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.
Forming a corporation requires compliance with state laws and regulations. Incorporation formalities and regulations vary in each state. Refer to your state’s laws and regulations for forming a corporation. Basically all states require articles of incorporation to be filed with the state authority dealing with business registrations. In some states it is called a Certificate of Incorporation or Charter. The articles or certificate of incorporation must contain all the critical information regarding the promoters and purpose of the corporation. An article or certificate typically contain
- Name of the Corporation.
The proposed corporation’s name is the first article. The name must not be identical or closely resembling an existing business name in the state. You may have to consult multiple databases to ensure this. States maintain business registers of all registered names and trademarks. The name must include a term such as ‘Company’ or ‘Corporation’ or abbreviations suggested by the state laws.
- Registered Address.
The corporation must have a local address as it registered office or principal place of business
- Duration:
Some corporations may be formed for specific purpose and duration. Generally corporations are “perpetual”
- Business purpose.
The purpose for which the corporation is formed, the business it proposes to conduct. You may state that “all lawful business permitted by state law”. There are some restrictions on the types of business a corporation can engage in.
- Authorized Capital:
The number and class of shares the corporation is authorized to issue and the par value of a share should be stated.
- Registered agent:
The Corporation should have a registered agent with a local address for process serving and his consent to act as registered agent should be included.
- Name and Addresses of Incorporators.
- Name and Addresses of Directors
The above articles may not be in the same sequence in every state and some states may require more or less articles from the above. For example, Connecticut state certificate of incorporation require that the class of shares and it specifics like voting rights, transferability etc be stated. DC requires that the business articles be stated in detail. Publication of notice of intent to incorporate is part of some states incorporation requirement.
Limited Liability Companies or LLCs also provide personal liability protection to business owners. Forming LLC also requires legal and procedural formalities to be complied with. In an LLC, the charter to operate is in the form of Articles or Certificate of Organisation which will state the purpose and essential information about the promoters. Some states require a LLC operating agreement to be filed with the state.
Internet and online activities have changed our life in unimaginable ways. You can do most of your work sitting at home or office without stepping out. The cost of getting things done have come down because of this. Forming a corporation used to involve a lot of visits to the lawyer’s offices and state agencies and fees and expenses used to be considerable. Now online cheap incorporations are possible. You can bypass using a lawyer and incorporate online swiftly for reasonable cost. Online incorporation services are prolific on the internet and you can choose one according to your budget. You may still have to consult a lawyer for drafting the bylaws, share holders agreement or other legal documents.
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.
Forming a corporation is beneficial to average business owners in many ways. Creating a separate entity for your business helps you to keep track of your business growth and to project your business to the public. Incorporations are designed to do that – create a separate legal entity from that of the business owner. All depends on where you stand on the average business owner scale. If you are on the lower half of the scale and your business is more of a hobby than a way of earning your bread, incorporations are not too appealing. Forming a corporation is relatively expensive and entails tedious formalities and procedures to maintain and operate. A sole proprietorship or a partnership will suffice in conducting a hobby as a business if your business does not give rise to serious risks and potential liabilities.
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.
Going offshore for incorporating businesses has its advantages and disadvantages. If all your deals are overboard and in black and white, offshore company incorporation can provide you with certain advantages over forming a corporation domestically. The main advantages are that the offshore location may have low tax regimes or tax exemptions and ease of operation. You may not be required to file your annual returns and can maintain complete confidentiality of operations. In some locations the cost of operations when compared to your home state may be substantially low. Beware, offshore company information does not provide you with a license to indulge in your fancies. International community is putting enormous pressure on these tax havens to institute more restraints on their corporates to control narcotic drug money and international terrorism.
Forming a corporation domestically is not that difficult or complicated. State statutes govern the formation and operation of corporations. Your first step to know how to form a corporation is to get in touch with the state agency handling business registrations. Usually business registrations are handled by the Secretary of State or Corporation Commissioner’s offices. As most states are actively encouraging new business formations in their territory, you can be sure of a high degree of co-operation from the state authorities for forming a corporation. The basic requirements are, you have to file the Articles of Incorporation of your corporation with the state and pay a fee for filing. Drafting and adopting bylaws for the organizational and operational functionalities is imperative in forming a corporation and operating it.
You must have a name for your corporation to operate under. It could by your name or a fictitious name for your corporation to Do Business As. The name you choose cannot be identical or similar to that of a business in existence. Using an existing name may land you in trouble, end up being prosecuted under the Intellectual Property laws and made to pay damages. You can search for an available name in the state business registry and other databases available. Business.Gov, the official business link to US Government website suggests that you search in multiple data bases to check name availability. The Thomas business register is supposed to be an exhaustive source. National Business Register is compiled by the US Census Bureau to provide a comprehensive database of US business establishments and companies for statistical program use. United States Patent and Trademarks office has a database of all federally registered trademarks.
Presenting gifts are conventional ways of strengthening bonds and in business it is an accepted norm to present gifts to clients. Corporate business gifts with your company logo or name will act as a reminder to your client about your existence. Ensure that the gifts are not too costly or conspicuous and not given with intent of influencing business decisions. Bribery is considered as corrupt business practice and is illegal. A corporation is expected to have business ethics, which is similar to that of government gifts and ethics policy. By forming a corporation the promoters are obligated to subscribe to social and moral policies that are prevalent and considered ethical in the business community.
