Article Vault A - Z (Incorporating Your Business)


How To Incorporate

Every business involves risk. There is a risk the business may collapse or stagnate. Control the extent of personal financial liability by making the business a separate legal entity.

Depending on the legal form, the business can be a sole proprietorship, a partnership, a Limited Liability Company (LLC), or a corporation. While sole proprietorships and partnerships are easy to form and maintain, these types of businesses do not protect the owner from personal liability.

The Two Reasons To Incorporate
1 A Corporation is an artificially created entity, formed by a group of people. Its rights and liabilities are separate from the people involved in it. Legally, it can own assets, enter into contracts, be taxed, and sue or be sued.

2 Corporations can last forever, even after the death of the founder.

The Process Of Incorporation
The process of incorporation begins by filing a document with a state official, usually the Secretary of State. This document is called the Article of Incorporation or Certificate of Incorporation. It must include the following information.

1 The proposed name of the corporation, its purpose, and the location of its headquarters.

2 The addresses and names of the incorporators.

3 Details about the amount and types of capital stock that the corporation is authorized to issue.

4 The responsibilities, privileges and rights of each class of stockholder, director, or officer.

5 A set of bylaws, which explain the running of the corporation.

6 Information about when stockholder meetings will be held.

7 All other information relevant to the corporation?s operation.

After paying a filing fee the company files the necessary documents with the secretary of state. The filing fee ranges from about $75 to $500. This filing fee differs according to the state and the filing method, which the company employs. If the company prepares the articles without external aid, it only needs to pay the state fee. If the company hires an attorney to do this, then the company must pay the attorney?s fee as well. It is also possible to do this through an incorporation service company, which prepares and files these documents with the state and charges a consolidated fee.

After the state accepts the articles of incorporation, the office of the Secretary of State sends a certificate of incorporation and the corporation holds an organizational meeting where it adopts the bylaws.

It is necessary to adhere to all the rules of incorporation. Failure to do so results in the court of law piercing the corporate veil and holding the owners personally liable for the corporation?s debts.

Additional Help
There are several organizations that provide support and software to draft, customize and generate the documents required for incorporation. Companies can incorporate online through the internet.


Choosing To Incorporate

For the novice business owner getting incorporated seems like an endless stream of red tape, forms and complications. How to get incorporated is one question that they simply have too many doubts about and too few answers to be able to make an educated decision. Luckily there are an army of consultants, lawyers, and accountants out there who can help provide the answers to how to get incorporated and most of them for a minimum fee would be happy to assist.

The first question to answer is not how to get incorporated, it is should the business be registered as a corporation in the first place. My belief is yes. Unless you are a really small company, less than $25,000 in annual sales, no employees, working from your home and the products or services you sell have very limited liability exposure, you should be incorporated.

Any good accountant or business lawyer can help a business determine very quickly whether incorporation is the best business model to pursue. Finding a good accountant or business lawyer may be difficult however. In my experience there are several accountants and lawyers that will tell their client not to incorporate, with no real reason or explanation, when in fact they should have been. There are several instances I have worked with business owners running as a sole proprietorship for the last three years. Just looking at the previous year in business if they had been incorporated we could have saved them tens of thousands of dollars in most cases.

Once that initial decision has been reached these same experts can provide all of the answers required as to how to get incorporated. This will include assistance with the filing of articles of incorporation which can be registered with the state in which the business may wish to operate, or in other more business friendly states like Delaware or Nevada who encourage non resident incorporation by individuals outside of the state.

A Corporation has three distinct groups associated with the entity; officers, directors, and shareholders of the corporation. In filing for incorporation most states require the names and addresses of these groups of the corporation, at least the primary officers and majority shareholders..

There are also a number of other requirements that have to be met in order for a business to be incorporated and these include the payment of all applicable fees, taxes and levies of the state in which the business may be incorporated. There are no easy answers to the question of how to incorporate a business but there are great resources out there to help every business navigate their way through the system and make the best possible choice for their business interests.


