The state laws govern the incorporation of your small business. The incorporation rules vary in each state. The key procedure for incorporating a business is to file a certificate of incorporation with the state and pay a filing fee. In some states the certificate of incorporation is also called the articles of incorporation. The ownership in a corporation is structured as units of stock or shares, which is subscribed to and promised to pay for by the shareholders. The corporations can be of two types namely an S Corp or a C Corp. The basic legal structures of both forms are similar. The main differences are the share holding and taxation. Shares in an S Corp are restricted to natural US citizens and limited to a maximum of 100. There are no such restrictions in a C Corp. C Corporations are subject to corporate taxation where as the S Corporation advantage is that the profits are passed through to the share holders and taxed as their personal income.

Limited Liability Companies also offer personal liability protection to its owners who are called members. The advantage in LLC Vs. Corporation is that in the eyes of the general public, corporations are ‘perpetual’. LLCs are considered to be bound to the life of its members. One advantage in LLC is that procedure for taxation can be decided by the members and they can elect to be taxed as a partnership or a corporation. The advantage in LLC Vs. S Corp is that LLCs are relatively easy to form and less cumbersome to operate.  Members of an LLC can elect to be taxed as an S Corporation and avoid the double taxation of a C Corporation.

As to why incorporate, you have to plan your future far ahead. Business continuity in any other business structure is moot. If you think yourself as an entrepreneur and wish to attain greatness in business incorporating yourself is the best bet. By incorporating yourself you plan for the future. The business structure of a corporation offers you business continuity and for this reason investors are willing to contribute funds to corporations. Stocks or shares in a corporation are easily transferable unless otherwise stipulated in the bylaws or articles of incorporation. Easy transferability converts into ease of attracting capital.

Beware of the mistakes that are commonly committed in small business incorporations. Usually this happens because you are in a hurry to start your business. A certificate of incorporation is not a license to do business. Other formalities and procedures are required in operating a business. You have to get all applicable licenses and permits for your business, a federal Employer Identification Number or EIN etc. The naming of your corporation is also important. You have to make sure that the name you select is not in use. Otherwise you may get sued under the Intellectual Property Laws and may end up paying damages.

Remember, you will need time to understand all the procedures and formalities and to comply with them. If you are engaged otherwise, weigh the pros and cons of spending time on incorporating yourself when compared to paying a lawyer for the work. It might turn out that paying a lawyer is far better than taking the effort yourself. The strain and hassle may well be not worth it. Lawyers experienced in incorporations can do the job within a fraction of the time you will have to spend on incorporating yourself. Moreover, you can avoid the stress from not knowing whether what you have done is right and any future complications due to a wrong act on your part while incorporating yourself.

Forming corporation in New Jersey can be accomplished by filing Certificate of Incorporation and submitting Business registration application with the New Jersey Division of Revenue. The basic requirements for forming a corporation in New Jersey are:

Corporate Name: You must determine that the name you have selected for your corporation is available for use before filing the certificates of information for business registration. The name must not be similar to an existing New Jersey business entity. You must also not include terms and language prohibited by the state statute. The name availability check is automatic if you are filing online.

Certificate of Incorporation: The certificate should contain certain basic information regarding the corporate organization. It should list (1) the name and address of one director at the least. If there is more than one director, all their names and addresses must be listed (2) the aggregate number of shares, each class of shares and the privileges assigned to each class (3) the registered office address of the corporation, which must be a NJ street address (4) the designated registered agent and his New Jersey communication address. There can only one registered agent for a corporation. The certificate of incorporation may include additional information optionally if you wish to formalize them.

Bylaws: The directors must hold the first meeting and adopt the bylaws of the corporation. The bylaws are the charter under which the corporation will function and operate its business.

Your corporation can elect to be a C Corporation or an S Corporation under New Jersey Statutes. The C and S are not different corporate business structures but tax classifications. The C Corporation is subject to corporate tax; it has to pay federal and state income tax on profits from business directly. When the profits are distributed among the shareholders, they pay tax on that as their personal income. S Corporation advantages are, it has a lower corporate tax and has a pass through taxation. The shareholders pay tax on their share of profits through their personal tax returns.

