Corporate America

G E T A L L YO U C A N 2003

TABLE OF CONTENTS
TABLE OF CONTENTS Introduction Incorporating Why You Should Incorporate Where You Should Incorporate What You Should Incorporate How You Should Incorporate ii 1 1 3 4 6 7

The Corporate Mindset..................................................................................................................................... 8 Meeting of Incorporators.................................................................................................................................. 8 Corporate Name............................................................................................................................................. 10 Registered Agent............................................................................................................................................ 11 The Corporate Address .................................................................................................................................12 Articles of Incorporation................................................................................................................................ 12 Certificate of Good Standing.......................................................................................................................... 13 Officer's List................................................................................................................................................... 13 Corporate Charter .......................................................................................................................................... 14 After You Incorporate 14

The Board Meeting......................................................................................................................................... 15 Corporate Stock Kit ....................................................................................................................................... 15 Managing the Stock ....................................................................................................................................... 16 Power of Attorney........................................................................................................................................... 18 Corporate Resolutions.................................................................................................................................... 19 Notarization.................................................................................................................................................... 20 Bylaws............................................................................................................................................................ 21 Tax ID ............................................................................................................................................................. 22 State Qualification.........................................................................................................................................22 Business Telephone Lines............................................................................................................................. 22 Corporate Bank Account ............................................................................................................................... 23 Business License............................................................................................................................................ 25 Corporate Credit ............................................................................................................................................ 25 Personal Credit .............................................................................................................................................. 31 Establishing Divisions.................................................................................................................................... 31 After Startup 38

The Second Board Meeting ........................................................................................................................... 38 Payroll ............................................................................................................................................................ 39 Subsidiaries ................................................................................................................................................... 40

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Establishing Committees .............................................................................................................................. 41 Ultimate Corporate Protection 41

The Asset Company........................................................................................................................................ 42 The Replacement Corporation....................................................................................................................... 42 Always Be in Control of the Assets...............................................................................................................43 Managing Personal Assets ............................................................................................................................ 45 Keeping It in the Family ................................................................................................................................ 46 Non-Profit Corporations S Corporations Press for Success 47 48 50

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Introduction
There is a world that exists beyond our daily consideration. We interact with it, communicate with it and look right at it every day. In fact, there is not a day that goes by in which we live without this world that has emerged. The truth of the matter is that we are currently living in a world that is becoming more and more infected by this other world everyday. The infection that I am talking about is that of the corporate world; corporate America. The clothes that you wear, if you did not make them yourselves, are probably a product of a corporation. The food that you eat, if not grown in your back yard or someone elses, is a product of a corporation. The bed that you will sleep on tonight, most likely a product made by a corporation. The car you will drive tomorrow, the cement you will walk on the cell phone that you will use, all are products of some corporation. Your house even if made by your own bare hands is composed of materials provided by corporations. Did you know that the U.S. government is actually a corporation? Did you know that each individual state and city, the Federal Reserve and the IRS are all incorporated? So even the land you live on is part of a corporation and the money you use is debt that is owed to you by a corporation (Federal Reserve notes). You cannot live in the United States without interfacing with a corporation. The scary part is that you probably have not the faintest idea of what a corporation is. As far as you know it is just a small business that has been around for a long time and has grown over the years to a multi-million dollar company and has achieved corporate status, whatever that is. However this assumption is false. It seems only rational to know and understand a few things about the corporate world that you live and breathe in everyday and how it works and maybe more importantly; why this world exists. In this tutorial I hope to tell you a thing or two about corporations and how to use this infection to your advantage. If you cannot beat them; join them.

Incorporating
This guidebook is for the serious businessman who is willing to make the commitment to build a new future under a corporation versus a sole-proprietorship which can cause disaster to you and your family, create tax problems and personal credit problems. A corporation will allow you to easily achieve your goals without the risk associated with a sole-proprietorship. Every day consumers consider the opportunity of being in business for themselves. Once that first step and decision has been made to 1

become an entrepreneur, there are two ways to begin a business. If you choose to incorporate a business in a state, you will be referred to as a corporation. All liability is the responsibility of the corporation. A corporation is considered a legal person that may sue or be sued. Corporations must have officers as well as give ability to sell shares of stock. If a corporation goes bad, it has the right, under federal law, to file for bankruptcy protection. This is not to have the intent to file bankruptcy, but to know that if you ever had to file bankruptcy, the pain does not come home. This allows consumers to establish a new business if they decide to go back into business at anytime. As long as they file a separate corporation, this can be accomplished immediately. As a corporation, tax is only due based on profit and loss. In other words, if the corporation breaks even or loses money, what tax would be due? ASS-ET PROTECTION Many people incur debt. When incurring debt we seem to be sued, and there is always somebody hiring an attorney to take away our assets. With a corporation you may have that corporation own assets and make the corporation to allow you to use the assets. Then if anybody sues you personally they get nothing because you own nothing. You may be broke and not own anything but if you do things right you are in charge of a multi-million dollar company that allows you to use its assets. WHAT IS CORPORATE CREDIT When starting a business, it takes money and most people take from their family and their own credit cards. This hurts the family. Remember a corporation is a 'legal person' and can build its own credit so that you can use corporate credit to finance the business and maintain the minimum payments. This will allow your business to grow. If anything goes wrong then the business feels the pain but you never bring it home. In this guidebook you will learn many things about corporations. Mainly you will learn how to incorporate with a C corporation in the state of Nevada and how to maintain it. You will learn that maintenance and management of a corporation is the key element. What good is a corporation if you do not know how to use it? We suggest that you first read through this guidebook a few times, make many notes, do some research and then make a plan of action for what you are going to do. This way you will have a road map to your destination and hopefully you will be able to forecast some problems before they occur.

Included with this guidebook are important forms and documents that you will need in order to implement the strategies outlined in this guidebook.

Why You Should Incorporate

Even if money or business is not a priority for you, incorporating is a necessary element for making many goals a reality in America, especially if your goals include financial success and independence. Have you ever asked yourself, "What do rich people do to get and stay rich?" The answer is simple: They have the knowledge that enables them to obtain the financial base they need to achieve their goals, and they know how to protect their assets. They often do this by setting up a corporation. Usually when people go into business, they choose a sole proprietorship. This means they either use their name directly for business or they file what is called a fictitious business filing of their self which allows them to do business under another name. This is what most ma and pop shops do. This is not recommended at all. Under a sole proprietorship you are 100% responsible for the activity of your business. If there are any law suits, any debts that cannot be paid, the liability or responsibility comes after you personally and anything you own. Most will try to compensate by getting insurance which has to be paid every month. Sometimes insurance is not enough. What if you could have somebody else to take the responsibility? You can, by forming a new person to do your business for you who will take all the liability that is generated from the business that you want to do. Further more we suggest that person to be a corporation. The First thing that you should know about a corporation is that a corporation is a legal person. As the law sees you or me, it also sees a corporation in the same light. From a legal perspective you are merely a Name with rights and a few identification numbers: social security, which is also your tax identification, maybe a drivers license number and what ever other number that may identify you. In the same respect a corporation is a name with rights and a few identification numbers: tax ID, charter number and what ever other numbers that may identify it.

The Securities Act of 1933 defines a person in the following manner: The term ''person'' means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, any unincorporated organization, or a government or political subdivision thereof. (Securities Act of 1933 Sec. 77b (a) (2), emphasis mine) The Fair Credit Reporting Act: The term person means any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity. (Fair Credit Reporting Act Sec. 603 (b), emphasis mine) You may also look up a corporation in a law book or law school book and find out a little more. For example since a corporation is a person, it has rights. A corporation is recognized under state and federal law as a person, and it enjoys many of the same rights and privileges that U.S. citizens enjoy. The Bill of Rights guarantees a person, as a citizen, certain protections, and corporations are considered persons in most instances. Accordingly, a corporation has the same right as a natural person to equal protection of the laws under the Fourteenth Amendment. It has the rights of access to the courts as an entity that can sue or be sued. It also has the right of due process before denial of life, liberty, or property, as well as freedom from unreasonable searches and seizures and from double jeopardy. (Fundamentals of Business Law 4th edition) So this means that any business done under the corporations name and identity is the responsibility of the corporation and not you. Of course there is a lot more to a corporation then that it is a person. Corporations also have perpetual life unlike other forms of business. It also receives better tax advantages than human beings as well. In addition establishing a corporation will allow you to: Gain the credit needed to set your goals in motion, and to sustain you through start up and the rough times; Protect your assets from those who may want to take them away; Buy many hard-goods and business-related items, such as cars, gas, and printing at wholesale prices.

Where You Should Incorporate

It used to be that people wanting to be rich would just do what rich people do. Many banks were incorporated in Delaware. People used to say "follow the money." In other words, do what the rich people do so 4

you can become just like them. As of 1995, Delaware added additional taxes and now discloses all information regarding stockholders to the IRS. Remember, when setting up a corporation, you want to go to the state that gives you the tax benefits and does not disclose any involved parties. In many states, if a corporation goes sour and is forced into bankruptcy, piercing a corporate veil will make all officers liable. The preferred state to incorporate is Nevada. Nevada does not disclose information to the IRS. Nevada has no gift tax or inventory tax. Piercing the corporate veil or knowing who owns the stock is almost impossible in Nevada. Anybody can setup a corporation and choose any one of our 50 states to incorporate in. Why not choose the preferred state? Nevada corporations can do business in all 50 states. Most of the corporations in California are out of state corporations doing business in the state of California as themselves or a division. You may incorporate in any state you choose and you will gain many advantages as outlined above. We might pick Nevada or California, but as many things change from state to state, we are going to realize one thing: a corporation being a legal person is better than being ourselves in business. Is Nevada, California, Delaware, or Wyoming better than any other? It depends on how well you structure. Based on states the fees they charge, this is going to be a controversial issue. However, you should consider that there is ONE state that has the best advantages; Nevada You may select any state in which to incorporate. We simply recommend Nevada for the following reasons. The laws for corporations in the state of Nevada have many advantages over jurisdiction. Some laws in Nevada are far more liberal than the laws of any other state in the Union. Legislature has felt this policy to be advisable for many years in order to encourage prospective incorporators to incorporate in Nevada as means to increase revenue to their state.

Dean Heller Nevada Secretary of State Corporate Information

Why Incorporate in Nevada?