Tax Benefits Of Incorporation

Some companies may seem to escape death, but they will ever be able to escape taxes. That doesn't mean there aren't some tax benefits out there, though, that only the corporations are getting. Companies are tempted to incorporate for a number of reasons, but more and more often, taxes are the main motivator. But why?

Well, it's important to note right away that incorporation only means tax benefits for some companies. For others, taxes might actually become a bigger problem than they were before. However, potentially, you have a lot to gain – in what you won't be paying in taxes to the government – by incorporating. There are a few basic tax benefits that corporations often rely upon.

The first one is tax deferral. All this means, really, is that a company can keep more of its earnings. How can this be? When a company becomes a corporation, it becomes a separate entity of its owner and thus adheres to different rules than it did before. Typically, an owner must pay taxes directly to the government on his or her net income. But if that same owner has a corporation on his or her hands, it's an entirely new ballgame. The corporation has different tax rates than its owner! Depending on the state, a corporation will have to pay little to no income tax. You can expect that the income tax of a corporation will be significantly lower than a personal income tax.

This may all sound very quaint and appealing, but there's more to the story. The grass isn't necessarily greener on the other side because of a nuisance called double taxation. Double taxation happens when both the shareholder and the corporation are taxed for various profits and gains. Especially when a corporation liquidates, this is a problem. (As new dividends make themselves known.) There are ways to resolve the double taxation dilemma, but it does take quite a bit of thought and planning.

Whether you're running a company or a corporation, you must think about taxes in the long term. Don't just plan for this year and next – think far into the future and foresee problems like double taxation. As you consider the tax benefits of incorporation, make sure to also consider the disadvantages and added complications. If you want to get the best bang for your buck when you incorporate, you must play an active role in the process of turning your company into a corporation. And that means you can't take for granted the promise of tax benefits.

Also keep in mind that tax law is ever-changing and tax benefits that generations before you had may be nonexistent today, while new benefits may take their place. It's advisable to keep up to date about what your state legislatures are coming up with from year to year. Because each company has its own personality and ambitions and of course net profits, some tax benefits may be more disposable than others. The only appeal of tax benefits is that a company retains more of its earnings, so if incorporation is costing you money in other areas, you will want to note this. It's important to weigh all the costs and benefits against each other!

Incorporation Benefits

The ability to make the right decision at the right time is the most desired quality in any business entrepreneur. And there are certain business decisions that can take your entrepreneurial ambitions further ahead than others. The decision to incorporate your business is one such decision that can affect the future of your business in a positive direction.

Before explaining several benefits of incorporation, let us give you the definition of corporation from a legal point of view. A corporation is regarded as a separate legal entity, whose existence is independent of that of its owners. The process of incorporation is guided by the charter or certificate of incorporation of the respective states. To incorporate a business, you have to fill out the forms for this Charter and file all the papers along with the requisite fees to the proper state authority.

If you are planning to incorporate, you are moving towards the right direction, because the process of incorporation comes with the following benefits:

Incorporation protects you from the disadvantages of sole proprietorship. As such you no longer remain personally liable with regards to business debts. In case of a sole proprietorship or partnership, your personal properties can be seized by the creditors in case you default on the payment of your business debts. These personal properties include your home, savings and other assets. But incorporation of your business makes you one of the shareholders in your company and as such, if your business is down, as a shareholder you have nothing to lose other than the money you have invested in your company. Your other properties are safe from liability.

As a corporation your company gains a much longer life span. In case of sole proprietorship or in the partnership business, the business virtually comes to an end in the event of the death of the proprietor or one of the partners. But a corporation is provided with a legal business structure. No matter what happens to any of its shareholder or executives, a corporation continues to exist, as it has a separate legal entity of its own. The ownership can also be transferred without affecting any business functions just by selling the stocks.

When you are planning to pump in more capital into your business, a corporation business structure comes into great help. When you need some more capital investment, you can sell stocks or other equity interests in the market. If you are a sole proprietor or running a partnership business, it is much more difficult to attract the financiers due to the liability issues.

If you incorporate your business, you can offer many tax-deductible benefits to your employees including health and life insurance, travel and entertainment expense account, and retirement plans. This will help you to attract the best managers in the industry to run your business more profitably.


