purpose in the operation is not to produce a profit.

There are more than 25 categories of tax-exempt organizations classified under Section 501(c)(3) of the Internal Revenue Code, as well as additional types of entities under other sections of the code.

Some of the major classifications include: civic leagues, religious organizations, chambers of commerce, recreation clubs, social clubs, labor organizations, libraries, museums, and voluntary health and welfare organizations.

An organization that wants to be a nonprofit entity must apply for tax-exempt status from the IRS and pay a user fee. Tax exemption is a privilege granted by Congress through the IRS. In return, nonprofit organizations are subject to a range of IRS requirements that differ from those for business enterprises. Among those is the requirement that a nonprofit organization’s activities (income and expenses) be substantially related to its exempt purpose. A nonprofit organization must limit all partisan political activity, as well as limit lobbying activities. In addition, none of the nonprofit organization’s assets can insure benefit to any private individual.

Most nonprofit organizations are required to file an annual tax return, Form 990. If more than $1000 of income is received, that was not related to the exempt purpose, Form 990T must be completed and taxes on those receipts paid.


Where do I get the forms to file a General Partnership, Limited Partnership, Limited Liability Partnership, Limited Liability Company, or Corporation?

Forms to file a specific structure can be found on the Secretary of State’s Web site at http://www.sos.ks.gov/


I will be filing as a corporation and want to see if the name has been used?

You can search the corporate database for a listing of Kansas Corporations at http://www.kansas.gov/bess/


I am looking for financing for my new business? Are there any loans or grants available?

The Kansas Department of Commerce does not have grants available for new businesses, and we are not a lending facility. We suggest that you contact the Small Business Administration, or one of the Small Business Development Centers for more information on financing for your business.



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