Incorporation is the creation of a legal entity, or corporation, for the purpose of doing business in a particular state. Companies and/or individuals may chose to incorporate their business as a means of protecting personal assets, such in the case of bankruptcy or other bad debt created by a business. There are various forms of incorporation, each with different rules and benefits, and the laws governing each type can vary from state to state. Prior to incorporating, the individuals or company involved should discuss all the ramifications of each type of incorporation with an attorney and/or an accountant to determine which type of incorporation will best suit their particular needs.
While it is not absolutely necessary to hire an attorney in order to incorporate, it is in the best interest of the individuals involved if they do seek the advice of both an attorney and an accountant, prior to incorporating. The various forms of incorporation can all require different types of annual reporting, which could have an affect on the corporation, and it is wise to be fully aware of both the advantages and disadvantages of the type of incorporation that is best for your business.
There are various legal benefits to incorporating, which include protecting personal assets, establishing retirement funds, lowering tax rates, raising funds through stock sales, and establishing credit or building a separate a credit rating. Furthermore, ownership is easily transferable to others and the existence of a corporation is not in any way affected if a director, officer or shareholder dies or resigns.
Various entities may incorporate, that is individuals, businesses, non-for-profits, and different types of clubs or even government bodies, such as a cities or towns. These corporations may take different forms, such as standard corporation, partnership, limited liability company, or limited liability partnership, and be publicly traded or privately owned.
The first step in becoming incorporated is to determine that the name you have chosen is available for incorporation in your state. This is done by contacting the corporate filing office, such as the Secretary of State or Corporations Commissioner, as well as federal and state trademark registers. This is another reason why incorporating through an attorney is a good idea, as they will handle that for you.
Next, the corporation must file Articles of Incorporation. The rules for filing can vary by state, but the basic outline of the Articles of Incorporation would include the purpose of the corporation, the name, the address of the corporation’s principal place of business, contact information for the agent of the corporation, and the number and types of shares of stock. The fees for such filing also vary depending upon the state in which the corporation is formed.
A corporation must also prepare and file Corporate Bylaws, which will outline important details, to include dates for annual shareholder and/or officer meetings, notification instructions, information on who can vote, and other facts necessary for shareholders and officers of the corporation. At the annual meetings, or any special meetings, held by the corporation, the corporate Secretary is obligated to take and have transcribed minutes of the meeting, which are to be filed and maintained in the corporation’s corporate book.