The Pros and Cons Of Incorporation

If you are considering making the jump to incorporate your business, there is a lot of information and research that needs to be done prior to your decision. Business incorporation has its pros and cons just like everything in the business world. In order to make sure that the business incorporation goes smoothly, it is always smart to hire an attorney to assure yourself that the paperwork is filled out correctly and everything goes to plan.

The forms for business incorporation include articles of incorporation that conform to the state law. They must be filed with the correct state authorities along with the filing fees, initial franchise taxes and other initial fees. One of the easiest ways to fill out these forms is through BizFilings. All you have to do in order to incorporate your business is complete the online order form and BizFilings handles the rest.

There are many advantages to going through the business incorporation process. One of the primary advantages is the limited liability the corporate entity affords its shareholders. With the shareholders not being liable for the debts of the corporation, shareholders are free of obligation to the company. Another advantage to incorporating your business is the fact that ownership of the corporation is easily transferable. If you decide after a year or two that you don't want to have full responsibility for the corporation any more, you can sell it or have someone take over very easily.

Having a corporation allows you to raise capital much easier through the sales of stocks. If that weren't enough to get you to go through the business incorporation process, it's soothing to know that you can be taken care of in the future as well. By being involved in a corporation your retirement funds such as a 401k are set up much more easily to ensure that you are taken care of after retirement.

While there are many benefits to business incorporation, there are also the downsides you have to face. The primary downside you will notice with a corporation is double taxation. Profits of a corporation are taxed twice when distributed to the shareholders; once as income to the corporation and another time as income to the shareholder. Other disadvantages to incorporating your business include the increase of paperwork and extensive record keeping that is required.

When going through the business incorporation process, there are many decisions that you have to make. It is a huge jump in your life and you have to determine if the advantages outweigh the disadvantages. If you do decide that incorporating your business is worth it, you then have to make sure to fill out all the legal documents correctly and submit them to the right place. Hiring an attorney is not necessary by any means, but is recommended. At the end of the day you have to realize that business incorporation is a huge decision and could change your life, so make sure that you are 100% sure on the decision you go with.


Frequently Asked Questions About Incorporating

Articles of incorporation are needed when a business decides to incorporate. They are a set of rules that determines how a corporation should be managed and they are filed with the government in your area. In order for a business to become a corporation, the articles of incorporation must be filed with the appropriate agency. It is important to know that in, they may not be called articles of incorporation in your area. They may also be referred to as Certificate of Organization, Certificate of Formation or Certificate of Organization.

Where do I file the articles of incorporation?

Articles of incorporation must be filed with the government in the area in which you intend to incorporate. Typically the forms are filed with the Secretary of State. However, if approved you may use another regulatory agency or company. There will be a fee associated with filing. It will vary depending on where you live.

The forms needed to file the articles of incorporation should be readily available to you from a variety of venues. You can obtain them by printing them on your computer from the web site of the Secretary of State. You can also obtain the forms needed by writing to or calling your Secretary of State and asking them to mail the form.

What information is contained on the articles of incorporation?

There is a variety of information that is required when you file these forms. These are the basics in all areas. However, your local government may require additional information. It is important that you conduct full research on what your area may require.

The first piece of information to be listed on the articles of incorporation includes the name of the corporation. This will be the legal business name under which the corporation will conduct business. This should include any designators at the end such as Inc. or Corp.

You will also be required to determine the purpose of your corporation as stated by the government in your area. The name and address of the person responsible for accepting any legal notices in regards to the business named, such as an attorney.

Another piece of information that is required on the articles of incorporation includes the number of shares the business is allowed to issue. The type of business the corporation is conducting will determine the amount of shares issued and how many people can hold them.

The final requirement are the signatures. This should be of the incorporator or any directors along with the addresses of all signatories.

Other requirements that may be required in your specific area could include the duration of the corporation, if the corporation will have preemptive right or cumulative voting and if the business will offer various classes of their stock shares. It is important that you research all areas of incorporating and understand what is required and what additional items may be added to your filing.