No Corporate Income Tax

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No Taxes on Corporate Shares No Franchise Tax No Personal Income Tax No I.R.S. Information Sharing Agreement Nominal Annual Fees Minimal Reporting and Disclosure Requirements Record!!! Additional Advantages
Stockholders are not Public

Stockholders, directors and officers need not live or hold meetings in Nevada, or even be U.S. Citizens. Directors need not be Stockholders Officers and directors of a Nevada corporation can be protected from personal liability for lawful acts of the corporation. Nevada corporations may purchase, hold, sell or transfer shares of its own stock. Nevada corporations may issue stock for capital, services, personal property, or real estate, including leases and options. The directors may determine the value of any of these transactions, and their decision is final.

http://sos.state.nv.us/comm_rec/whyinc.htm

What You Should Incorporate

There are many types of corporations you can elect to establish. However, the most common and preferred are: 1. Non-profit 2. For-profit Non-profit corporations: Non-profit corporations are generally set up to perform good deeds and provide humanitarian services. Their profits are put back into the corporation and into furthering the company's humanitarian efforts. 6

Non-profit companies issue membership certificates instead of stock. And although you can receive a nice paycheck from a non-profit organization, they are generally not able to provide asset protection. We will talk more about this later. For-profit corporations (C and S Corporations): C and S corporations are intended to generate a profit, which is shared amongst the stockholders. S Corporations There are some differences between C and S corporations however for the moment the important thing to know is that S corporations do not give us the protection or the flexibility that we need. S corporations require you to fully disclose all of the stockholders and only human beings can own stock of an S corporation. The main benefit with S corporations is that they supply flow through taxation. This means that there are no corporate taxes. All profits are passed directly to the stockholder and then taxed there instead of at both the personal and corporate level. S corporations are basically a status of the corporation with the IRS. Even though flow through taxation sounds better and possibly easier it ends up being more complicated. If you choose to set up a for-profit corporation, you will initially set up a C Corporation, which can be converted to an S corporation once it is established. However, we do not recommend S corporations. We think that S stands for stupid. C Corporations At this point all you need to know about a C corporation is that it provides the most protection (if incorporated in Nevada) and the most flexibility which we will find out later. You should also know that there are two types of C corporations. There are public corporations which are traded on the open markets such as NASDAQ, DOW, and S&P. This means that their stock is available to the public to buy and trade. Then there are Private corporations, which we will be discussing in this guidebook.

How You Should Incorporate

Now that you know why, where and what you should incorporate you need to know how to incorporate. The first thing you need to do is hold a meeting to discuss your intentions. You should first do as much research as you can bear then layout a plan to incorporate as discussed and then get together with whoever you want to go into business with (possibly only yourself) and have a meeting. You must have a meeting, even if it is just by yourself.

The Corporate Mindset Before you start a corporation you must change your mindset. You no longer want to own anything. You no longer want to own your own business. When you own things you screw things up; you can be sued and your things may be taken away from you; it is called Murphys Law. Over 90 % of the population will either end up dead or dead broke by the age of ninety. The smart people live on the hill and the broke people live at the bottom because that is where they belong. For years you have heard it from your friends and family; it wont work its a scam but the last one that told you it was a scam was the one who scammed you last. We need to realize one thing; if you always do what you have always done, youre always going to get what you have always got. From now on you should not want to work for yourself or own your own business from now on you will want to work for a corporation that owns all sorts of things and has a management staff which wants you to use those things in exchange for controlling the company. Then you need to change your mindset of business. You probably have always wanted to work for your self. Well if no one has told you yet, allow me. That is a very stupid idea. You do not want to work for yourself. When you work for your self who can you, your creditors, the judge and everyone else blame when things go wrong or you get sued? They blame you. If it goes wrong, you can blame you. However, working for a corporation you are just an employee. When things go wrong, you were only doing what the corporation told you to do. In addition you will never take another vacation. Why? You will never take another vacation because vacations are not tax deductible. From now on if you want to go to the company condo in Florida to make sure the companys jet skis are still in good working condition, you ask the corporation if they can afford to send you on a tax deductible business trip. This is another aspect of your mind set you need to change. You need to look for the good deals. Never settle for full price and always look for the tax deduction and save those receipts; you can get it all. Meeting of Incorporators One of the most important things that you must learn about a corporation is that the corporation makes decisions by having meetings. This is how you continue to keep the corporation as a separate person. If you do not treat the corporations as if it is separate from you, neither will the courts if something goes wrong and if you do not have the paper work to support you, the corporation is no better than a sole proprietorship. This is called piercing the corporate veil. This happens when some one is able to penetrate the protection a

corporation offers and is then able to hold you personally responsible for the actions of the corporation. This usually happens by a law suit where the prosecution is able to prove that the corporation was not being treated as a separate entity. Every board meeting or stockholder meeting should have minutes and each member of the Board of Directors and the corporation's stockholders should be invited to all the meetings. Establish procedures for official corporate meetings as soon as possible which should be in your bylaws. Minutes are very important and should be recorded for each official corporate meeting. Following each meeting, the Secretary should provide a typed copy of the minutes to the President, and then BOTH the President and Secretary should sign the document indicating that these are the official minutes. It is recommended that a copy of the meetings minutes should be provided to every board member and stockholder, whether in attendance or not. A copy of the minutes for each meeting should also be filed in the Stock Kit under the Record of Minutes section. If you have business partners this meeting is a perfect opportunity to put every thing on the table. Discuss exactly what everyones responsibilities are going to be, who is contributing what; money, work hours, knowledge, ideas etc. Then you also want to decide how the profits, if any, shall be divided. With business partners you do not want to leave anything in the vague area. We can not emphasize this enough. If you have partners, require them to sign a Trade Secret confidentiality and Non Competition Agreement. This document is a useful tool, which can be provided to anyone you do business with. It restricts partners, associates and potential clients from utilizing proprietary information and knowledge they obtained from the corporation to establish a competing business. It is generally a simple agreement which states that the signing party will not now nor at any time in the future disclose or use information considered propriety to the Corporation to compete with the Corporation. Consider keeping on file a copy of each partner's resume, including a detailed outline of his/her past experience. The more you know about your partner(s), the better off you'll be. This first meeting will be between everyone who is involved in starting the corporation who will be making the most important decisions for the foundation of the corporation. This meeting is to establish a line of action for incorporating. After incorporation you will have a board meeting with the directors. The first thing that you want to decide on is that you want to incorporate. Then where you want to incorporate and

after that what kind of corporation you want to establish as we have already discussed. Next you want to decide on things that you will need to know to fill out the paper work for incorporating. We will be going into more depth on these issues in the following sections so bear with me. You must decide what to name the corporation. You also want to know how many shares of stock you want to start out with, how much the par value should be. This is usually in your Articles of Incorporation. You may even want to decide what you want to do with the stock right up front. At this meeting you must decide on a collection of governing rules called the Articles of Incorporation. You have to read them word per word at the meeting, out loud, and discuss and decide on them article by article. You will also need to decide on a registered agent. You will have to vote and elect a President, a Secretary, a Treasurer and at least one director; this is for your officers list. Then you need to elect someone to file all of the paper work and fees. Now that you have had your meeting of incorporators you are ready to start with the paperwork to incorporate. You must have meetings even if it is just you at the meeting. The most essential part of the meeting is the documentation which is called the minutes of the meeting. For meetings you may want to use a tape recorder to record the meeting. This will provide non-refutable documentation of important corporate decisions should a dispute ever arise in the future. When you begin the meeting, inform the attendees that you will be recording the meeting, record the date, time and place of the meeting and have each person in attendance record their name and confirm their positions within the corporation. After the meeting, the Secretary will transcribe the tape, and the transcription would be provided to each board member as the minutes for the meeting. The tape itself should be stored in a safe place, such as a safety deposit box, other storage facility or with the corporate attorney. Also for a more professional meeting you want to get a copy of Roberts rules of order and set that as the standard for holding meetings. This way if ever a dispute arises, you may have something to refer to. Corporate Name There are a few points to remember when choosing a name for the corporation: 10

 Do NOT use your OWN NAME within the name of your company. One of the advantages of incorporating is protecting your assets. Using your own name will provide a direct link to you personally and exposes you to potential lawsuits. Remember the main benefit of incorporation is not being you in business because being yourself in business isnt any fun. Do NOT be specific about the type of business in which the corporation will be engaged. Bad examples: Anderson Plumbing, Ultimate Dog Grooming or Imperial Accounting Services. Pick a neutral name for the corporation. Divisions will have more specific job function names for doing business. This will be explained further in the section entitled "Establishing Divisions." You might not even use your parent corporations name. If you currently have a DBA and want to continue to use the name, the section entitled "Establishing Divisions" will also explain how to set up a division allowing you to continue to use the DBA name. When naming the corporation, be as generic and non-specific as possible. Examples: XYZ Corporation (or some other use of initials-not yours); American National Corp; Best Value, Inc.; Progress International, Inc.; Angel Flight Corp; Diversified, Inc.; Enterprise, Inc. A name appearing to be that of a natural person and containing a given name or initials must not be used as a corporate name except with the addition of a corporate ending such as Incorporated, Inc., Limited, Ltd., Company, Co., Corporation, Corp. or other words that identify it as not being a natural person. The name must be distinguishable from the names of corporations, limited-liability companies, limited partnerships, business trusts or limited-liability partnerships on file in the office of the Secretary of State. A name may be reserved, if available, for 90 days by submitting a written request with a filing fee. Now it is time to select a name for the corporation. You may want to think of three or more different names and put them on a piece of paper. Once you have several names, choose three names you are satisfied with. Then go to the Nevada Secretary of State web page http://soscommerce.state.nv.us/index.htm and see if your names are already taken. If not you may reserve it or go ahead and incorporate. Registered Agent A registered agent or also known as a resident agent is a person in the state that you are incorporated, who will receive any legal documents issued to the corporation in that state. For instance, if the corporation were to be sued, the documents would be served to the registered agent in the state that you are incorporated and then given to you. You 11

may go to a search engine on the internet and type in registered agent Nevada or incorporate and you should have many websites come up that provide this service. You may also look in the back of most business magazines, in their classified section for companies offering this service. Most will help you incorporate and be your registered agent. They will probably provide you with articles of incorporation but you may want to request that they use yours. You may also want to find a registered agent that will provide mail forwarding. They may let you use their address for your officers list for each officer. This will increase your anonymity and your privacy. We of course recommend Incorporating You, Inc. for your registered agent call us at (714) 224-1750. The Corporate Address If you are incorporating in a state other than the one you are doing business in you will be required to have an address in the state of incorporation this is what your registered agent is for. You need to be careful of what address you use when doing business. Do NOT use your home address if you own your home. If you are renting, it is okay to use. You want to increase your privacy and anonymity as much as possible so that the liability does not come back to you and put your home and family in jeopardy! Some states will allow you to use an address provided by mail forwarding companies, such as Mail Boxes, Etc. or Express Pack & Ship. See your local yellow pages for this service in your neighborhood. Be sure you check with your local Postmaster to ascertain whether this is allowed in your state. Where these types of addresses are NOT permitted, your best option is your home address if you have a home-based business or you can look into acquiring shared office space. There are some companies that lease part of their office at low cost in which you share that space with others. In addition they may offers phone services and other business services. Again, it is preferable that you only use your home address if you are renting, not if you own your own home Use the Nevada Address from your registered agent, if they let you, for all the addresses on the Officers List, and on the Tax ID. Articles of Incorporation For more details on the Articles of Incorporation refer to NRS 78.035 Like mentioned before; the Articles of Incorporation will be the initial set of rules for the corporation. This document will specify how many shares of stock the corporation will initially have and the par value; the fees to incorporate will be based on this. This document will be filed with the secretary of state of the state that you are incorporating in, 12

hopefully Nevada. You may submit amendments for it however you want to have it as a one time thing. You want to keep the rules in the Articles to a minimum and then have the other rules that you may not want in concrete to be in the bylaws this way you dont have to pay a fee every time you change your mind on one of the rules. Dont worry if you want to make changes later on, we will have another collection of rules that will be as authoritive however easier to change; bylaws. In fact every meeting that you have contributes to bylaws, we will discuss this more later. To start the incorporating process you want to check the secretary of state web page for fees that need to be paid and where you need to send your articles. However, usually you will coordinate with your registered agent on sending the articles of incorporation to the secretary of state. The articles of incorporation need to be signed by the registered agent before they are sent to the secretary of state. So either the registered agent will sign the articles and send them to you for you to send or you will send them to the agent for him/her to sign and send to the secretary of state. You will have to send the secretary of state two copies of your articles; one copy for them to keep and the second for them to certify, put the file number on them and send back to you. This copy will be very important, because of that file number. That file number is, for the most part, the soul of the corporation. Keep this number on a Rolodex card, in your computer or in your business files, as you will be referring to it later File this copy in a safe place. Your Articles may be used at various times for various things. Certificate of Good Standing You also want to request a certificate of good standing while sending in the other documents and fees. The main purpose of this is to qualify to do business in your state, we will discuss this later but it is important to order it now. This document simply states that you are current with all of your needed fees and requirements for incorporation. The website for the secretary of state should explain how to obtain this. Officer's List You may either send the articles and then when you get the articles back send the officers list or you may send both together. If you send the articles first you must file your officers list by the first of the second month after the initial filing in the state of Nevada. Each state requires that you identify a different number of officers. The requirements for your state will be indicated within the materials you received from the Secretary of State. 13

