For an aspiring entrepreneur the path towards growth is to attract capital for business. Investors generally look for a few qualities in the business they want to invest. For any investor, the return on investment is the foremost criterion. The returns can be in the form of regular cash flow or appreciation in the value of investment. For attracting such investors, the best form of business is a corporation. The advantage of a corporation is that the shares are freely transferable. The investor can invest or divest in a corporation and there are very few formalities to be observed. Another advantage of a corporation is the personal liability protection it offers to the shareholder. Due to these advantages, investors are readily willing to invest in corporations and hence the ease in attracting capital for expansion.
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 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.
Incorporating your company shows your seriousness and can be essential when raising venture capital from businessmen like Rick Bolander and angel investors.
The advances in technology in the last two decades have been tremendous. Most of what we did manually a few decades earlier is possible now with the click of a button. Access to information also has made fantastic strides. Information about A to Z is available on the Internet or comes in concise digital formats in CD’s that are easily readable and understandable. The layman is empowered by this. Business form software for any application or use is readily available. We have to take advantage of these advances and developments. You may use Business software packages for incorporating your business. Most of the business form software packages have all documents and forms that you may need in your whole business life.
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.
If you are thinking of incorporating your business in Hawaii, you might want to think about buying a corporate seal, especially if you are going to incorporate as a c corp and do business in other countries. If you plan to do business in other countries, you want to buy corporate seals because they are required in order for you to do business in foreign countries. You can also buy corporate seals when doing business in the United States because they can be useful. For example, corporate seals are great for opening business bank accounts because they prove that the business exists, you can also use them when issuing stock.
When choosing your corporation’s name you must make sure that, it ends with corporation, incorporated, or an abbreviation of those two words, so that people can easily identify it as a corporation. The other requirement that you must meet when incorporating your business is that the name cannot be the same as or similar to any other business that is registered to do business in the state of Hawaii.
When you begin to fill out your articles of incorporation the first thing that you need to include is the physical address of your corporation. You will also need to include the directors’ information. In Hawaii you will need to have at least three directors, the only way that you can have less than three directors is if you have less than three shareholders. If that is the case, you will need to have the same number of directors and shareholders. While there is no age requirement for the directors, there is a residence requirement. At least one of the listed directors has to be a resident of the state of Hawaii so that they can receive any court filings for the business. Officers are not required to be listed in the articles of incorporation, but you must include stock information.
Once you have filled out the articles of incorporation you will need to file the articles of incorporation with the Department of Commerce and Consumer Affairs. When filing your articles of incorporation with the department you will need to pay the appropriate filing fee, which if you decide to add additional stock or par value there will not be any additional fees. Once you have paid the filing fees for the articles of incorporation, the state will process your paperwork. Once the request has been processed and approved, you will receive your certificate of incorporation for your corporation, which makes everything official.
Once you have gotten your certificate of incorporation you will need to hold your corporations annual meeting. At the first meeting, you will want to adopt your corporation’s bylaws, but you will also want to elect your board of directors. You will also need to research any yearly requirements for your corporation so you can maintain your corporation in good standing. Currently the state of Hawaii requires your corporation to file annual statements with the Department of Commerce and Consumer Affairs by March 31 each year.
If you are incorporating in Hawaii, you need to be aware of the income tax rate that they charge. Currently Hawaii is charging 4.4% of the first $25,000 of taxable income, if you have taxable income between $25,001 and $100,000 you will be charged a rate of 5.4%, and if you make over $100,000 you will have to pay an income tax rate of 6.4%.
