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.

The advantages in incorporating a small business are many. The foremost is the personal liability protection it offers. As business expands the associated risks also increases proportionately. By forming a corporation, you are creating a legal entity that has a separate existence in the eyes of Law. That entity is responsible for all its business operations and personal liability of the business owners (or share holders as they are called) is limited to their capital contribution.  Your personal assets are safe from being drawn into the business. Limited Liability Companies also provide such personal liability protection. However, the business continuity and sale and purchase of business interest are moot. Generally LLC has no separate existence from that of its members unless expressly specified otherwise. Corporations are ‘perpetual’. It has a separate existence from its shareholders. Death or disability of a share holder does not affect its existence in normal course. Stocks or shares are relatively easily transferable. Due to this advantage, investors are willing to invest in corporations when compared to other business forms. So, it is easy to attract funds for expanding your business as a corporation.

There are two types of corporations. S Corp and C Corp. The basic structures of both are similar. There are certain limitations in forming an S Corp. The main difference is the tax classification. C Corporations are subject to corporate taxation. It has to file a business profit or loss return and directly pay tax on its profits if applicable. Then again when the profits are distributed among share holders, they have to declare that as income and pay tax on it. In a LLC or S Corp, the profits can pass through to the members or share holder in proportion to their stock holdings. The members or share holders can declare the same in their personal returns and pay tax. Basically C Corp profits are subject to double taxation.

Limited Liability Company or LLC has the same limited liability status as that of corporations. It can also elect to be taxed as a pass-through entity as an S Corporation. LLC formation and operation does not involve as much formalities and procedures as in a Corporation. In LLC Vs S Corp, the ownership restrictions and formalities of an S Corporation is not present in LLC. Membership in LLC can be owned by any entity or person and the formation of an LLC is comparatively uncomplicated. The transfer of ownership in LLC can be unrestrained as that of a Corporation if so constituted in its Articles or Operating Agreement.

As how to incorporate yourself, you have to refer to your state’s statutes governing business registration and incorporation. Online resources are available in most states for the formation and incorporation of your business. The best way is to confer with the state agency handling business registrations and incorporation. Generally it is the Secretary of State’s or Corporation Commissioner’s offices. In some states Department of Revenue deals with business registration and conduct.

Some basic requirements in how to incorporate yourself are 1. Get a valid name for your corporation. 2. File Articles of Incorporation with your state and pay the due fees. 3. Appoint a resident agent. 4. Hold a board of directors meeting and adopt bylaws of the corporation. These are only general directions, to have a complete picture on how to incorporate yourself consult a lawyer or a professional incorporator. There are many more formalities involved such as appointing directors and officers, opening and maintaining minute book to record minutes of meeting, issuing stock certificates, obtaining business permits and licenses etc.

Certain formalities are to be complied with for forming a corporation. Before opting for cheap incorporation online, it will be advisable to understand what you are getting into by incorporating your business. If you have decided to incorporate out of state in one of those tax haven states, have you thought about what will be needed to operate the business in your state? Or, is the corporation the right business structure for you and why not an LLC? Consulting a lawyer for your incorporation will provide you with the right answers and advises. But that does not necessarily mean that you have to consult a lawyer for forming a corporation. You may opt for online cheap incorporation if you have the confidence that all angles regarding the incorporation have been covered.

Cheap incorporation or costly, you still have to pay the fees for filing your articles and other permits and licenses. You need a resident agent with a local address if you are incorporating out of state and you have to file annual corporate returns, pay corporation tax every year till you decide on dissolution. All this cost money and before starting on incorporation it will do good to think about all this.

Online cheap incorporations does not mean that they are cheap as in substandard. If you have done your homework and comply with the incorporation formalities correctly, online incorporations will not only save you money but also time. Online incorporation if properly executed will provide faster results due to the ease of operations for the state agency handling incorporations and other business formalities. Most states nowadays encourage online activities for this reason and some states insist on filing your papers online.

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.

Limited Liability Company or LLC can be constituted with a single or multiple members under state statute.  LLC is a relatively new form of business structure. Internal Revenue Service has not created a new tax classification for LLC. A LLC is still classified as a Sole Proprietorship, Partnership or Corporation for taxation purposes and the choice to elect the tax classification is left to the members. LLC members can be natural persons, other business entities and even aliens. In most of the states there are no restrictions on ownership. LLC provides the benefit of limited liability as a corporation with the flexibility of management and operations as a Partnership.  LLC can elect to have pass-through taxation as in a partnership or sole proprietorship. Members can report their pro rata share of the LLC profit or loss in their personal tax returns and pay tax if applicable. Unless otherwise restricted in the Articles or Organization or Operating agreement, the membership in a LLC is easily transferable.

An S Corporation is no different from a C Corporation in form and structure. S Corporations are constituted by shares, which are easily transferable unless otherwise restricted in the Articles of Incorporation. The ownership has a few restrictions. S Corporations cannot have more than 100 shareholders; all shareholders must resident citizens and natural persons. There can only be one class of shares and dividend has to be distributed in proportion to the share holding. The main difference between a C and S is in taxation. C Corporations are subject to corporate taxes and have to pay tax on its profits. When the profits are distributed as dividend to share holders, they have to pay income tax on that which essentially is double taxation. S Corporations do not pay corporate tax but the shareholders report the profit in proportion to their share holding in their personal tax returns and pay tax. In LLC Vs. Corporation, the major advantages of LLC lie in its unrestricted ownership and flexibility in management. Corporations are subject to many formalities in incorporation and operations.

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.