 One person may hold more than one or all positions in the corporation. However, we recommend that you indicate at least two different people on your Officer's List. If you don't already have officers, in addition to you, consider enlisting your spouse, a business partner, or a family member. This also increases your privacy. However, do not forget to factor in that partners can be a liability. Return the completed form to the Secretary of State with one officer's signature, plus the appropriate filing fee. Within approximately 10 business days in most States, you will receive a copy of your Officer's List stamped with the Secretary of State's official seal for your files. If you want additional protection you may use the first initial of the officer with the last name, in the state of Nevada, remember officers need not be citizens of the U.S. This gives you greater anonymity. There may be only a few Bob Alfred Smiths out there but there are probably hundreds more B. Smiths. Corporate Charter After you receive your articles back from the secretary of state you will also receive a copy of your corporate charter. Have a color copy made of your Corporate Charter. The original is a very important official document. We recommend you place it in a very safe place (safety deposit box, safe, etc.) The copy may be used at various times to open bank accounts, etc. Congratulations! You are now an officer of a new corporation!!! Now let's open a bank account, get some credit and get this business in motion.

After You Incorporate

Once you have completed the initial process for incorporating you will now be in control of a legal person. But before you can do business

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with this legal person there are a few formalities that you want to take care of first. The Board Meeting This meeting will include all of the people that are on the officers list. In this meeting you will be deciding on other, less important yet fundamental foundational issues. Again we will discuss these issues more in depth as we go on. At this meeting you will decide on stock, on bylaws, you will resolve to obtain a tax ID from the IRS, get a corporate telephone line, open a bank account, and obtain credit. You may even decide to start a few divisions. You may also want to elect a CFO. You may already have it build into your bylaws that the treasurer is the CFO or that the President is the CEO. However it does not necessarily have to be that way. You may want to vote and elect a CFO and CEO. You may want to vote them to be the same person. You may want to vote that person to be you. You also want to vote that the CFO and the CEO to have General Power of Attorney which allows them to make resolutions at anytime in order to do anything with the corporation or you may only want to give them limited Power of Attorney. Corporate Stock Kit A stock kit is a binder that contains the key documents for a corporation. There can be a lot of power in a corporation's stock kit. Whoever controls a corporation's stock controls the corporation. Therefore, it is imperative that you learn to manage the corporation's stock kit so that you always maintain control of the corporation! In a corporation it is very important to maintain a paper trail. The paper trail will always be your evidence in court to prove that the corporation was acting on its own behalf and not on your own. The more important documents will need to be notarized. The Stock Kit is, in essence, the flesh of the corporation. Every corporation is only as good as its paperwork or paper trail. As long as the paperwork is in order you cannot be impeached. It cannot be challenged. It cannot be threatened as long as the intent of the resolution, the bylaws and the Articles of Incorporation are in place. As long as we maintain the corporation from the beginning, the middle and the end, the corporation is a legal person. A Stock Kit will include the following items: 1. Customized Corporate Seal. This will be required on just about EVERYTHING! You can't overuse the Corporate Seal. Use it on stock certificates, business documents, and important resolutions. Most office supply stores should be able to help you

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get one. It is also called an embosser. Remember to place your initials and the date next to the Seal on the document to verify when the Seal was applied and by whom. 2. Forms section includes important IRS and other government forms, filed on behalf of the corporation, including SS4 and your Tax ID number, and Form 1120 to file the corporate income tax, and many more. 3. Articles of Incorporation Section, behind which you obviously file the Articles. 4. Tabs, you want divider tabs to separate each section of the stock kit. 5. Record of Minutes Section, behind which you will file minutes for every meeting of the Board of Directors and Stockholders. 6. Complete Corporate Bylaws. These are the "rules" for the Corporation. Read these important documents and then read them again until you fully understand the rules that will govern the corporation. If you do not understand these bylaws write some that you do understand so that the bylaws cannot be used against you or get some one who can explain them to you. 7. Stock Certificate Section, which contains the stock certificates and the golden decals on which you will use the Corporate Seal. 8. Stock Transfer Ledger Section contains the ledger in which stock transactions are recorded. The information recorded here includes the name of the stockholder to whom stock is issued, the certificate number and the number of shares issued, amount paid, transfer date, to whom the stock was transferred, etc. You could buy a stock kit already made or you could make your own with the documents included with this guidebook. Managing the Stock For-profit corporations issue stock certificates; non-profit corporations issue membership certificates. Often the individual who controls the majority of stock also controls the Corporation. There are ways to maximize the use of your stock while minimizing control issues. Most people can't wait to own the majority of stock in a corporation. It provides control and power, right? Yes, however, the POWER comes with risk when you personally

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own stock. One of the biggest mistakes people make when they establish a corporation is issuing stock to themselves! Stock is considered an asset, but it can also be a liability! If an individual holds stock in a corporation and is personally sued, that stock could be awarded to the suing party. Depending upon the amount of stock awarded, the suing party may then gain control of the corporation. Also, a majority stock bearer may be held personally liable in the event that a corporation experiences bankruptcy. Consider taking the following steps to minimize control issues as they relate to the corporation's stock: Instead of issuing stock certificates to partners, board members, officers, etc., issue a promissory note instead of stock. Issue only ONE stock certificate for 100% of the corporation's stock made out "To Bearer". This reduces complications concerning control of the company, and keeps matters concerning stock to a minimum. This stock certificate, issued "To Bearer" for 100% of the corporation's stock, may be granted to the Chief Financial Officer (CFO) to be used when obtaining credit for the corporation and in various other financial matters. The CFO's possession of the corporate stock provides credibility and may help him/her facilitate loans, corporate credit, etc. Many creditors will want to know who the stock holder is. You can then tell them the name of the CFO. Be sure to support the CFO's possession of the corporation's stock with a Resolution that indicates that the stock has been issued to the CFO for corporate purposes ONLY and does not own the stock from a personal nature. The CFO has NOT been issued the stock for personal use. Have this Resolution notarized and stamped with the Corporate Seal. If you do not support this with a resolution, whoever has the stock certificate to bearer controls the corporation! After the corporation has gained a considerable amount of credit you can the have a resolution that issues the stock to a 2nd corporation, which we will discuss later. Which will protect you even more because the stock has been reissued therefore releasing you from a possible piercing the corporate veil target. Or in the case that problems with your creditors arise you could be quickly fired from your position which eliminates you as being a stock holder. The in court if the plaintiff says that you told them that you are a stock holder you could then legally say that you were a stock holder because of your position but since you were fired this morning or whenever you are no longer a stock holder and not able to disclose the new stockholder because of the new stockholders right to privacy.

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Remember to always use the Corporate Seal when issuing stock certificates! The state in which you incorporate can affect how you handle the stock for a corporation. In states such as Nevada, officers do not have to be stockholders. If you haven't already done so, be sure to check the laws of the state that the corporation is incorporated in for stock issues. If you or an officer of the company is currently having a problem with the IRS, you or the officers do not want to own stock in your company until the problems are resolved. However, it is a pretty bad idea to own stock of the corporation no matter who you are. If you own something, people can sue and take it away from you as we have already discussed. Power of Attorney When you give some one power of attorney you are saying that this person may speak for you or in this case for the corporation. There are two types: limited and general. Limited Power of Attorney provides a person with control over a limited or specified area of the company. For instance, the CFO may be given control of the Corporation's credit and financial matters only. Providing the CFO Limited Power of attorney over corporate credit will allow him/her to do what is necessary to secure credit without scheduling a board meeting every time an issue or opportunity arises. Or a Committee Chairman may be given Limited Power of Attorney over decisions relating to a specified division of the corporation Providing Limited Power of Attorney not only limits a person's ability to impact the corporation, but it also enables him/her to do what is necessary to run a specific area of the corporation without scheduling a board meeting every time a decision is required. General Power of Attorney, on the other hand, provides control over all decisions relating to the Corporation. Whoever is granted general power of attorney can make decisions for the corporation without the consent of anybody else in the corporation. Power of Attorney can be given to as many individuals as determined necessary, and a sequence of control can be indicated as well. In the event the individual with first Power of Attorney becomes incapacitated, Power of Attorney would then go to the second person designated. This insures control over the Corporation goes to the appropriate individual in any event or circumstance. We recommend that you give limited power of attorney to the CFO so that CFO can do whatever necessary to obtain credit for the corporation. Also the CFO must furnish a written resolution of anything that the CFO does to accomplish this. So if the CFO applies for a credit 18

card from Staples, the CFO should first write a resolution that says that he/she has the permission of the corporation to apply for credit. It should then be sealed with the corporate seal. Then a copy should be sent with the application so that Staples knows that the CFO has permission to apply and then the original should be reviewed and ratified at the next board meeting and placed into the stock kit. If you are considering estate planning it is important to know that Power of Attorney issued by you, personally, dies when you die. However, Power of Attorney issued by a corporation lives as long as the corporation is "alive" and maintained. Power of Attorney can also be activated by certain events, for example your death or the death of the CEO which could then activate the limited power of attorney to your lawyer to carry out your last wishes for your corporation. Corporate Resolutions Resolutions are usually created at meetings to give someone permission to do a task. Therefore the resolutions should be working in conjunction with your minutes. Sometimes we will isolate a resolution from a meetings minutes and put it on a separate piece of paper sign and seal it so that we can submit the resolution to a business partner showing that the permission of the board without disclosing everything that took place at the meeting. However, we do not have to have a meeting every time we need to create a resolution. Resolutions can be ongoing, just like internal memos are ongoing. The resolutions can be copied, the originals put into a file, and once a month, or every quarter, you can go through them at a meeting and ratify them. To do this you should decide at one of your meetings who will have the power to do this, this is done through power of attorney which we will discuss later. You want to give copies of the resolutions to just about anyone that you are doing business with so that they know that you have permission from the corporation to get business done. It's very important that we follow through as a corporation. For example in a resolution to open a bank account it should say how many people we want on a general bank account or petty cash account. A resolution may spell out who is going to be signing the lease on behalf of the corporation for a building or for the division of the parent company or who is going to be responsible and authorized to lease equipment. We all have to have the responsibility, but we need to have permission from the corporations board. Even if it's just you, we know it sounds silly, because you maybe the only person in the corporation that you are the founder of, nevertheless you must have the board give you permission from a meeting or resolution before you do something. We have included many resolutions with this