Forming a corporation involves legal and statutory formalities also. By definition a corporate is a legal entity as that of person. It has to abide by the rules of the society and the constitution like any ordinary citizen. The promoters of a corporation create the legal entity by fulfilling legal requirements of the state in which the entity is incorporated. The corporation, after becoming legal entity functions through its board of directors and operates through its office bearers. The Articles of Incorporation states the purpose for which the entity was created and its organizational structure.
Corporations are incorporated under state law and regulations. Rules and regulations that govern corporations may differ in each state. If you intend to incorporate a company in any of the states, corporate kits will come in quite handy. These corporate kits contain all that is necessary to be filed or put in place by a new corporation. Make sure that you order state specific corporate kits as not to miss out on any of the rules or regulations of that state.
As opposed to forming a corporation, forming llc is less cumbersome. Limited Liability Company is comparatively easy to form and manage. It has the advantage of the limited personal liability of its owners as that of a corporation but does not involve too many formalities like recording minutes or mandatory board meetings etc. Another advantage is that the LLC can elect to be taxed according to it convenience. By default, a single member LLC is treated as a Sole Proprietorship and multi member LLC as a partnership for taxation purposes. However, the owners have the choice to be taxed as a C corporation or even an S Corporation if the LLC meets certain criteria.
Stock certificates are legal documents that evidence the ownership of a specific share of a corporation. Stock certificates are issued at varied times in line with the corporate policies. You may issue the stock certificates to your primary investors after incorporation, to secondary investors when the issued capital is being enhanced etc.
Stock certificates are basically of two types. You can issue a registered stock certificate or a bearer stock certificate. Registered stock certificates are issued in the name of a bona fide investors and their name and addresses are recorded in the corporation’s stockholders register. The bearer stock certificates are issued as the name implies is a bearer instrument meaning, the physical possession of the instrument awards ownership.
Forming a corporation is the first step towards issuing stock certificates.. There are formalities and procedures involved in forming a corporation. State laws determine the rules and regulations under which a business can be incorporated in that state. You have to file the necessary application forms along with the articles of incorporation and pay the due fees. The articles of incorporation are your charter under which you will operate as a business entity in the state.
Once the formalities of incorporation is over, you proceed with the rest of the formalities of a forming a corporation. In the Articles the directors of the corporation would have been named. These directors hold a first meeting of the corporate board of directors and act on certain important tasks such as setting the corporate financial and accounting year, adopt the corporate byelaws, authorize issuance of share or stock certificates and appoint corporate office bearers. Once the stock certificates are authorized to be issued by the board of directors, the corporate officers print and issue the stock certificates to the stock holders.
Forming a corporation is best suited for large and medium business where the capital requirements are huge and highly impossible or imprudent for individuals to invest directly. As to the question Why incorporate”, by bringing in a collective of investors and their resources, professional business men manage to raise sufficient capital needed for such large business ventures. By incorporating, a separate legal entity is created and the investors are not personally responsible or liable for the entities actions or obligations. Some of these professionals prefer offshore incorporations to side step many of the restrictive regulations in states and by the federal government. Additional financial considerations like lower tax rates and tax holidays are also attractive terms to them.
Running a business has its benefits and risks. Choosing the right structure for your business is important in maximizing the benefits and minimizing the risks. If you are running a business that is almost a hobby and do not involve too many risks, you may choose to function as sole proprietorship or a partnership if two or more persons are involved. Both forms of businesses do not involve too many formalities to set up. Likewise, the tax return filing is also uncomplicated as the return of profit or loss from business can be filed along with the individuals or partners personal tax filings.
Limited Liability Companies or llcs are the most popular form of business entity for small businesses. Llc definition is in itself obvious regarding the liability of a member or owner for the business’s debts or risks. Llc provides protection to the members and limits their personal liability in businesses where risks are considerable. The main advantage of an Llc is that it has flexibility in formulating business and management policies. Forming an Llc and running it is expensive and strenuous than forming and running a sole proprietorship or partnership business. Forms have to be filed and fees paid for registration and other formalities and records of all business decisions and transactions have to be maintained.
Forming a corporation is necessary when the business contemplated is considerable in volume and the associated business risks are significant. Usually, large and medium sized businesses incorporate themselves to deal with complicated business issues and the statutes governing large businesses. Forming a corporation is costly and the formalities and procedures involved in a running corporation are cumbersome when compared to that of other business entities. Corporations are taxed on their profits directly and can retain the profits earned without distributing it among its shareholders which may help in saving some tax liability. How to incorporate yourself in the United States depend on the rules and regulations of the individual state where you plan to incorporate.
The differences in an Llc vs corporation are that, LLC are generally formed for small business operations as the structure offers flexibility in decision making and management. Whereas corporations are managed by a board or group of decision makers and involves formal procedures in making decisions and implementing policies. Owners or members of LLC’s are usually not free to divest or transfer their interest in the business. Stocks or shares in a corporation are easily transferable if not otherwise stipulated in the Articles.
