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Business Incorporation 101

The laws relating to sole traders, partnerships and companies in the United States of America are all diverse and can be rather bewildering and can be hard to get your head around. Obviously there are benefits and pitfalls to each type of trading structure and it really goes on a situation to situation basis.

Perhaps you are running a small business and are thinking of taking that next step... are thinking of business incorporation? Are you worried about the amount of tax you are paying?

Are you looking to minimize the amount of tax paid? Did you know that you are taxed at different amounts depending on your trading structure?! There are a lot of things that you need to take into consideration before changing your trading structure. Business incorporation might be the answer!

What is Incorporation?

So what is incorporation you are asking? Essentially, incorporation is the formation of a new legal entity which has its own rights and liabilities separate from its members, more frequently known as a company or perhaps a corporation. In the United States of America it is required that you file Articles of Incorporation with your Secretary of State, when incorporating a company.

These Articles of Incorporation are fundamentally the set of regulations that govern the way your company is to be managed. You should be aware that the Articles of Incorporation will differ extensively from company to company; even from jurisdiction to jurisdiction! So you need to know what it is listed in your company's Articles of Incorporation, because they will usually go through the essentials of your corporation!

Nuts and Bolts of a Company

Now that you know what a company is - a separate legal entity, you should be aware that when forming a company, you are really creating a legal 'person' that can do things that normal individuals can do (legally). A company can own property, sue and be sued in a court of law and even enter into and sign contracts.

Bet you didn't know that?! A company is a legal entity that has members (normally called shareholders) and (known as directors) who runs the day to day ins and outs of the company. A company is like a person - it is a separate legal entity, able to own property etc. So why are A LOT of people spending A LOT of money creating a company?

There are LOTS of benefits of business incorporation. Find out why a lot of people are turning to business incorporation as a way of trading.

6 Simple Steps to Incorporating Your Business

Step 1: Choosing your corporate name: The first thing to do is to make sure that your corporate name is totally unique and that you will have no trademark issues further down the track!

Step 2: Selecting a State to incorporate in: You should do your research. Did you know that setting up a corporation will a lot SIMPLER and CHEAPER in your home State, compared to another State?

Step 3: Selecting a corporation type: You may need to speak with your lawyer to help determine what the best type of corporation is for your type of business. Have you thought about llc formation? It is worth speaking to your lawyer about llc formation, as well as S corporation formation and C corporation formation.

Step 4: Determining your company directors and shareholders: The directors of the company and their positions need to be recorded in the Articles of Incorporation, so personal details and corporate details should be known at this stage.

Step 5: Obtaining your Certificate of Incorporation: These Certificates of Incorporation are obtainable from your local State office.

Step 6: Processing & filing of your incorporation: While your incorporation can be completed by a lawyer, this might set you back a few hundred dollars. You could get yourself a do-it-yourself kit if you prefer! Once you (or your lawyer has) completed all of the relevant paperwork, you need to file your incorporation with a Registered Agent.

The BIGGEST Advantage of Business Incorporation

There are so many reasons why people prefer business incorporation compared to other trading structures. Perhaps the greatest reason that a business will incorporate, is largely due to the financial protection a company has.

Essentially the directors of a company are free from any of the liabilities of the business itself and personal assets can rarely be touched - compared to a partnership, where each of the partners is subject to unlimited personal liability.

The BIGGEST Pitfall of Business Incorporation

Perhaps the biggest pitfall of incorporating a business is most likely the cost - the cost of set up and the ongoing costs. Oh, don't forget the increased paperwork! It is hard to pinpoint one particular reason why people choose to incorporate or don't choose to incorporate, the easiest way to decide what will work best for your business is to have you lawyer help you decide!