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guidebook. You may look at them and see the general format a resolution has. Also compare the resolutions to minutes. Many things you do within the corporation will require a resolution to make them official. You can write each of these resolutions individually, or you can purchase a product called Corporate Secretary, which contains 175 common resolutions it is available at most computer, office supply and stationary stores. For instance the resolution for bearer stock, we all know that possession is nine-tenths of the law. If we take and give the stock to, a person's name, Mike Smith, Mike Smith is married to Susie Smith, well, in many states, community property is community debt. When they sue Susie they sue Mike. If the stock was issued to him, the stock could be taken away and it could be lost in the lawsuit. Instead we would issue the stock to the title, in other words, Bearer, then the board would make a resolution saying, we the board, through the resolution, give 100% of stock to the CFO, he or she has the stock for credit purposes only. He or she does not own this from a personal nature. This would be notarized. Not only does it prove the intent, what the stock is for, but also proves that he or she did not own the stock from a personal nature. It covers all aspects of the intent of that resolution. An active corporation that owns other companies creates a lot of liability. Liability of taxes, debt, credit, suppliers, employees; something could go wrong. When it can go wrong, it will go wrong and that is what happens to many companies, that's how they fail. 47% of companies destroy themselves. They call it need and greed, or in other words, they get stupid. But no matter what, the resolutions with the minutes will keep the paper trail in order and the corporation in good working order. In as resolution, whether done by the board or an individual should always show the intent of the corporation. It should also always answer the questions of who, what, when, where, why, and how. Notarization As you start to create liability you must make sure that you CYA (Cover Your ASSets). You need to have some important documents notarized. Notarization is done at most office supply places and sometimes at places such as Mail Boxes etc. What they will do is for a fee they will notarize your documents so that if in court there is ever a question of back dating documents, the notarization will show that the documents were as is from when they were notarized. Have resolutions regarding financial issues witnessed or notarized and always apply the Corporate Seal. Notarization should be done by people you do not know because strangers make better witnesses in court than family or friends.

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Resolutions need to be notarized when they prove the intent of something Bylaws Bylaws are the structure of the corporations stock kit and are another collection of rules that govern the corporation next to the Articles of Incorporation. However, the bylaws are internal and do not need to be filed. The bylaws can be changed at anytime by a meeting. This way you can keep the rules in the Articles to a minimum and then have the rules that you may want to keep variable to be in the bylaws this way you dont have to pay a fee every time you want to change the rules. Changes and additions may be made to the Corporate Bylaws by adding Resolutions. A meeting of the Board of Directors must take place and the Board must reach a consensus to approve each new Resolution before it becomes official. You may want to add a bylaw that limits the sale of the corporation's stock to outside parties. When a partner is departing the corporation, require that their stock must first be offered to the corporation at the current stock price value. The board decides whether or not to purchase the stock at that time. If they decline on behalf of the corporation, the departing partner must then offer the stock to each individual partner in the corporation. If the partners decline, the stock may then be sold outside the company. This bylaw can limit any surprise transfers of majority stock and will allow the remaining partner(s) to maintain control of the corporation if they choose to exercise their right to purchase the stock. Mission and Ethics Statement A Mission and Ethics Statement is a document that outlines the direction of the corporation and the ethics it will adhere to in its day to day business practices. You could put it in your by-laws if you want too. This is a great tool to establish the foundation, direction and overall principles that will guide the corporation forward. Judge every business transaction against it. Some prefer to separate them into two documents. Some points to have in your statement may be: Customer service is our number one priority. If not for the clients, we would not be here. We are here for all of our clients, on good days as well as bad days; for they know and understand that it takes time and effort to produce results. Our goal is to make each and every client feel that they are our most important client.

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 We will utilize our talents and ability to show our clients that we are there for each and every one of them. Tax ID A corporation is a person but it does not have a social security number. However, its taxes and other items are tracked with a tax ID number also called an Employment Identification Number (EIN). You may obtain a Tax ID by filling out and submitting an SS4 form to the IRS. To obtain an SS4 Form, go to the IRS website at www.irs.gov or there is a SS4 form included with this guidebook. The Tax ID should become your friend. Familiarize yourself with the SS4 it can be very useful to the corporation in the corporation in the long-run. Many people are uneasy with the SS4 form because it requires a Social Security Number or a Tax ID. Most people do not have a Tax ID therefore they must use a SSN. The IRS will only chase line 7 if the corporation attempts to discharge payroll taxes upon bankruptcy. However this will not be a problem for us since your company will always outsource payroll and will never ever do it yourself or under the corporation. We will discuss this more later. Dont hesitate to put your SSN on line 7 unless you plan on committing fraud. Debt follows tax ID. What ever debt you attach to a Tax ID will follow that tax ID; the creditor will chase the corporation or division that the tax ID is attached to and therefore any bank account or assets tied to that tax ID. Remember that the difference between tax evasion and tax avoidance is 40 years. State Qualification You will most likely have to qualify to do business in the state that you are doing business in. There are ways around this. However, if you are going to have a bank account in a state other than the one that you are incorporated in, the bank will probably want a certificate of qualification from that state or hopefully just a copy of it. Check the website of the secretary of state of which you want to do business in for more details on how to qualify. For California you need only to fill out the necessary form and send it in with that certificate of good standing that we told you to get and a fee. Business Telephone Lines Corporations need phone numbers. Creditors, Dun and Bradstreet, the bank, and just about everybody else that the corporation does business with will want a number to call the corporation and they may also want a number where they can fax you information. You want to maintain the professional image for the corporation so that you can maximize its potential for making money. 22

 For your telephone number decide if you want to be mobile or maybe you already have an office. Whatever the case, you want to strongly consider putting the account under the corporation. You may already have a telephone line that you can take the business calls on. Maybe you have a cell phone. If you do, transfer the account to the corporation to build credit. Or you may order answering service so that they will take care of the phone calls for you and provide you with a personal phone secretary. Regardless, someone, maybe you, should answer your phones professionally and your business partners should hear the minimal amount of voicemail greetings. In addition you should have your phones answered in a generic manner, not specifying the corporation so that you may receive many types of phone calls. Because as we will talk about later and have discussed you will not use the corporate name for business but you will have divisions that have their own name, therefore if your corporation has many names then you dont want to restrict the phone to just one name but open to many names. A possible greeting is Hello, may I help you, Hello this is whoever may I help you. Regardless of how you decide to do your phone service you want to have a number that is not going to get changed that much. Call your local phone company and ask them about call forwarding. This way you can have a phone number that forwards to the other phone number where you will receive the corporations phone calls. This will do two things for the corporation 1) you will have one number through out its life and still have the ability to fire other phone companies when they do not supply service that is adequate for your needs 2) you will have one number in 411 that doesnt change. The corporation will also require a fax number. Some fax machines will allow you to receive both fax and regular calls on the same line by distinguishing the phone call when they come in. If it is a fax call it will answer if not it will continue to ring. Or there are services on the internet that will allow you to get fax service without a fax machine. Some of these services are free and will even give you a toll free fax number. Corporate Bank Account Now that you have a Tax ID and state qualification (if needed) you can open a bank account. You want to select a bank that offers the services you want for your corporate bank account. Do some research, speak to several local banks, go on the Internet and investigate banks you also want to find out what items and information they require to open a bank account. The two important factors you want to look for in a bank account is how much information about the corporation they want and what kind of fees do they charge to your account and if you maintain a certain balance will they wave those fees. 23

Most banks require a $100 deposit to open a bank account however many banks have a minimum balance that you must maintain or else they will charge you fees. If you don't have funds generated by your business or DBA, you can loan your personal money to the corporation to open the account. To make your bank account and loan official, you will need to file two Corporate Resolutions and a loan agreement: 1. Resolution to Open a Bank Account. 2. Resolution to Accept a Loan 3. Loan Agreement betwixt you and the corporation The Resolution for banking will spell out how many signers and what type of bank accounts to open. It is recommended that a general account to be used for all purposes, except petty cash. Open a separate account for petty cash. Never open a bank account that is specifically for payroll. This is a danger zone. In the beginning however you may only want to open one account for general purposes until you start generating more revenue. You are taxed on income in the state in which it is received. Therefore, if you are incorporated in a state that does not collect state and/or corporate taxes, such as Nevada and Texas, have income checks sent to the corporate address to minimize these taxes. Invoices should indicate your corporate address under "Sold to" and your division address for "Ship to." Make sure to use the corporate seal on the signature card. You will also use your corporate address on your bank account. However, to avoid challenges regarding use of out-of-state checks, you should also add your division's address. Banks allow more than one business name and address on corporate checking accounts. This also allows you to use just ONE account for more than one business activity, thus you can consolidate your money, instead of spreading it over many different business accounts. Invested Money Let's assume the corporation has $100,000 from an investment of sorts. It is most likely that that money has already been taxed, consider putting the money in the corporate bank account and use it as collateral for a loan or line of credit. If prepared properly, borrowed money is not taxable. Therefore, the corporation will not be taxed on this income. For Nevada corporations: Nevada has no cap on interest. Loans can compound daily. Therefore, a loan in the state of Nevada can last forever. And, again, the borrowed money is not taxed if set up properly! Consider requiring two signatures and having the bank verify checks over a specified amount. (Check verification requires that the bank call 24

a predetermined corporate officer to verify the amount on a corporate check prior to enforcing the check.) This will insure you are always aware of any large withdrawals from the corporate bank accounts. If a corporation is in financial trouble, you may withdraw funds from the corporate accounts; however, leave a small amount in the account to insure that the account remains open. Never have an officer of the corporation close the corporate bank accounts this would make the officer a target in the event of a lawsuit or bankruptcy. Instead, let the bank close your corporate accounts if this becomes necessary. We have mentioned the failure of a corporation and even bankruptcy a few times in this book. In our opinion, when establishing any business, it is prudent to be prepared for failure, as well as success. Even the best-laid plans sometimes do not play out as we expected. We know that it is the intent of most decent, hard working people to establish successful, prosperous corporations. However, we feel it is our duty to stress the fact that creating debt with the intent to bankrupt is FRAUD. We do not endorse such activity nor do we recommend that you do so. Always pay your bills and fulfill your obligations. Remember: a corporation should always have strong ethics. Business License Contact Planning and Zoning in your city to find out what they require for you to obtain a business license. And follow their instructions to the letter. We always want to play by the rules! Many cities require that you obtain a resale license in order to do business within that city. Many vendors require that you provide them with a resale license when purchasing goods for resale. When establishing a division of the corporation, contact the city's Planning and Zoning Office to determine whether you need a Business License, Home-based Business Permit or Resale License for that division. A resale license can be a nice thing to have. This will provide you with the ability to buy things at wholesale cost. The vendors that you buy wholesale from will require a Certificate of Resale; you can purchase a pad of these certificates at any stationery store. Corporate Credit Everything by this point should be complete, from this point on your goal is to gain the financial resources necessary to start a business. In this case we will be applying for credit cards. In addition to the credit companies that supply information to business about individuals credit there is Dun & Bradstreet for businesses. Personal credit is different from corporate credit. Personal credit is rated by a FICA score and a National Risk Score. Corporate credit is rated by a Paydex score, which 25

