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How To Incorporate
Every business involves risk. There is a risk the business may collapse or stagnate. Control the extent of personal financial liability by making the business a separate legal entity.
Depending on the legal form, the business can be a sole proprietorship, a partnership, a Limited Liability Company (LLC), or a corporation. While sole proprietorships and partnerships are easy to form and maintain, these types of businesses do not protect the owner from personal liability.
The Two Reasons To Incorporate
1 A Corporation is an artificially created entity, formed by a group of people. Its rights and liabilities are separate from the people involved in it. Legally, it can own assets, enter into contracts, be taxed, and sue or be sued.
2 Corporations can last forever, even after the death of the founder.
The Process Of Incorporation
The process of incorporation begins by filing a document with a state official, usually the Secretary of State. This document is called the Article of Incorporation or Certificate of Incorporation. It must include the following information.
1 The proposed name of the corporation, its purpose, and the location of its headquarters.
2 The addresses and names of the incorporators.
3 Details about the amount and types of capital stock that the corporation is authorized to issue.
4 The responsibilities, privileges and rights of each class of stockholder, director, or officer.
5 A set of bylaws, which explain the running of the corporation.
6 Information about when stockholder meetings will be held.
7 All other information relevant to the corporation's operation.
After paying a filing fee the company files the necessary documents with the secretary of state. The filing fee ranges from about $75 to $500. This filing fee differs according to the state and the filing method, which the company employs. If the company prepares the articles without external aid, it only needs to pay the state fee. If the company hires an attorney to do this, then the company must pay the attorney's fee as well. It is also possible to do this through an incorporation service company, which prepares and files these documents with the state and charges a consolidated fee.
After the state accepts the articles of incorporation, the office of the Secretary of State sends a certificate of incorporation and the corporation holds an organizational meeting where it adopts the bylaws.
It is necessary to adhere to all the rules of incorporation. Failure to do so results in the court of law piercing the corporate veil and holding the owners personally liable for the corporation's debts.
Additional Help
There are several organizations that provide support and software to draft, customize and generate the documents required for incorporation. Companies can incorporate online through the internet.
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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