Every business form has inherent advantages and disadvantages in operation and maintenance. If you are operating as a sole proprietorship or a partnership, the advantages lie in its operational flexibility and taxation procedures. Sole proprietorship or partnership requires few formalities to be complied with for formation or maintenance. The main disadvantage is that the business owners are personally liable for all the business debts and obligations. In a partnership, all the partners are personally liable to the partnership activities and if one partner is unable to meet his or her part of the obligations the other partners have to make good for it.
Limited Liability Companies and Corporations offer personal liability protection to its business owners. The disadvantage in these business forms is that the formation and maintenance entails compliance with state laws. The business owners have to pay yearly taxes for operating these entities and are required to file various returns to Federal and State governments. As the state statutes govern the formation and operations of LLC and Corporation and the rules vary in each state, you have to refer to the respective state statute on how to form a corporation or LLC.
Changing your business form from a sole proprietorship to a Corporation offers many advantages. The foremost as to why incorporate is the limited liability protection it offers. A corporation is a separate legal entity in the eyes of law and the corporation’s business deals do not affect its shareholders or officers personally with some exceptions. Incorporation is governed by state rules and regulations like that of all other business entities. Incorporation rules may vary in each state. To start a corporation in any state the basic requirement is to file Articles of Incorporation with the state. Each state has its own stipulations as to the information to be stated in the Articles (or Certificate as called in some states). The name of the corporation, main purpose for which the corporation is formed, the authorized share capital and class of shares, voting rights and preferences of each class of shares, names and address of the incorporators and directors, the registered address which must be a local address, a registered agent or officer for process service with a local address and the person’s consent to act as agent etc. are some of the critical information required by states to be stated in the Articles. Filing an article and obtaining a certificate of incorporation does not authorize the corporation to start business. All the business permits and licenses required by Federal and State laws have to be obtained.
