Small business incorporation is advantageous to entrepreneurs with a vision to grow and attain great heights in their business career. Unlike other business structures, corporations have the ability to attract capital from investors. Transfer of ownership in a Corporation is easy and convenient. When the business needs more capital, the authorised capital can be enhanced quickly and fresh stock can be created and sold as equity to generate required funds. Incorporate yourself and take advantage of all that a corporate business structure has to offer.
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.
Business is to earn profit. To earn profits you have to assume risks. These are the two basic tenets of business-for-profit. As man is wont to, we innovate and form new practices. Now it is possible to do business with limited risks. Limited Liability for business owners in their business obligation is a legally accepted fact. Corporations and Limited Liability Companies are taken for granted in the ordinary course of life. These business structures are meant for operating considerable business with limited liability to the business owners. Limited Liability Company is an advanced form of a general partnership. The only difference is that the partners or members as they are termed in an LLC, have limited personal liability towards the business debts or obligations. This does not mean that by forming an LLC or a Corporation one is scot free to do anything they wish. Criminal acts or wilful negligence is still punishable under the law.
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.
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.
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.