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.

Now that you understand as to why incorporate, let us understand how to incorporate yourself. Business entities are created and governed by state statutes. By incorporating your business you will be creating a separate legal entity under the eyes of the state law. The separate entity has to assume obligations and duties as that of a normal person in business. To ensure that a corporation is not used as façade by the owners to indulge in nefarious activities because of the limited liability status it bestows on the business owners, states stipulate lengthy formalities and procedures in a corporation’s formation and operations. You have to comply with all the statutory and legal obligations for forming and operating a corporation in a state. Generally business registrations are managed by the Secretary of State’s or a Corporation Commissioner’s offices. Check with these offices to understand the correct formalities to incorporate yourself.

The first requirement for small business incorporation in almost all states is to file an Articles of Incorporation with the agency handling incorporations and pay the required filing fees. The Articles should contain all the basic information about the intended corporation and its proposed business. You will need a registered agent in the state to handle all the paperwork and formalities on behalf of the corporation. Usually the Articles of Incorporation is a standard pre-printed form with blanks for the required information. You as the incorporator have to fill in the blanks, sign the form and submit it to the corporate filing office. Further to the filing, you require to appoint the directors and office bearers of the corporation propose and adopt bylaws in the first meeting held for the purpose. Bylaws are the basic tenets under which the corporation and its officers and directors will operate the corporations business. Each and every activity or decision other than the routine business operations of the corporation has to be passed with resolution in a board meeting and recorded in the minute book. Refer to the states corporation code to know all the formalities involved in running a corporation.

The main disadvantage of the above mentioned business structures are that the business owners personal liability is unlimited. The partner or sole proprietor is personally responsible for all business activities and liable to pay all business debts or obligations regardless of their interest in the business with an exception of the limited partners. To overcome this disadvantage you may adopt a structure that limits the personal liability of the business owners in business obligations. Forming a Limited Liability Partnership, Corporation or a Limited Liability Company will serve the purpose. In these forms of legal business structures, the business owner’s liability is limited to their capital contribution.  Many statutory and legal formalities are involved in forming and operating these business structures.

Why incorporate is because corporations are suitable for businesses which need considerable capital infusion and time to grow and prosper. Corporations have a separate legal identity from that of its owners. Business continuity is not affected by the disability or death of a business owner in a corporation. There are two types of corporations, a C Crop and an S Corp. Though the basic structures of the both entities are same, S Corporation advantage is that it has a pass through taxation. The shareholders can report their share of profits in their personal tax returns and pay tax there.  The C Corporation profits are subject to corporate taxation and when the profits are distributed as dividends to share holders, they in turn pay taxes on these profits again. To start a corporation, you have to understand the basics of incorporation. Business entities are formed under state rules and regulations. To understand how to form a corporation, you consult the state agency dealing with incorporations in your state.

Corporations and Limited Liability Companies are two options for limiting your personal liability and protecting your personal assets. Limited liability partnerships are also a business structure that can limit personal liability of business owners but is restricted to specific businesses or professions in many states. The owners of these business structures have limited personal liability in business obligations. Limited Liability Companies are often incorrectly termed limited liability corporations or LLC Corp. LLC is an unincorporated entity but shares the limited liability characteristic with a corporation. LLC has the flexibility of operations as that of a partnership or sole proprietorship without the burden of unlimited personal liability of these business forms.

LLC’s are easy to form and convenient to operate. LLC business can start with filing an Articles of Organization with the state agency that deals with business registrations and paying the filing fees. It is prudent to have an LLC operating agreement in place. The llc operating agreement will portray individual existence and provide visibility to the limited liability status of the company. The owners of the LLC (called members) have the flexibility of partners of a general partnership in the management of the business while their personal liability is limited as that of share holders in a corporation. The members of the LLC can elect to be taxed as any other business entity like a partnership or corporation according to their convenience.

