Incorporation is no more a mystery and the domain of lawyers. The common man is very well equipped to handle matters such as incorporation or organization of a business. Thanks to our public friendly state administrations. All states have provided online resources for business registrations with clear instructions on how to proceed. You may contact the state agency handling business registrations over phone or in person also to clear you doubts. You may check with your state agency whether corporate seals are legally binding in your state.
A legal business structure is imperative in operating a business in any of the states. Some forms of business do not involve many legal or statutory formalities in formation and its operations. Sole Proprietorships and General Partnerships can be formed by simple intent of the principal(s). However you will need to obtain all the obligatory permits and licences to operate the business. Forming a Limited Liability Company or a Corporation entails formal procedures. The organisation of LLC or the incorporation of a corporation is governed by state statute. These rules and regulations vary in each state. For forming a LLC you have to select a name and file an Articles of Organization with the state agency handling business registrations and pay a filing fee. Some states have a few more requirements for forming LLC such as filing an LLC Operating Agreement and publication of the intent to form LLC.
Forming a corporation involves lengthier procedures than forming a LLC. A corporation has a separate legal entity from that of its business owners, formally termed as share holders. The corporation is constituted by units of stocks or shares which each share holder subscribes to and promise to pay for. The basic charter for operating business as a corporation is its Articles of Incorporation. The promoters or incorporators have to provide all critical information on the purpose of formation and the organizational structure as required by the state. There are two types of corporations, C Corp and S Corp.
Taxation formalities in each of the business form vary. The sole proprietorship is considered as having no individual existence or a ‘disregarded entity’ and the business owner files business tax returns along with personal returns. Partnerships have a similar system where the profits or loss from business is declared proportionately through partner’s personal tax filing. Partnership has to file an information return separately. LLCs or S Corps has a pass through taxation system as that of a partnership. Corporations are taxed directly and have to file separate tax and information returns.
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.
Running a business for profit has its inherent benefits and risks. The benefit of course is the profit you expect to earn from the business. In large corporations fringe benefits are also a factor to running a business. The inherent risks are many. The business owner may borrow money for long term investment or working capital requirements. Have creditors in the form of suppliers or services providers, employ people, supply products or services etc. All these activities generate potential liabilities for a business owner. That is why a C Corporation is advisable for running a substantial business. In a C Corporation, the business owners, generally known as share holders contract no personal liability for the corporation’s business activities and obligations.
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.
Use of a corporate seal on instruments is not mandatory to validate the instruments. As a corporate entity, you may adopt, use and alter at will a corporate seal, but failure to affix it on instruments does not affect the validity of the instrument. Corporate seals are more or less used as a decorative mark on corporate documents or instruments. Some states do recognize the validity of corporate seal on documents. Alaska Corporations code states that “the presence of a corporate seal on a writing purporting to be executed by authority of a corporation shall be prima facie evidence that the writing was executed with the authority of the corporation”.
Incorporation of a business entity entirely depends on the Corporations code and the rules and regulations of each state. The procedures and formalities are clearly stated in all the state statutes. The act of incorporation creates a separate legal entity from that of the owners or share holders of the corporation. The corporation through it office bearers can enter into contracts, buy and sell assets or commodities, assume debts or obligations and pay taxes.
This is essentially the reason as to why incorporate as a separate business entity. The owners of the corporation have no personal obligation or liability in the corporations business except to the extent they have obligated themselves to the corporation in form of shares.
Your business structured as a corporation has many advantages if you are contemplating considerable business volumes and plan to set up medium or large sized manufacturing facilities employing large numbers of employees and officers. All these acts have significant duties, responsibilities and liabilities associated with it. Obligating yourself in person to all of it is not advisable and in certain circumstances not possible. By incorporating your business entity you create a legally recognized person or entity capable of assuming all the duties, responsibilities and liabilities associated with voluminous business transactions. The corporation has to have a proper management structure as stipulated by the state’s statute, each office bearer assumes independent responsibilities and duties. The business policies and decisions are made by a collective named board of directors. The board of directors is appointed by the share holders through a formal process, usually by vote. The board so elected assumes overall responsibility of the corporations business. Each state have their own regulations and formalities for incorporation of a business entity. You have to consult each states Corporations code or rules and regulations to know how to incorporate yourself in that state.
Corporate seals, which are forms of notification for businesses worldwide, used to be really important. As time has gone on corporate seals have lost their importance because they simply aren’t needed as they used to be. Today you will see a corporate seal on business envelopes and other official business documents because they are simply used to help brand a corporation. Custom corporate seals are made for each corporation in an attempt to identify certain key aspects of each corporation.
The original purpose of the corporate seal was to legalize documents for the business. Corporate seals were used to emboss information about the corporation onto documents. One of the most common types of corporate seals was a corporate seal stamp. This stamp was used to imprint the legal name of the corporation and the year and state in which the corporation was formed onto the legal documents in an attempt to identify the corporation as it executed its legal business. Now corporation seals are not needed to legalize any business documents, all that is required is the signature of the president and vice-president of the corporation.
Even though the corporate seal is not as important today as it was before it still has legal uses. Most modern corporate laws make the requirement of using a corporate seal unnecessary, but they can still be used to make binding legal contracts. The corporate seal can be used in the execution of deeds, which are quite different from simple business contracts. Corporate seals are often considered a precondition for banks if you plan to open a bank account for the corporation, which makes them quite necessary to have on hand, even if you don’t use it very often. Corporation seals are required in some cases under international corporate law because they are needed to legitimize share certificates, but domestically they are not required for share certificates, although share certificates are often embossed with the corporate seal.
Corporate seals have been used in business purposes since the Middle Ages. During the Middle Ages, corporate seals were used on official documents as a way to convey how important the documents were, but also to identify who was making the documents legitimate. During this time instead of using a corporate stamp, hot wax was poured onto the documents and a ring was used to imprint the seal of the business or corporation that was officiating the documentation. Technology has evolved so corporations no longer have to use hot wax, they can use a rubber stamp or steel embosser.
No matter if the corporation is using a rubber stamp or a steel embosser the information that is contained on the corporate seal is the same. All corporate seals are customized. Each custom corporate seal is going to bear the company’s logo, their name, the copyright date, and patent number. Advances in technology have allowed the corporate seal to differ from rubber stamps or steel embossers. One of the most common types of corporate seals that you will find today is tamper resistant seals, which are important for corporations to use for fraud prevention. Tamper resistant seals are designed to fall apart once they have been tampered with, so if they are used on checks or other important documents people cannot alter those documents without being caught.
Even though corporate seals are not as important as they used to be, they are still a good idea for corporations to have on hand. Having a corporate seal on hand is nice for corporations because you never how or when you might need it for your business.