is provided by Dun & Bradstreet. Dun & Bradstreet (D&B) will mostly keep track of the business you do with suppliers rather than credit cards however Dun & Bradstreet will be our focus because in many ways D&B will help build on the other credit bureaus. Dun & Bradstreet To obtain a corporate credit rating, which will allow you to apply for and obtain corporate credit cards; you will be required to obtain a Duns number from Dun & Bradstreet. Our goal is a Paydex score of at least 80 or above. You begin by calling D & B at (800) 333-0505 or visit their Internet site at http://www.dnb.com to obtain an application or apply right online. Then you will supply the following information on a typed letter: Business history: Write down all your past personal business information. If you think you don't have any, bear in mind that a garage sale is considered a business event. Or if applicable, you can use the business history of your previous DBA. If you have neither, consider enlisting a partner or officer who has a solid business history. You can give them the title of Vice President of the corporation. (Remember: Vice presidents do not appear on the Officer's List.) List of five references or five credit cards: For references; make a list of people you are currently doing business with. Think about people or companies that you pay for services that would be willing to give you a reference, such as your Cellular Phone Company, address/mail service, suppliers, vendors, etc. List of bank references: Include your personal account(s) and the account(s) of other officers in the corporation, your new corporate account, and any previous DBA accounts. Be sure to list the oldest bank first Profit & Loss Statement: If you have financials, include them. See the following page for a sample Mini Financial Statement. If you do not have financials, on the application indicate a profit projection up to $250,000. Do not exceed this number as Dun & Bradstreet generally doesn't ask for financials for anything at this level or below. First Quarter 1999 Volume:
January 1 March 31

Gross Quarterly
$6,700.00

Second Quarter 1999

April 1 June 30 $29,350.00

Third Quarter 1999

July 2 September 30 $8,090.00

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Fourth Quarter 1999

October 1 December 31 $15,100.00

You want to be as professional as possible when communicating with Dun & Bradstreet or applying for corporate credit. Therefore, all applications must be typed. On the Mini Financial Statement, under, "How long in business", you can use the length of time your DBA has been in business, if applicable. Getting Corporate Credit There is another difference between personal credit and corporate credit. When you have too many inquiries on your personal credit, it can negatively affect your credit rating, whereas inquiries have no effect on corporate credit ratings. Therefore, you can apply for as much corporate credit as you want, as often as you want. Start by reviewing the credit of the officers of the company and others you may want to enlist for this function. Do you need to add a CFO with a personal credit history that will assist the Corporation in obtaining additional credit? Are you adding a partner or director? You can elect non-officers at a meeting or by resolution under titles such as Chief Financial Officer (CFO) or Vice President, who can apply for corporate credit for the corporation. You can use their past business history on your financial statement as well. We have included with this guidebook a Business Directory of creditors that are the easiest to obtain credit from. Be sure to apply to these companies in the order they appear on the list. This will allow you to build from one card to the next by referencing the previous cards. If you are denied do no give up. Call the number indicated and have them forward the applications to your corporate address or fax number. Always request a range of credit instead of a fixed number on your application. A fixed number elicits a "Yes" or a "no" response. However, a range provides the credit provider with many choices and is more likely to receive a "yes". For instance, if you are offered $20,000 credit, ask for a range of $1,000 to $20,000. When applying, always ask for insurance if it is offered on any credit card. If you guaranteed the card, keep the insurance. If you did not guarantee the card, you can consider canceling the insurance after you've made the first payment. You can obtain several applications for the same card for the various divisions of your company. See also the section entitled "Establishing Divisions" for more information on obtaining corporate credit.

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 If the corporation is not approved the first time, simply apply again every 45-business days until you have approval. Be sure to always send your applications by fax. Obtaining corporate credit is an ongoing process, there will be lots of rejection, so BE PREPARED and ready to endure. Dont be afraid of trying different strategies, mix and match and always try, try again. Try putting together a professional information packet that you can submit with every application for credit. The packet should include as much of the following items as you can: 1. A typed application from the specific credit provider you are targeting. Obviously this item will be different in every package. 2. A typed bio of the person presenting the application to the credit provider. If the CFO will always approach credit providers on behalf of the Corporation, then include his/her bio only. However, if a variety of people will be applying for credit for the Corporation, you would include a "Who's Who" in the corporation containing a short bio on each of the officers. 3. A Corporate Resolution to show that you have the Board of Directors approval to apply for the credit. 4. A letter providing important information not included on the application, such as your Duns number and the amount of credit you are requesting. 5. Mini financial statement or projections on spending and income per month. Remember: The past is fact; the future is a projection. If you have been doing business and have real financial numbers, these must be accurately depicted on your financial statement. However, if you are starting a new business, you can make projections for sales and provide this in your loan packet. Be sure to update this information quarterly so you are always providing the most up-to-date material. Software programs-such as Quicken, QuickBooks and QuickBooks Pro can ease the burden of bookkeeping and creating financial statements. These and other computer programs are available at most stationery and computer stores. 6. Copies of the Corporation's most recent Dun & Bradstreet and/or Experian report(s). The corporation will also generate an Experian report however you do not need to work on this one like you would D&B, Experian generally generates itself. 7. A letter from the bank and/or the most recent bank statement for the corporate bank account. 8. Reference letters from vendors and other credit issuers. You want to get letters from the people that you are already doing business with to show that the corporation is a legitimate one. See

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the following page for additional information on obtaining support from your references. 9. Officers' personal credit reports (if good, of course) You can usually call the credit bureaus and ask for your credit report every 3 to 6months maybe even for free just call and ask. Equifax Credit Information Services, Inc P.O. Box 740241 Atlanta, GA 30374 (888) 766-0008 Web site: www.equifax.com Experian (formerly TRW) National Consumer Assistance Center PO Box 2002 Allen, TX 75013 (888) 397-3742 Web site: www.experian.com TransUnion LLC Consumer Disclosure Center P.O. Box 1000 Chester, PA 19022 (800) 888-4213 Web site: www.transunion.com ) If you are going to be a corporation, you have to look like one! Be sure all your correspondence, applications, etc. is typed and that your loan packet has a professional look. Strategy is just about everything when it comes to corporations. Technically you may only be able to apply for a certain credit card ever 90 days however if the corporation has other divisions those divisions which are the corporation doing business under another name may apply as soon as you find out you have been denied. Then once one of the divisions or the corporation itself gets approved you may daisy chain the credit by asking for additional cards for the divisions. Then eventually you can separate the billing, thereby doubling your credit potential. Of course the division will have to have a separate Tax ID to get the separate billing. We will talk about divisions more in depth later. Credit cards are good ways to finance a business, but they are not the only way to establish corporate credit. Every business transaction with other companies should be seen as a possible reference. Always try to generate some kind of an account that tracks your business with any company or person that you do business with so that you have the reference. Here are some additional ways to build a strong credit rating for the corporation:

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Manufacturers: If your company is going to be purchasing materials, product, etc., you should apply for credit with the manufacturer even if you can pay cash. And always ask for wholesale prices and free samples of product. Advertising: This is another great opportunity to obtain corporate credit. When you advertise, establish an account with newspapers, television and radio stations. Lease companies: Instead of buying your office equipment, consider leasing. Leasing equipment is great if you are just starting a business because it provides ultimate flexibility. Plus, you get a tax write-off on the leased equipment. There are several companies that provide a lease card for equipment like furniture, fax machines, copy machines, phone systems, and much more. Consider companies such as Preferred Lease, Direct Lease, and Smart Card Personal Accounts: Transfer appropriate personal accounts to your business. For instance, if you have a cellular phone, transfer the account to the corporation, thus transferring the credit you've built up on your personal account to the corporation. Get to know your bank officers. They can assist you in obtaining corporate credit, possibly even through the bank itself. Everything is about relationships. When establishing a division of the corporation, be sure to publish your Fictitious Business Name Statement in the city and state where you are doing business and requesting credit, even if it is not required by the city. Dun & Bradstreet, Experian and many credit providers will be looking for it. With both corporate and personal credit you should obtain and review your Dun & Bradstreet and/or Experian TRW Equifax credit report(s) to insure there are no problems, to see where you have problems or inconsistencies, etc. and make corrections; every 90 days. You should also contact your credit card issuers and ask them to increase your limit and decrease your interest rate. The following are the most frequently asked questions by Dun & Bradstreet and Experian. When obtaining reference letters from your vendors, request that they answer these questions typed on their corporate letterhead: 1. 2. 3. 4. 30 What What What What is is is is the the the the name of their company? name of the contact person? company address? company telephone number?

5. What year did their company start conducting business? 6. What are the high and your low balance for the month for the corporation? 7. What is their outstanding balance with the corporation? 8. What are their net terms (i.e. 30 days, net 2%, etc.) 9. Does this company take a discount? 10. When was the last sale you made with them? 11. What is their rating? 12. What is their average volume per month with the corporation? This information should be stated in paragraph form by the vendor and should be accompanied by a brief statement indicating past volume of the transactions they have made with the corporation. Example: Personal Credit When applying for additional personal credit, you need to restrict credit inquiries by credit providers. Each inquiry made into your credit history is reported on your credit report. Standard credit applications contain a clause that permits the credit provider to review your credit report. Even if you have a good credit rating, you may be refused new credit simply due to an overabundance of inquiries. To keep credit providers from creating this profusion of inquiries, send a letter along with your typed application informing the credit provider they are NOT permitted to request your credit report from the reporting agencies. Instead, include with your letter and application, three (3) recent credit reports (which you are automatically requesting every 90 days!) plus two recent paycheck stubs as proof of your good credit standing. Spouses should keep their credit separate. This provides a couple with double the credit power. And it protects one of the members of the team's credit should the other experience a problem. Establishing Divisions A division is a department of the corporation that you have set a side for a specific reason. You may have a human resource division to handle employment issues or an accounting division to handle finances. However, divisions can be much more fun when used in conjunction with a fictitious business filing. A division is first created in a board meeting or in a resolution. Then if you plan to do business with that division which extends outside of the corporation you may give it another name, which by the way does not have to be associated with the company name, then go to the county registers office and see if the name is taken. If not you may file the necessary paper work and you may begin to do business under another name with the

