If you are looking for tax flexibility, limited liability, and the option to raise capital, learning how to start a corporation may be the best path for you. To become a corporation, you file the appropriate paperwork with state governing agency
Preparing the proper paperwork on how to start a corporation will save you a lot of money in lawyer fees if you decide your business structure will be a corporation.
When running a business, unforeseen business risks may occur that could put your personal assets such as a home, cash or other valuables at risk. With your business entity being a corporation, your personal assets are insulated from various business risks as your only liability is the amount you have invested in the business. This ability to protect your assets from business risks is called limited liability.
What Is A Corporation?
A corporation is a separate business entity away from personal liability of the business debt or judgements. Instead of a sole proprietor making decisions for the company, a corporation has a board of directors to make decisions that guide the company. However, one person can hold all offices of a corporation.
Who Are The Owners Of A Corporation?
The stockholders own securities in the company and technically they are not owners of a corporation. Stockholders can be considered owners because they gain financially in the success of the business.
Why Would You Want To Incorporate?
You would incorporate to limit your liability and prevent having your personal assets gone after by creditors. Corporations have their own separate legal status.
Disadvantages Of A Corporation
- Double taxation – Corporation is taxed separately and you still will have to pay personal taxes.
- A corporation costa more to create. Lawyers usually charge more to form a corporation.
- States will have higher fees.
- There are more state and federal regulations.
- Stockholders will pay taxes on dividends received making the income taxed twice.
Advantages Of A Corporation
- The most the owners or shareholders can lose is their equity or what they have invested in the company.
- Personal liability protection. The shareholders are not liable for any debts or judgments against the corporation.
- Corporations can sell stock to raise additional funds.
Fees Involved In Setting Up A Corporation
There is an initial government filing fee along with filing fees paid to the Secretary of State. Filings are based on the business being incorporated and the state you are in.
Your corporation is regarded as a separate and single entity from your personal life and protects you and your personal assets from possible seizure providing you keep your personal life and corporate business activities separate.
If a court determines your corporation is not acting as a true corporation, then your assets could be included in any settlement or court decision. In order for your assets to be fully insulated from business risks, you must operate your corporation as this type of business structure is expected to be run in the eyes of a court.
To retain your limited liability status, your corporation must act accordingly in its record keeping, in tax matters and in handling financial dealings of your corporation. You must also not engage or be involved in any fraudulent or illegal activities.
Starting A Corporation
Forming your own corporation is not as hard as it may seem and its not just for large companies anymore. Many professionals and small business owners today have opted to become corporations due to the limited liability protection it offers. You can save time and money and prepare your own incorporation forms. There are sources offering how to start a corporation forms readily available for you to obtain through the Internet to finalize your business structure and form your corporation.
Detailed options available to you for how to start a corporation to help you create the structure that will best suit your company’s situation with the most up-to-date state-specific documents available to legally incorporate your business. Legal and valid in every state.
