States historically have had jurisdiction over the way business entities within their boundaries are formed and over reporting requirements for these entities. Statutes and requirements vary from state to state. In general, however, forming a company involves certain steps. Initially, a company principal or someone acting on the company’s behalf submits formation documents to the appropriate state office—usually a division of the secretary of state’s office—but in some cases to a different state agency. All formation documents filed with the state are matters of public record and are available to anyone. Documents may be submitted in person, by mail or, increasingly, online. A minimal amount of basic information generally is required to form a company, although these requirements also vary from state to state. Generally, the documents must give the company’s name, an address where official notices can be sent to the company, share information for corporations, and the names and signatures of the persons incorporating (see fig. 1). State officials generally check to see that the documents supply the information required by statute. Fees vary by state from $25 to $1,000, and the process can take anywhere from 5 minutes to 60 days. See appendix II for more information on how formation documents are submitted and on the company formation fees in each state. Expedited services, available in some states, decrease processing times but may require an additional fee. Most states also require companies to file annual or biennial reports in order to stay in good standing, for a fee ranging from $5 to $500. Businesses may be incorporated or unincorporated. A corporation is a legal entity that exists independently of its shareholders—that is, its owners or investors—and that limits their liability for business debts and obligations and protects their personal assets. For example, the owners of a small store may desire limited liability protection in case a customer is accidentally injured inside the store and decides to sue. In this hypothetical case, the owners’ personal assets, such as their home and retirement savings, generally would not be subject to any award if the customer won the lawsuit. Limited liability means that owners or shareholders in a business entity are personally responsible only for the amount they have invested in the business, while the corporation itself is responsible for the debts and other obligations it incurs. The exception occurs when a court “pierces the corporate veil,” or disregards the legal entity that is the corporation, and holds the owners, shareholders, and sometimes the officers and directors responsible for the corporation’s acts and obligations. In contrast, the owners of unincorporated businesses, such as partnerships and sole proprietorships, are generally liable for all debts and liabilities incurred by their businesses. However, these types of businesses also offer tax advantages that corporations do not. The limited liability company (LLC) is a fairly new business form that is a hybrid of the corporation and the partnership. Wyoming passed the first law permitting formation of LLCs in 1977, and Florida followed suit in 1982. By the mid-1990s, all states had enacted LLC statutes. Like a corporation, an LLC protects its owners, which are referred to as members, from some debts and obligations; like partnerships and sole proprietorships, however, it may confer certain tax advantages. In addition, LLCs can choose a more flexible management structure than corporations. Table 1 shows the key characteristics of the different types of U.S. businesses. Historically, the corporation has been the dominant business form, but recently the LLC has become increasingly popular. According to our survey, 8,908,519 corporations and 3,781,875 LLCs were on file nationwide in 2004. That same year, a total of 869,693 corporations and 1,068,989 LLCs were formed. Figure 2 shows the number of corporations and LLCs formed in each state in 2004. Five states—California, Delaware, Florida, New York, and Texas—were responsible for 415,011 (47.7 percent) of the corporations and 310,904 (29.1 percent) of the LLCs. As shown in figure 3, Florida was the top formation state for both corporations (170,207 formed) and LLCs (100,070) in 2004. New York had the largest number of corporations on file in 2004 (862,647) and Delaware the largest number of LLCs (273,252). Data from the International Association of Commercial Administrators (IACA) shows that from 2001 to 2004, the number of LLCs formed increased rapidly—by 92.3 percent—although the number of corporations formed increased only 3.6 percent. Most states do not require ownership information at the time a company is formed, and while most states require corporations and LLCs to file annual or biennial reports, few states require ownership information on these reports. Similarly, only a handful of states mandate that companies list the names of company managers on formation documents, although many require managers’ information on periodic reports. States may require other types of information on company formation documents, but typically they do not ask for more than the name of the company and the name and address of the agent for service of process (where legal notices for the company should be sent). Most states conduct a cursory review of the information submitted on these filings, but none of the states verify the identities of company officials or screen names against federal criminal records or watch lists. The owners of a company are, in the case of a corporation, the shareholders of that corporation and in the case of an LLC, the members of that LLC. According to our survey results, none of the states collect ownership information in the formation documents—articles of incorporation—for corporations (see fig. 4). State statutes generally do, however, require corporations to prepare and maintain lists of shareholders that, unlike formation documents, are not filed with the state or part of the public record. With respect to LLCs, states generally require a manager-managed LLC to name the designated manager instead of a member on the formation document—articles of organization. However, the manager is not necessarily an owner of the LLC. LLCs usually prepare and maintain operating agreements that name the owners, members, and their financial interests in the company, but these operating agreements are not filed with the state or part of the public record. According to our survey results, four states—Alabama, Arizona, Connecticut, and New Hampshire—request some ownership information when an LLC is formed. For example, in Alabama, the formation documents must list the names and mailing addresses of the initial members of an LLC. A Connecticut official said that either a member’s or a manager’s name was required on the articles of organization. In New Hampshire, a member or manager is required to sign the articles of organization. Arizona statutes mandate that manager managed LLCs must list on formation documents the name and address of each member owning more than a 20 percent interest and that member-managed LLCs must list all members’ names and addresses. Depending on the management structure of an LLC, ownership information may be included on the formation documents in more states. If an LLC is managed by its members, some states require the LLC to provide the name and address of at least one member on the formation document. Most states require corporations and LLCs to file periodic—annual or biennial—reports, but not many states require ownership information on these reports (see fig. 4).With respect to corporations, three states (Alaska, Arizona, and Maine) indicated on our survey that the name of at least one owner was required on corporations’ periodic reports. In Alaska, any person owning more than a 5 percent interest in a corporation must be listed on the periodic report, according to a state official. An official from Arizona said the state requires that corporate periodic reports list the names and addresses of shareholders owning more than 20 percent of company stock. In Maine, statutes require that periodic reports include the names and addresses of shareholders of a corporation only if there are no directors. With respect to LLCs, our survey showed that five states require LLCs to list at least one member on their periodic reports. As with corporations, Alaska requires the name and address of any person owning more than a 5 percent interest in an LLC to be listed on the company’s periodic report. A state official told us that LLCs in Kansas are required to list on their periodic reports the names and post office addresses of members owning at least 5 percent of the capital in the company. Connecticut and New Hampshire require either a manager or at least one member name on their periodic reports. Maine requires the name and business or residential address of each manager, or if there are no managers, each member with a street address on the periodic report. Finally, in states that require a manager’s or managing member’s name on periodic reports, the reports for member-managed LLCs might include a member’s name. Less than half of the states require the names and addresses of company management or directors on company formation documents. Management may include officers—chief executive officers, secretaries, and treasurers—who help direct a corporation’s day-to-day operations, as well as managers or managing members of LLCs. Directors serve on the governing board of a corporation and are responsible for making important business decisions, especially those that legally bind the corporation. Two states require officers’ names and addresses on company formation documents, 10 states require the names of directors, and 9 states require the addresses of directors (see fig. 5) . Some states have additional information requirements for company formations. For instance, our review of state statutes found that Louisiana does not require information on directors on the incorporation documents, but does require directors’ names and addresses on an initial report that must be filed with the incorporation documents. We also found that Oklahoma requires the names and addresses of the directors only if the persons incorporating the company are not responsible for its operations after the incorporation documents are filed. More states require management information on LLCs.