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corporation. According to the IRS all divisions are technically called subdivisions. As you should have done according to our instructions, you have given the corporation a generic name like Enterprises, Inc. Now lets say that you want to do advertising for your company and advertising companies give you a discount if you are an advertising company. So you have a board meeting, vote and elect to start an advertising division for all advertising purposes and that this division of the corporation should do business under another name for discount reasons. Let's take a look at the process for setting up divisions in accordance with the laws that govern corporations in the United States: 1. Before doing anything you should always do your research. You want to do a name check with the county that you plan to file the fictitious business filing with; you can usually do this over the web with most counties. You also want to find out all the requirements and fees that may be required. In addition you want to search newspaper companies, that will do all of this for you and publish your filing, for a low price. 2. Every county has its own rules and regulations for businesses; some may require a business to pay a percentage of earnings or have special zoning laws that prohibit your type of business, etc. Therefore, before you file the Fictitious Business Name Statement, be sure you contact the county's Planning and Zoning office and inquire about the their specific requirements. Next, make the same inquiry with the citys Planning and Zoning office 3. As we have already learned, you want to have documentation to show the intent of the corporation because as long as it is the corporation making the decisions and not us personally; we do not get the blame. So the first step is to either have a board meeting or have someone with power of attorney create a resolution. In either case you want to state that the corporation should file a fictitious business filing, where and with whom it is to be filed and why it is considered necessary. 4. Once you've approved a county and city for your division, contact the local newspaper and have them send you their Fictitious Business Name Statement, which you will complete and return to them for filing and publishing (if necessary in your state or county). Be sure you enter the corporation's name and address under "Registrant". You can establish any number of divisions of the corporation using additional city names, numbers, etc. Be sure you file a separate Fictitious Business Name Statement form for each division, so they each have their own separate identity. It is ideal to keep the divisions 32

separate from each other. It may be tempting to file many at once for a discounted rate however this may show to be a problem if you have to abandon one of the divisions which is connected to all the rest. This is very important because each form that is filed is given a file number. So lets say that you filed 10 names on one form, because it is less expensive that way however one of the divisions goes bad. Now you must abandon all of the other 9 names just because the one went bad. It is important to remember, the filing is only valid for five (5) years, at which time you will have to re-file. To renew you would file an abandonment of your fictitious business filing and then redo the steps above. Most newspapers companies do all this for a small fee. If you are dealing with LA county LA Daily Journal (213) 229-5300 is a good company and for Orange county ???? is a good company. What to do if you already have a DBA If you currently have a DBA and want to continue using the name, set it up as a division of the corporation. If the credit for your DBA is good, follow the procedures outlined below to establish a division of the corporation. In brief, you will file an abandonment of your current DBA, and then refile the DBA designating the corporation as registrant, making it a division or entity of your company. First off you want to have a meeting or file a resolution than you can do one of two things: 1. Contact the County Recorder's Office for the county in which you are doing business, obtain a Statement of abandonment of Use of Fictitious Business Name. File it directly with the County Recorder. Ask your County Recorder if you are required to have the abandonment published in a newspaper. (This is not required in all counties.) If yes, contact a local newspaper and have them publish it, they will usually do this for a small fee. 2. Once the abandonment is complete you will do the same procedure for making a division as mentioned above. If your DBA is currently having problems with credit or the IRS, you should NOT file for abandonment until the problems are cleared up. If you want to continue using your DBA's name while you clear up the problems, simply add a number or an abbreviation of the city or state in which you are doing business. For example, if your DBA is called Imperial Printing, you can change the name in several ways: Imperial Printing Houston, LA Imperial Printing, or Imperial Printing 2000. You will need to file for a new DBA (Step 2 above) using the new name and designating the corporation as "Registrant."

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Just remember resolutions are like anything else, like an inter-office memo for instance. A resolution would be to carry out a task, maybe to take over a division. Let's say you had a DBA in the past, your DBA was you doing business as you. You abandon it and now that DBA has been connected to the corporation. So now it's a DBA of a corporation which makes it a division or an entity. Now prior to that, you as a person had created debt, you bought computers and equipment. Make a resolution for the corporation to accept the liability, the outstanding debt and the assets (don't mark it up, just let it take over the outstanding balance) of the DBA. Whatever you put into it, you have probably lost to depreciation or value what you paid for it anyway. Therefore a resolution to accept, we the board vote and elect to take on this piece of equipment, take over this lease, and be the responsible party. Therefore the resolution would be copied to our file or account and possibly the leasing company. Some leasing companies will make you re-qualify, the corporation, in many cases, can qualify better than an average person, because if people file bankruptcy, the creditors or leasers, usually, don't get anything. Corporations do have assets, receivables, and some liquid therefore if a corporation goes bad, there is a good chance that somebody can get something out of that corporation by liquidating it. We may choose to file subsidiaries of our corporation, which we will discuss more in depth later; however we file divisions because they are cheap. Buying Wholesale The most important part of buying wholesale in California is applying for a resale license or sellers permit. This allows you to buy things without paying tax on them. However, you may have to sell the things you buy at wholesale value. If we have many divisions this may not be a problem. One of our divisions could buy at wholesale and then resale it to another division with just tax added. You want to make sure that you pay all taxes due. If any are due, and remember that taxes are a write off also. Establishing divisions for specific purposes other than your main business endeavor will allow you to buy many goods and services at wholesale or discounted prices and corporate rates. In addition to the division(s) you establish for your specific business, you should consider setting up at least three additional divisions: Printing Division - Most businesses require business cards, stationery, signs, etc. A printing division will allow you to buy these at wholesale prices. You can also establish a turnkey printing business. Purchase the printing at wholesale, offer it to the consumer at competitive retail prices. Advertise in your local newspaper, or establish an Internet site and operate the business completely on-line! 34

 Marketing/Research Division - This division is set up to research your competitors, look for new opportunities and trends. You can save on advertising by purchasing your television, radio and print advertising at wholesale rates. You should also locate your local convention center or the World Trade Center nearest to you and ask to be added to their mailing list for upcoming classes and events. Attend import/export classes, business expos, anything that may provide new business opportunities. Sales Division - This division will allow you to buy and sell any type of product or service. Even if you don't use it at this time, it is good to have an established division standing by. As mentioned above, divisions offer many opportunities. They are particularly crucial in protecting assets and lessening the burden of liability. Establish a division for each purpose and function of the corporation. Then if a division experiences financial challenge; a law suit, bad debt, etc. it can be disconnected, isolated and incorporated prior to litigation. This separates the problem from inflicting pain on the rest of the corporation while the problem is being resolved. Fine-tuning Your Divisions When you file a Fictitious Business Name Statement to set up your division, you are actually saying a corporation is doing business as (DBA) or doing business under another business name. Therefore, the division is actually another name for the corporation and may use the corporation's Tax ID number for tax and credit purposes You can have as many divisions as you require or want. You should file the following divisions: The business intended (e.g. construction, Internet business, beauty salon, bookkeeping, etc., whatever business you are in or want to establish).

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Note: If you are a doctor, lawyer or other professional, you will establish a "professional corporation". Printing- to fulfill your business card and printing needs at wholesale prices Marketing and research- to procure wholesale advertising rates. Sales- to buy materials and product at wholesale rates Because each of these divisions is actually a corporation doing business under another name, you can build additional credit for each division and you can protect your assets should one division experience legal or financial challenges. We will explore each topic later in this program. Managing Your Divisions Once you've set up all your divisions, you must manage them. Here are some shortcuts It can be expensive installing and maintaining numerous phone lines and telephones for each division of the corporation; however, having separate phone numbers for your divisions will help you establish the corporation and its divisions with Dun & Bradstreet. Therefore, instead of maintaining many phones, set up one phone line for the corporation and ask your local phone company to provide remote call forwarding, for each of your divisions. The phone company will provide a different phone number for each division, but the number will all be connected and ring to your corporate phone. That phone should always be answered in a generic manner, suitable for each division. We recommend the greeting, "Hello, my name is [name], may I help you?" or a variation of such as long as it sounds professional. When promoting or advertising your business, indicate a contact name that corresponds with the first letter in the name of each of your divisions. Examples: Contact Paul or Pamela for your Printing Division, Michele or Michael for your Marketing Division, and Sam or Sally for your Sales Division, etc. This will make it easy to determine which division a caller is contacting. Or you could also give each division an extension so that when some one calls and give you an extension you will know what part of the corporation they are expecting to talk to. Color-code your files to make it fast and easy to locate pertinent files Additional uses for Divisions: Consider establishing one or more closet divisions that do nothing but age and standby for future use. One maybe your sales division, if your hands are full with the other divisions. It costs very little to establish a division and you will see later in the program how these

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"closet" divisions can come into play. (See the section entitled Subsidiaries.) If you own rental properties, consider setting up divisions for each of your properties. This may provide protection of your assets, tax savings, income splitting, privacy, and more. This insures extra protection for incase a renter does not pay his rent thereby causing that division not to make payment on a mortgage or something. Each division can have three or more divisions under it. These are called subdivisions. Unless you have a very large corporation, you will not require subdivisions. Disconnecting Divisions Unfortunately, it is a fact of business that some endeavors will experience legal or financial challenges. Here are some ways you can protect yourself and the corporation from bringing the pain home: When a division begins to incur liability (debt to suppliers, employees, credit to clients, etc.), you may want to consider obtaining a separate Tax ID number for that division. This will allow you to minimize your liability by doing separate payrolls, taking advantage of state laws for divisions in different states, etc. Remember that Debt follows Tax ID, therefore if the division begins to experience credit problems or becomes involved in a lawsuit, the debt and legal problems will follow the division's new Tax ID number, rather than the corporation's Tax ID number. The division becomes a movable part of the corporation that may be transferred. For this to be a viable option, however, the new Tax ID number must be established and the liability attached to it before a lawsuit is filed. Similarly, if you are operating under one corporate Tax ID number and discover at an early stage that a division may become involved in a lawsuit or have financial challenges, you can disconnect the division thereby separating the division's liability from the rest of the corporation. Again, this can be done only if you disconnect prior to the lawsuit being, filed. Once a lawsuit is filed, liability for the lawsuit already belongs to the corporation and disconnecting a division to separate liability is not an option. Therefore, at first signs of a problem you may use the following process to disconnect a division: 1. First, hold a meeting of the officers of the corporation and determine that the division shall be disconnected and establish the intent to save the division's assets. 2. Create a written Corporate Resolution that indicates the intent of disconnection is to isolate the problem and take corrective measures. Be sure to state that bankruptcy is not intended at this time. Have the Resolution notarized to legally document the

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date of the Resolution and the intent at the time of disconnection, so you can provide such documentation at a later date if needed or asked for. 3. File a Statement of Abandonment of Use of Fictitious Business Name to disconnect it from the corporation. 4. Following the steps outlined earlier in the Guidebook for setting up a corporation, you will use the division's name to establish a new corporation. If you discover the name of the division has already been incorporated by someone else, incorporate a different name that has not been used and add the disconnected division to the new corporation by the process outlined in the section If you already have a DBA. Then, if you find you are unable to correct the problem you can bankrupt the new corporation, thus separating liability from the original corporation. Note: If you had not established a separate Tax ID number for the division at an earlier time, you cannot disconnect the division. The assets of the disconnected division will be retained by the original corporation by filing a Form UCC-1, which will be discussed further in the section entitled, Always Be in Control of Your Assets.

