Forming a corporation is beneficial to average business owners in many ways. Creating a separate entity for your business helps you to keep track of your business growth and to project your business to the public. Incorporations are designed to do that – create a separate legal entity from that of the business owner. All depends on where you stand on the average business owner scale. If you are on the lower half of the scale and your business is more of a hobby than a way of earning your bread, incorporations are not too appealing. Forming a corporation is relatively expensive and entails tedious formalities and procedures to maintain and operate. A sole proprietorship or a partnership will suffice in conducting a hobby as a business if your business does not give rise to serious risks and potential liabilities.
Small business incorporations are necessary when your business has grown from a hobby to that of a serious business concern. As your business transactions rise in volume, your business risks increase proportionately. The main disadvantage of a sole proprietorship or partnership is that the business owner’s personal liability is unlimited for all business debts or obligations. Forming a corporation will protect the business owner from the unlimited liability issue. In a corporation, the business owner’s liability is limited to the stock held by that owner.
Forming a corporation is not too difficult but do involve serious formalities and procedures. Incorporations are done under the state laws. Each state has its corporation’s code, which governs the formation and operation of business as a corporation. You can form a corporation by filing an Articles of Incorporation with state agency dealing with incorporations. Generally incorporations are handled by the Secretary of State’s or Corporations Commissioner’s offices. The fees for filing Articles of Incorporation also vary from state to state. Some states stipulate that the corporation bylaws be filed along with the Articles and a public notice issued regarding the intention to form a corporation. The Articles should contain all relevant facts about the corporation such as the purpose for which it is formed, names and addresses of the promoters and incorporators, principle place of business, authorized capital etc. You will have to designate a person to act as your resident agent for handling all paper work with state agencies and other institutions. Most states actively encourage small business incorporations in their territory and have simplified the procedures and formalities for ease of operations. State websites carry a sample of Articles of Incorporation as is needed to file in that state.
