How Web Collective Incorporated

At our December 13, 2006 retreat we voted to incorporate as Web Collective. We completed this process in May 2007. Although we are recognized as a Cooperative Corporation, our IRS designation for tax purposes is a S-Corporation.

A week later, in a short conversation with Diane at Northwest Cooperative Development Center, she recommended we go with a Cooperative Corporation. This statute is most appropriate for us because we want to operate as a democratic workplace, we don't need to raise capital through investment and we don't have disproportionate ownership stakes.

Read below to find out more about what you group may want to consider when you are in the formation stage.

Steps for Incorporating Your New Cooperative

1. Verify availability of name and trademark
• Check with WA state
  
• Check with US Trademark office
  
• Check with WA State tradename
2. Decide incorporation type? Cooperative Corp, LLC, S-corp or C-corp
1. Collect a list of pros-cons and implications for each option
2. Review with group and name any concerns individuals have
   
3. Achieve consensus and document decision
   
3. Draft and adopt By-laws
• Collect other co-ops' by-laws
• Compile 'best-of' language
• Find the key decision points
• Review with group and name any concerns individuals have
• Achieve consensus and document decision
4. Draft incorporation letter
5. Have lawyer review
6. File with Washington State
• WA Employee Cooperative Corporation statute

The benefits of a S corporation, C corporation or LLC

• Limit personal liability of officers and owners.
• Protection of personal assets from the business.
• Protection of corporate assets from the owners and officers.
• Build a separate business credit profile.
• Easier to raise capital.
• Easier to solicit investors.
• Lower tax liability.
• Corporate Image.
• Lower risk of IRS audit.
  

When to use a S Corporation

• When the owners live in a state with no personal state income tax.
• Have one or two individuals who own the company. (Can be as many as 35)
• Have profits less than $250,000.

When to use a C Corporation

• When the owners live outside the country
• When the owners live in a state with a state income tax
• When several individuals are involved in the ownership
• When other entities are in involved in the ownership
• Have sales greater than $60,000

When to use a Limited Liability Company - LLC

• Any partnership
• Owning real estate for investment purposes
• Have several entities that own the business
• Looking for complete protection of the owners personal liability