After Startup
By this point in the process you should have an established business with revenue, debt, equipment, and employees. Therefore there are some other issues that you may want to consider if you have not considered them already and have them in your plan of action. The Second Board Meeting It is time to schedule a second official meeting of your officers and directors. The following are issues that should be discussed and determined during this second board meeting: In a small company, consider designating everybody involved (up to five people) as Directors. Workers Compensation Insurance is not required for a company's directors; therefore you can save money when you are in start-up mode. Determine whether or not the corporation is going to supply medical and dental insurance, whether or not it will establish a pension plan, a profit sharing plan, life insurance, etc. Note: The beneficiary for your life insurance policy should NOT be an individual person, nor should it be Corporation 1. Instead, consider designating Corporation 2, the Asset Corporation, as the beneficiary for your life insurance policy. Then, in the event of your demise, the policy will payout to Corporation 2 and will therefore be protected. If you 38

have partners, they should have their own Corporation 2, which would become the beneficiary of their life insurance policy. Payroll Once you have some capital flowing through the corporation you can take your income in one of two ways: 1. Draw: If you are an Officer of the corporation, you can take a draw. Unlike a paycheck from which taxes are deducted at the time the check is issued, with a draw you are paid in full for services rendered and your taxes are deferred until the end of the year, at which time you are responsible for paying them. 2. Paycheck: This is the traditional method by which the Company withholds taxes and pays you in regular paychecks. Most companies with employees handle payment of their employees this way. However, there are some very important issues with regard to payroll that can affect a corporation: There are three things a corporation cannot avoid: 1. Social security taxes 2. Unemployment taxes 3. Payroll taxes - even in bankruptcy, a corporation and the person who signed the Form SS4 are responsible for its payroll taxes. It is legal for the corporation and all your divisions to do business and handle their payroll under one Tax ID number. A Corporation must file a Form 1120 indicating activity or without activity. A Corporation files "with activity" if it has one or more employees. It would file a Form 9358 indicating no activity if it does not have any employees that year. These forms are sent to a corporation automatically by the IRS each year. Do not set up a Payroll Account. The only item a corporation cannot discharge in bankruptcy is payroll. Therefore, there is one ultimate guiding rule with regard to payroll: Never handle your own payroll. Enlist the services of a payroll company, such as ADP or PayChex. Or check with your corporate bank, they may offer payroll service at no charge just for having your corporate account there. Every state is different when it comes to payroll tax. Some states require a state tax, others states do not. You must pay according to the state in which you are doing business, not the state of incorporation. For instance, if the corporation is in Nevada (a state without state tax), and you have an office in Arizona (a state that does require state tax), the payroll for employees in the Arizona office will be paid according to the laws of the State of Arizona. A Foreign Corporation is simply a corporation incorporated outside the state in 39

which it is doing business. Using the above example, in Arizona the corporation would be considered a foreign corporation because it is legally incorporated in Nevada. If a corporation is incorporated outside the United States, it would be designated a Foreign Country Corporation or off-shore corporation. Since the Corporation determines what your services are worth, be sure you are paid at least enough to cover your bills. An easy way to determine this amount is to add up your monthly bills and add 20% divide by 52 weeks. This will tell you how much you require in income to maintain your lifestyle. The rest of your income can be placed in a 401 K, pension plan or annuity. If you are an independent contractor, have the companies you work for send your checks to the corporation. Corporations writing checks to corporations are not required under the tax law to provide 1099s. If you are a homeowner, use your house to offset your personal income taxes. Never, ever payoff your house, instead consider other options such as refinancing. Set limits for car allowances, car insurance and mileage reimbursement and determine who will receive them. When deciding what each officer's car allowance will be, remember that the Corporation must make car payments in good and in bad times. So set a payment level that is reasonable, and be sure to indicate that anything over the limit must be paid personally by the officer. The current rate for mileage reimbursement is $.32 per mile. Check with your accountant for future increases. Consider establishing two separate corporate bank accounts: Your General Account from which you pay bills, expenses, vendors, etc., and Your Petty Cash Account. You control the flow of funds into this account, but you can allow another employee to withdraw small amounts of cash to be kept in the corporate offices for emergency items and small expenses (a luncheon meeting, parking, etc.). Subsidiaries Partners can bring many things to a corporation and business. They can bring money. They can bring inventions or new ideas. And they can sometimes bring pain. However, there are ways you can minimize the pain should a partnership go awry. Most partners will request stock in return for their investment or contribution to the corporation. However, in most cases they will be contributing to only one part or endeavor of the corporation which should be under a division. If you give them stock, they will then have interest in the entire corporation, although they are only contributing 40

to a portion of the corporation. And, if they own stock in the corporation, they can bring pain to the entire corporation. First offer them a type of bond with the corporation if they still want stock there is a simple process to solve this problem: A subsidiary is a division of the corporation that has been incorporated. It has its own Officers list and its own stock. Earlier in the section entitled Managing Your Divisions, we recommended establishing one or more "closet" divisions that do nothing but age. Take one of your "closet" divisions and incorporate it using the methods outlined earlier in the Guidebook, thereby establishing a subsidiary of the corporation. Now stock from the subsidiary can be issued to you and your partner, thereby protecting the original corporation from liability for the partnership. Consider having your portion of the subsidiary's stock issued to the original corporation. And instead of actually providing stock from the subsidiary to your partner, consider providing a Promissory Note of stock. Be sure to establish a Net Profit Deal with your partner. In a Gross Profit Deal, your partner would be paid on the gross receipts, meaning he or she would be paid before any expenses (including your salary!) are deducted from the profits. In a Net Profit Deal, all business expenses, which would be outlined in an agreement, are deducted prior to paying your partner. Establishing Committees A Corporation may establish and empower any number of committees, as deemed necessary. For instance, if a corporation establishes a division or subsidiary in another city or state, the Board of Directors may then elect a board member as Committee Chairperson or Committee President (whatever title the Board selects) to run that division. And the Board may provide as much power or as little power to that committee head as necessary to effectively run that division. This is done through Power of Attorney as discussed earlier.

Ultimate Corporate Protection

As we've discovered, a sole corporation with three or more divisions will offer a certain amount of asset protection. However, to achieve Total Packaging and ultimate asset protection you must learn the Power of Three. To achieve TOTAL PACKAGING, consider establishing 2 more corporations. For optimum results, consider the following methods for handling the stock for Corporations 1, 2 and 3, according to the function of each corporation

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The Asset Company This is an Asset Corporation (if established in Nevada). Its primary function is to retain the equity from Corporation 1. You begin this process by setting up a second corporation: Corporation 2, your Asset Company. The sole purpose of this corporation is to occasionally hold assets. Corporation 1 will now be called your Target Corporation. Do NOT obtain a Tax ID Number for Corporation 2 and do not open a bank account. Hold or "suspend" the stock for this corporation, however be sure to get a stock kit. Every corporation needs to have a stock kit for maintaining records, etc. even if the company's stock is not issued. Corporation 2 will own all the assets of Corporation 1. This is done through the use of Form UCC-1, which is explained next in this guidebook. If, after all your efforts, Corporation 1 experiences legal challenges or a bankruptcy, Form UCC- 1 makes it possible for Corporation 2 to repossess the assets of Corporation 1. Although this leaves Corporation 1 without assets, you continue to control those assets by shifting through Corporation 2. All stock from Corporation 1 should be transferred to Corporation 2 after you have attained a desired amount of credit. This is done simply by having Corporation 1 file a Resolution that approves the transfer of stock to Corporation 2. Corporation 2 should also file a resolution that accepts the stock. Consider transferring all stock from Corporation 1 to Corporation 2. This is done simply by having Corporation 1 file a Resolution that approves the transfer of stock to Corporation 2. This, however, should not be considered until Corporation 1 has established a full line of credit and has achieved a Duns or Experian number of 80 plus. Corporation 2 should be at least as old as Corporation 1, so you should establish Corporation 2 as soon as possible after Corporation 1. Therefore, if you have already set up Corporation 1, now is the time to begin to establish Corporation 2. The Replacement Corporation This is a Shelf Corporation, merely standing by should you need it in the future. The sole purpose of this corporation is simply to build credit and to prepare to start up business activities should Corporation 1 fail in some way (be sued or file bankruptcy). Stock for Corporation 3 may be suspended until this corporation actually starts to conduct business. Since Corporation 3 has no employees and is basically inactive, each year this corporation will file a Form 9358, instead of Form 1120. At such time that Corporation 3 kicks into action due to the

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demise of Corporation 1, it would then file a Form 1120 indicating activity. Credit cards from Corporation 1 can be daisy-chained using the same process as you did for your divisions: In the process of obtaining new credit cards, Corporation 1 will be asked if it wants additional cards on the same account; standard procedure for the credit card companies. In addition to requesting cards for each of your divisions, you will request one using the name of Corporation 3. After five or six months of paying the bills on time for your division, you will ask for separate filling on each card, including Corporation 3. However, do NOT use the credit cards issued to Corporation 3. They are only to be used in the event that Corporation 3 becomes active due to the failure of Corporation 1. When selecting a corporate credit card to daisy chain to your divisions and additional corporations, be sure to choose a credit card that has a low or no annual fee. As stated earlier, should Corporation 1 fail, Corporation 2 repossesses the assets of Corporation 1. Through a Corporate Resolution, Corporation 2 then transfers the assets of Corporation 1 to Corporation 3, which essentially becomes an active business, replacing Corporation 1 as the Target Corporation. Through another Resolution, Corporation 3 then would then transfer its stock to Corporation 2, which would then entitle Corporation 2 to own the assets of Corporation 3 through the use of Form UCC 1. This process can be used over and over again through the use of Corporation 4, 5, 6, and so on. There should be a shelf corporation standing by in case of trouble. Note: We have mentioned the failure of a corporation and even bankruptcy a few times in this guidebook. In our opinion, when establishing any business, it is prudent to be prepared for failure, as well as success. Even the best-laid plans sometimes do not play out as we expected. We know that it is the intent of most decent, hard working people to establish successful, prosperous corporations. However, we feel it is our duty to stress the fact that creating debt with the intent to bankrupt is FRAUD. We do not endorse such activity nor do we recommend that you do so. Always pay your bills and fulfill your obligations. Remember: a corporation should always have strong ethics. Always Be in Control of the Assets An important part of the Power of Three is Form UCC-1, which will allow you to control your assets in many situations, including the

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failure of one or more of your divisions or even a corporation. You will file two Form UCC- 1s per below instructions: The use of form UCC-l will allow you to control the assets in many situations, including the failure of one or more of a corporation's divisions or even the corporation, itself. To effectively use Form UCC-l, consider the following outline of steps: (See the sample Form UCC-) UCC-1 to assign the assets of your divisions to Corporation 1: Section la & b - Under "Debtor," enter your division's name and address. Section 2a & b - Under "Additional Debtor," leave blank. Section 3a & b - Under "Secured Party," enter Corporation 1. This establishes Corporation 1 as the owner of the division's assets if the division fails. Financing Statement: This is where you indicate the division's assets. Since this area is generally too small to list all assets, we will write "See attached Exhibit A," under this section and create a list on a separate piece of paper. See sample Exhibit A. Tagging Assets: Assets include all business equipment, including phones, computers, the small items, such as staplers, pens, etc., office furniture, automobiles, real estate, receivables and more of which the corporation owns. Each asset should be tagged and assigned an item number for inventory control. (See below for more information.) On Exhibit A, you will list each asset by item number; provide a brief description of the item, the quantity and location of the item, and a market value. Note: To include items purchased after you filed the UCC-1, always add to the bottom of Exhibit A: "All assets purchased and proven by receipt belong to secured party". UCC-1 to assign assets of your divisions and Corporation 1 to Corporation 2: Once you've established Corporation 2, you should file a second Form UCC- 1 assigning all assets of the division and Corporation 1 to Corporation 2. Section 1 a & b - Same as above. Section 2a & b - Under "Additional Debtor," enter Corporation 1. Section 3a & b - Under "Secured Party," enter Corporation 2. This establishes Corporation 2 as the owner of the assets of both the division and Corporation 1 should either fail. Financing Statement - Same as above: Indicate "See attached Exhibit A."

