Incorporation is the legal process used to form a corporate. The term corporation is literally defined as a body, though, in terms of law, it is a legal person. Corporation can bring lawsuits, can purchase and trade property, contract and be taxed. However, the paramount factor of a corporation is that it guards its owners against personal liability for corporate debts and obligations. The corporation is deemed as a legal entity that is artificially constructed, exists distinctly and separately from those individuals who build it and carry on its work.
Like everything, the corporation has its number of pros and cons. Nonetheless, it’s essential that you must take a look at the three reasons below as to why the corporation can be a beneficial and attractive mode through which your business can prosper.
- Unlimited Life: Contrary to proprietorship and partnerships, the longevity of a corporation does not rest upon the life of a certain person or a group. A corporation can go on for a long period of time, till its purpose is finally obtained.
- Transferability of Shares: Always it is assuring to know that the ownership interest a person has in a particular business can be readily sold, given away, or transferred to someone else in the family or friends. However, as far as proprietorship and partnerships are concerned, the method of dispossessing oneself of ownership can turn out to be clumsy and expensive. In the context of proprietorships and partnerships, the property needs to be retitled, new documents are to be made, and other administrative actions to take every time a small alteration of ownership takes place. If we talk about corporations, entire rights of an individual owner and their privileges are denoted by the shares of stock they possess. The solution to a fast transfer of ownership of the business is located at the back of every stock certificate. At the back, there is normally a place intimating for the shareholder to approve and sign over any shares that are required to be traded or settled otherwise.
- Ability to Raise Investment Capital: When one talks about a corporate entity, normally it is much simple to draw new investors into it as there is restricted liability and the simple and smooth transferability of shares. A new investor can receive the shares of stock as they can be smoothly transferred directly to them. The assistance of brokerage firms and stock exchanges is called for help when larger offerings to the public are involved.
Advantages of Incorporating
By incorporating, you cannot just make your business look more professional but also guard your personal assets, receive tax advantages, and grow up your business. Incorporating provides various distinct and money-saving perks to the owners. Here are the various advantages of incorporating:
- Owners are guarded against personal liability for company debts and obligations.
- Corporations possess a strong body of judicial precedent to manage owners and managers.
- With regard to future public companies, corporations are the genuine means.
- Capital can be more swiftly and easily drawn by corporations by the sale of securities.
- With the help of transfer of securities, corporations can easily transfer ownership.
- Corporations can have an endless life.
- Under some circumstances, corporations can create tax benefits.
How to Get Started?
In order to commence with the incorporating process, you should get in touch with the secretary of state or the state office that is assigned for registering corporations in your state. Enquire them regarding the instructions, necessary forms and fee schedules on business incorporation. If you are planning to pursue incorporation without the assistance of an attorney by simply getting help from online articles, books, and software to lead you through the way, the process can be quite tiresome. Your charges will be the cost of these resources, the filing fees, and other expenses related with incorporating in your state. Yet another disadvantage of filing for incorporation on your own is that this method is bound to be time-consuming in accomplishing. Also, it is highly likely that you can by mistake slip through some tiny but crucial aspect of the law of your state. That is why it is advised that you should go after an incorporation service company who can fully prepare and file the necessary documents with the state.
In the incorporation process, the primary step is to prepare a certificate or articles of incorporation. The information demanded involves the intended name of the corporation, the mission of the corporation, the title and addresses of the parties involved, and the place of the corporation’s head office.
Where to Incorporate?
When you decide to incorporate, among the various important decisions, one of the most essential is deciding the right state where you want to incorporate. An individual is not obligated to incorporate in the state where their business functions; they can select from any state. Apart from the domestic state, the place where it is incorporated, a corporation is regarded as a foreign corporation in all the other states. If a corporation is doing business in a different state from the one where it is incorporated, it may be expected to register for a certificate of authority to transact business (also called foreign qualification) in the other state.
In case if a corporation is doing business in other state and is unable to get registered as a foreign corporation, it may lose access to the court of that state and even be entitled to pay tax fines and other punishments. Furthermore, a corporation that is foreign registers for a certificate of authority in another state is entitled to pay state filing fees for the qualification filing. The fees of these filings are generally more costly compared to the price of filing for a corporation in your domestic state. Also, from both the state of incorporation and the qualifying state, corporations that are foreign qualified are supposed to pay taxes and annual report fees.