Want to learn how to incorporate a business? Before incorporating, it's important to understand the advantages and disadvantages of making your business a legal entity capable of buying and selling real estate, starting a lawsuit and even committing crime. Corporations certainly offer many advantages, including protection against personal liability, although there are some downsides to understand as well.
How to Incorporate a Business
Before getting into the benefits and drawbacks, it may help to understand the basic steps to incorporating. It all starts with choosing a state, as some offer more advantages than others. Delaware corporations often have an easier time locating investors and resolving business disputes, for example.
Next, you'll need to decide the entity for your business. There are many to choose from, including the limited liability company (which does not require incorporation), or an S corporation or C corporation. All offer their own advantages and disadvantages. You'll also need to submit paperwork ot the state, which includes contact information, capital stock and the rights of stock holders.
Why Incorporate?
Many business owners choose to incorporate to protect shareholders and owners from personal liability from the actions of the company. When you incorporate, your business will also continue indefinitely, unlike a proprietorship or partnership, which is dependent on the life of its owners. A corporation will continue to exist until it's merged or goes bankrupt.
You can also choose to transfer, sell or give away ownership of your corporation, which makes it much easier to give up ownership at some point or bring in new investors. Corporations tend to attract investors much easier than a limited liability company (LLC) or a partnership, as they have the ability to sell shares.
A corporation will also grant you protection against liability, as it becomes a legal, separate entity once the Articles of Incorporation are filed. As an owner, you will be safe from the liabilities of your corporation's actions, including any debts or obligations, assuming you follow the necessary laws, fees and maintain the so-called "corporate veil."
With a corporation, you will also be in the best situation if you choose to go public with your company in the future, and you will enjoy tax benefits that depend on the type of corporation you choose.
Other Considerations to Keep in Mind
Despite these many advantages, there are other considerations to keep in mind before you incorporate. Once your form a corporation, you will be legally obligated to set up a specific administrative structure and hold annual meetings. You will also need to maintain minutes and create a Board of Directors, as well as file frequent documents with the state and pay taxes. Corporations tend to be the most expensive entity to create and there is a lot of paperwork involved.
Many small businesses are better off making the decision to form an LLC rather than incorporating as LLCs are more affordable with a more flexible structure and requirements. LLCs also enjoy the same protection against personal liability to protect owners.
Before getting into the benefits and drawbacks, it may help to understand the basic steps to incorporating. It all starts with choosing a state, as some offer more advantages than others. Delaware corporations often have an easier time locating investors and resolving business disputes, for example.
Next, you'll need to decide the entity for your business. There are many to choose from, including the limited liability company (which does not require incorporation), or an S corporation or C corporation. All offer their own advantages and disadvantages. You'll also need to submit paperwork ot the state, which includes contact information, capital stock and the rights of stock holders.
Why Incorporate?
Many business owners choose to incorporate to protect shareholders and owners from personal liability from the actions of the company. When you incorporate, your business will also continue indefinitely, unlike a proprietorship or partnership, which is dependent on the life of its owners. A corporation will continue to exist until it's merged or goes bankrupt.
You can also choose to transfer, sell or give away ownership of your corporation, which makes it much easier to give up ownership at some point or bring in new investors. Corporations tend to attract investors much easier than a limited liability company (LLC) or a partnership, as they have the ability to sell shares.
A corporation will also grant you protection against liability, as it becomes a legal, separate entity once the Articles of Incorporation are filed. As an owner, you will be safe from the liabilities of your corporation's actions, including any debts or obligations, assuming you follow the necessary laws, fees and maintain the so-called "corporate veil."
With a corporation, you will also be in the best situation if you choose to go public with your company in the future, and you will enjoy tax benefits that depend on the type of corporation you choose.
Other Considerations to Keep in Mind
Despite these many advantages, there are other considerations to keep in mind before you incorporate. Once your form a corporation, you will be legally obligated to set up a specific administrative structure and hold annual meetings. You will also need to maintain minutes and create a Board of Directors, as well as file frequent documents with the state and pay taxes. Corporations tend to be the most expensive entity to create and there is a lot of paperwork involved.
Many small businesses are better off making the decision to form an LLC rather than incorporating as LLCs are more affordable with a more flexible structure and requirements. LLCs also enjoy the same protection against personal liability to protect owners.