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 Tagging Assets - Tag and number all assets as explained above. On each tag, indicate, "This item is owned by [name of Corporation 2]." Exhibit A - Follow the same procedure as outlined above. Form UCC-1 is filed with Secretary of State in the state in which the assets are located and is valid for five (5) years, after which you have to re-file. This form is available in most stationery stores and title company offices. For a small fee, a title company will prepare and file your Form UCC-1 if you prefer. Managing Personal Assets Your house Do NOT sign your house over to the corporation you would lose your tax write- off. Instead, pledge the equity in your house to Corporation 2. You do this by issuing a Note Secured by Deed of Trust. Your car A Corporation can buy or lease a car, which then becomes a write-off for the corporation. If you own a car and are going to use it for corporate purposes, the Corporation can give you a car allowance, as well as support the insurance and a good percentage of the registration. If you already own a car that has equity, there are two ways to protect that equity: 1. Corporation 2 can becomes a lien holder on the car. A lien holder is added at your local Department of Motor Vehicles at a minimal charge (generally around $15.00). 2. If you already have a lien holder on your car, to protect the equity in the event of financial problems, you can file a Form UCC-1 indicating the car is an asset to Corporation 2. Then, in the event that a third party sued you, Corporation 2 could confiscate the car, leaving the third party empty-handed. Rental properties As explained in the section entitled Managing Your Divisions, consider establishing a division to manage your rental properties. Establish a separate division for each rental property (NOT including your primary residence). This will allow you to purchase goods and services for your properties at wholesale prices, as well as protect you personally and the rest of your assets from liability. A renter is a liability. Our goal is to isolate liability. Divisions help you to isolate. Form UCC- 1 can also be used in real estate transactions to secure the renter's belongings as collateral in the event the renter fails to pay rents owed. Be sure to indicate within their rental/lease agreement that they must also provide a list of their belongings and will be used as collateral. Their belongings then may be repossessed in the event they fail to pay rent.

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Keeping It in the Family There are essentially two ways you can protect your family's assets when you die: 1. Living Trust Unfortunately, with a living trust, assets tend to get tied up in probate. 2. Corporations This is a better approach. If you've done the procedures outlined in this program, the Corporation(s) already own and control all the assets that you use. Therefore, it is important to understand how this affects your family. As you know, a Corporation is considered a legal person in the United States. But unlike each of us, a corporation can live forever. This can be a great advantage for your family and children. The first step is to ensure the people you choose to carry on your legacy and fulfill your desires upon your death are in a position to do so. This requires a Corporate Resolution by the Asset Holding Corporations Board of Directors (since this corporation controls the assets), that provides power of attorney over the corporation's assets to your designee(s) upon your death. By way of power of attorney, make it possible for your designee(s) to change the Officer's List for the corporation(s), so they can continue to maintain the business and control the assets. Be sure you add a provision that does not allow them to liquidate the company. The assets must remain in the corporation. Here are some additional methods for preserving family assets: Consider setting up a corporation for each of your children. You can make each child a director in his/her corporation. You can create stipulations, which they must meet to become president. For instance, you can require they reach a certain age, have a specific marital status, education level, etc. Once a child reaches adulthood, in the event of a divorce, the child's assets are owned by a corporation thus preventing the departing spouse to have any claim on them. Most states consider the assets and debt of a married couple to be community property. Therefore, in the event of divorce, both parties are liable for debt and both share the assets, even if only one party is responsible for establishing them. Therefore, prior to getting married, consider establishing a prenuptial agreement that designates which party controls which assets, debt, etc. Another mistake couples make is joining their personal credit. Then, if one party has a credit problem, it affects both people. Instead, keep your credit separate so if one has a problem, the other party can carry on.

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Non-Profit Corporations
Establish a Non-Profit Corporation and you can gain some terrific benefits while serving your community and the world. A non-profit corporation will allow you to: 1. Earn a great paycheck! In a non-profit corporation, 32% of the company's income may be used to pay salaries, with the remaining 68% going to the company's philanthropic enterprises. 2. Buy houses at maximum discounted prices and the lowest interest rates available and, in some cases, without paying the usual property taxes! 3. Own your own thrift store and have the building and inventory donated to you! This will benefit you while benefiting others. To establish a Non-Profit Corporation, you follow the same general procedures as you did when establishing your For-Profit Corporation, with a few modifications: When naming your Non-Profit Corporation, be sure to select a neutral name, similar to naming Corporation 1. Refer to the section called Corporate Name. Do not use the word foundation in the corporation's name. Foundation is actually a legal term referring to a non-profit organization that has at least $25,000 in revenue. Many non-profit corporations do not qualify for foundation status. Non-profit corporations require that you name five (5) directors when registering the corporation. Articles of Incorporation should be filed with the Secretary of State in the state of incorporation. Then do the following: File Officer's List, Apply for Tax ID; Obtain Form 1023, an application for Recognition of Exemption from the IRS. You can obtain this form on the IRS web site at www.irs.gov. Order a Non-Stock Kit. Similar to a standard Stock Kit, you can purchase a Non- Stock Kit at most office supply or stationery stores. Continue to follow all the steps outlined in this Guidebook to set up divisions, obtain your address and phone number, apply for a credit rating number with Dun & Bradstreet and/or Experian, and open your corporate bank account, etc. When designing the letterhead for a non-profit corporation, include a list of the corporation's philanthropic ventures and IRS exemptions so the public can see immediately the company's purpose. This will help protect the organization. Non-profit corporations sometimes find they have excess revenue at the end of their fiscal year, which they often donate to other non-profit 47

organizations. If the corporation has too much money, donate. Or you can solicit funds for your Non-Profit Corporation from other non-profit organizations that may have excess revenue. If you are interested in purchasing real estate under your Non-Profit Corporation, you can contact the U.S. Department of Housing & Urban Development regarding HUD programs. Their phone number is 800/856-1170 or 1160. Membership Certificates Instead of stock certificates, non-profit corporations issue membership certificates to establish ownership and control. If you are establishing a non-profit corporation, you need to purchase a Non-Stock Kit, available at most stationery stores. Whereas stock certificates generally indicate "ownership" as well as control of a Profit Corporation, membership certificates indicate a voting right in a Non-Profit Corporation. Understand that a Non- Profit Corporation cannot be "owned"; it can be established and it can be suspended, but it cannot be "owned". Unlike a profit corporation, in a non-profit corporation, membership certificates can easily be added and issued and you can be voted out of the organization even if you are the founder! To minimize this risk, consider creating a Founder's Statement, an official document that establishes who founded the company. This provides some protection to the founders of a non-profit corporation should a third party try to take over. The Secretary is a key role in a Non-Profit Corporation.The Secretary controls the Non- Stock Kit and can assume some authority over how many membership certificates are issued and who will receive them. Therefore it is advisable for the most trustworthy person to be elected and maintain the position of Secretary for a Non-Profit Corporation. This person may well be you.

S Corporations
As you know, when you initially establish a profit corporation, you established a C Corporation, which may be converted to an S 48

Corporation. However, changing it to an S Corporation makes sense in some specific cases. If the Corporation meets the following criteria, an S Corporation is advisable: 1. The sole purpose of the Corporation is to provide a service and collect income, and 2. It has no liabilities, such as employees, creditors, suppliers, etc. An independent investment banker and a one-person escrow company are examples of corporations that meet these requirements. Here are a few of the differences between C and S Corporations: 1. Under a C Corporation, you must file a separate income tax return for you, personally, and for the corporation. Whereas, under an S Corporation, you are required to file just one tax return for both your personal and corporate taxes. 2. Under an S Corporation, each shareholder is required to sign a Form 1244, indicating the election of an S Corporation. (See below for more information on Form 1244.) Not only does this disclose who the stockholders are, but it also makes them responsible for any corporate taxes due. 3. Although under an S Corporation the IRS permits a corporation with fewer than 75 shareholders to "pass through" its profits directly to the shareholders without corporate tax, it also requires that all profits be passed through, whether or not any dividends were paid to shareholders. Therefore, the shareholders may be required to pay taxes on monies they did not individually receive. 4. Shareholders must be human beings. In most cases, it is NOT advisable to switch to an S Corporation; however, it does make sense in some specific cases. If you do elect an S Corporation, you need to add a sticker to the corporate stock that verifies it as 1244 Stock. The Stock Kit also contains these stickers ("IRC 1244 Stock") under the "Stock Certificate" section. These stickers are only used when issuing stock for an S Corporation. Explanation of section 1244 stock Section 1244 of the Internal Revenue Code permits individuals who own shares that qualify under that section to deduct losses realized on such shares as an ordinary loss, rather than as a capital loss, under certain circumstances. The maximum amount of ordinary loss deduction in any one taxable year allowed under this section is $50,000.00 on a separate return, or $100,000.00 on a joint return. In order to qualify as Section 1244 Stock, the same must be issued by a domestic "small business corporation". For the purposes of this section, a "small business corporation" is one which has received for stock, contributions to capital and paid in surplus, money and other property not in excess of 49

$1 million. Additionally, to qualify as Section 1244 Stock, the same must be issued for money or other property (other than stock and securities), and during the period of its five most recent taxable years, the corporation must have derived more than 50% of Its aggregate gross receipts from sources other than royalties, dividends, interests, annuities and sales or exchanges of stocks or securities. The rules and regulations regarding Section 1244 are technical and incorporators should seek qualified legal or accounting advice regarding details of the same.

Press for Success

If anything is worth doing, it is worth doing well. One of the keys to WINNING the Game of Business is adapting your attitude. In our society, we are so geared toward owning things that it is difficult to shift our thinking. You don't OWN a corporation. You are simply an EMPLOYEE of a corporation. In fact, you no longer own anything. The corporation owns and controls everything. This is a new way of thinking that will limit your liability in the future. This is how the rich stay rich, and now you can too! Be sure to give the corporation a PROFESSIONAL LOOK, this will open doors and you will be met with greater respect and optimum results. Obtain the proper printed stationery, type your correspondence and applications, and obtain all the necessary licenses (business, resale, etc.). And when establishing divisions, be sure to publish the Fictitious Business Name Statement in the city and state in which you are doing business, even if it is not required by the city. Many creditors, potential clients and the credit rating companies (Dun & Bradstreet and Experian) will be looking for it. Business is a GAME. Play the Game and Win! One strategy is to be your own competitor. Set up corporations and divisions that compete with the corporation 1. Corporation 1 sells at the lowest price available, set up corporations that sell at higher rates. Own the market! Remember that the day you begin the paperwork to establish a corporation is the day you should begin to plan for its bankruptcy. Again, this doesn't mean you should intend that the corporation go bankrupt; that is FRAUD. We do not endorse fraud. Instead, package all the assets from the beginning so they are protected in the event of a problem or challenge down the road. It is very important that you do not forget to reread this information a couple times and then layout a plan of action.

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