In LLC vs. corporation, the standard C corporations are subject corporate income tax and when the profits are distributed to the shareholders, they in turn have to report the income in their personal tax returns and pay tax if applicable. In LLC vs S Corporation, both have pass through taxation similar to that of a partnership and the members report the income in personal tax returns. This can avoid the double taxation involved in a C corporation. However, in all business entities, employment taxes or license fees are payable, if any are applicable to them.

Corporations have become the most common legal business structure for budding entrepreneurs with a vision to grow. Small business incorporation is now easy with states encouraging small business operators. States are actively soliciting entrepreneurs to start business in their territory by simplifying formation procedures and formalities. Some states even provide tax holidays or subsidies for niche businesses. To know how to incorporate yourself, all you need to do is get in touch with the agency handling business registrations in your state. Usually this is handled by the Secretary of the state’s or Corporations Commissioners offices.

There are a few basic rules on how to form a corporation. First step is to find a name for you to incorporate under. Care is needed in doing this. You cannot use a name which is identical or closely similar to that of any existing business. You will have to check with the agency handling corporations in your state and the corporations register to make sure that the name chosen is available for use. Then you file an Articles of Incorporation paying the due fees. The Article is usually a pre-printed form which should be filled in and signed by the incorporator or the promoter of the business. It will contain the basic information about the corporation and its functions. A bylaw of the corporation to set the rules and policies for the operation of business is a necessity.  It will act as a guide to the directors and office holders of the corporation in executing their duties and handling their responsibilities.

As to why incorporate, the answer lies in your business. If you have grown beyond your original estimates and your business volume has achieved critical mass, it is time for you to reconsider your business plans. Every business has risks associated with it. The risks grow in proportion to the volume of your business.  If you are carrying all that risk of business liability on your person, a small misstep may wipe out all that you have worked hard at for years.  By incorporating your business you limit your personal liability to the business obligations. Incorporation is necessary to grow also. If you need to attract capital to expand your business, incorporation is a good move. Investors are comfortable in investing in corporations because the only risk they assume is the loss of capital.

The incorporation of your business is not a tedious process and can be done easily enough. Corporations are formed under state laws and you have to comply with your state’s rules and regulation for incorporating your business. You have to file an Articles of Incorporation containing critical information regarding the corporation’s basic purpose and organizational structure with the state agency dealing with corporate registrations. Many states issue a Certificate of Incorporation evidencing the legal existence of the corporation. The Articles of Incorporation is the main document stating all that is important about your business such as the purpose for which the corporation was formed, the name and address of the incorporator(s), proposed directors, principle place of business, Intended share capital etc. After incorporation you need to draft and adopt the bylaws of the corporation in the first board meeting of the directors. You may also adopt a corporate seal for your corporation though most of the states do not mandate a corporate seal.

Choosing a legal structure for your business depends upon the type of activity you do. A C Corp is not an easy structure to form and maintain. There are considerable expenses and formalities involved in forming a C Corporation and running it. The corporation has to be registered with the domicile state agency and pay considerable fees for filing its application and other relevant documents. An Articles of Incorporation and Bye Laws have to be drawn up. You may adopt a corporate seal, but in many states it is not a mandatory provision.

If your business does not involve transactions that have potential for future liabilities, you may opt to run as a sole proprietorship or if two or more individuals are involved, as a partnership. Both forms of business structure do not require any formal procedures to set up and conduct business. The income tax return for profit or loss from business is filed along with the sole proprietor’s or partner’s annual return filings. No taxes need be paid by the business itself. For small business operators, Limited Liability Company is a good option where the business owners or members can limit their personal liability for business debts obligations.

In a C Corporation, the business has its own legal entity that is separate from the share holders. Statute treats a C Corporation as an independent entity. The corporation can enter into a contract or obligate itself without personally obligating any of its share holders or office bearers.  The C Corporation is the only business structure that does not have a pass through tax structure. The corporation has to file yearly tax returns separately from that of its shareholders. Share holders have to report any profit distributed by the C Corporation in their personal income tax returns.