Should your business become a corporation? This is a nerve-wracking question that you’ll ask yourself at some point in your business evolution. Incorporating a business makes it a separate entity from its users. As a result, you’ll be able to protect your personal property. For easy decision making, you need to understand what is an incorporated business and how to form one. Here’s everything you need to know:
What is an Incorporated Business?
This is a business entity that has gone through the process of formal legalization to become a corporation that’s recognized by the state you’re doing business in. A corporation has a legal business structure that exists separately from those who funded the business.
As a result, it has more credibility. Investors, lenders, customers, and vendors prefer well-organized corporations. Additionally, a corporation safeguards its owners from the personal liabilities of corporate obligations and debt.
To form your own corporation, you’ll need shareholders, a board of directors, and some officers. Shareholders become a party to the corporation by purchasing stock. They then elect a board of directors who create policies and manage the corporation. The directors appoint officers such as CEOs, CFOs, and secretaries, who take care of the day-to-day activities of the business.
The process of incorporating a business differs from state to state. Whether you’re converting your business entity to a corporation or launching a new one, you need to know the step-by-step process of forming one.
How to Incorporate Your Business
With the following steps for incorporation, your business can be up and running in no time.
1. Choose a Business Name
First and foremost, select a unique business name. If your name matches that of another corporation in your locality, your state’s corporate filing office won’t allow the incorporation. Same business names may confuse target audiences and cause trademark infringements.
An appropriate and effective business name should suit what your company does and reflect the kind of audience you want to reach. It should also be simple and easy to remember.
You can rely on a professional to help you name your company according to the required state laws. Your business name can be protected as a trademark under your state or federal trademark law.
2. Choose Where to Incorporate
Choose a suitable state in which you’ll incorporate. Consider operating within your state as it’s less expensive. You’ll also avoid filing multiple annual reports and paying franchise taxes in more than one state.
Some states may have unique laws in regards to corporation name registration.
3. Select Your Type of Corporation
With a suitable location in mind, it’s time to decide on what type of corporation you’ll want to form. There are three types of business corporations: Limited Liability Companies (LLCs), C Corporations, and S Corporations.
An LLC is a type of business ownership that combine features of a corporation and partnership business structure. The owners of the business are referred to as members, and not shareholders. The main benefit of this type of corporation is that it offers a flexible profit distribution among its members.
An S corporation offers perpetual existence, investment opportunities, and the coveted protection of limited liability. With this type of corporation, you’ll simply have to file your taxes annually to avoid double taxation.
Forming a C corporation is more complicated than creating an S corporation or LLC. However, it does come with several tax benefits to the owners such as the exemption from paying taxes on fringe benefits. What’s more, it’s easier for a C corporation to raise capital by selling its stocks.
4. Comply With Licensing Laws
While some businesses may not need licenses to run, those in regulated industries like health care and food service do. So, this step will mainly depend on your type of business.
Ensure you’re in the clear with the business licensing authorities of your state. Contact the state’s office for a breakdown of the necessary paperwork. Then, go over them with your lawyer and fill in your company’s information.
5. Name Your Local Registered Agent
Your registered agent is the company (or individual) that accepts official mail on the behalf of your business. When establishing a corporation, you have to name your registered agent to act as your official contact with the state in case of a lawsuit.
Different states have different requirements for having a registered agent, however, there are some general rules that apply:
- Your registered agent must be a resident of the state or qualified as an out-of-state corporation.
- Your registered agent must have a physical address in your state.
- Your registered agent should always be available during business hours.
You can use your business attorney as your registered agent – as long as they have a physical address in your state. But in the event they move out of your state, you’ll have to look for a new registered agent.
6. Draft the Articles of Incorporation
The Articles of Incorporation is a mandatory document that you have to file with the state when forming a corporation.
The document should contain your business’ name, location, type and number of shares, information of your registered agent, as well as the name of all the incorporators. Some states may require additional information such as your corporation’s purpose and how long it’ll last.
After filling your Article of Incorporation, you need to file it with your state. Depending on your location, expect to pay a fee of about $100-$500.
7. Create Your Corporation’s Bylaws
These bylaws will lay out how your corporation will run on a day-to-day basis. It should contain information such as voting rights, shares, shareholders, board meetings, bookkeeping strategies, and other similar details.
Incorporate Your Business in 7 Easy Steps!
Now that you know what is an incorporated business, you can make better decisions for your business. The main benefit of incorporation is protecting you from your business’ losses and debts.
If you need help with incorporating your business, feel free to contact us today – we serve all 50 states.