How to Incorporate
Incorporating a business allows business owners to separate their personal identity and financial assets from that of their business. Incorporating is something any business can do, regardless of its size or number of employees. When a company is not incorporated, creditors or partnerships can seize the business owners' personal assets, such as homes, savings, or cars. However, when a business is incorporated, only the money put into the business can be seized or lost in the event the business tanks or cannot support itself financially.
There are many advantages to incorporating. In addition to separating personal identity from business identity, incorporating gives a business credibility. A corporate business, regardless of the size, that has "inc" or "corp" at the end of its name conveys a sense of credibility. Incorporating also allows capital to be raised in an easier manner; investors are more likely to invest in a company that separates its owner's personal assets from his or her business assets. Incorporating also involves tax breaks, which is a main reason many business owners decide to incorporate.
Incorporating a business requires a number of steps. Certain licensing, paperwork, and fees are required in order to declare your business as a corporation. There are several types of incorporations that can be made, including international, in-state, and out-of-state, so there are many factors to consider before deciding to incorporate. It's best to discuss the requirements with your accountant, but as a general rule, the steps involved include:
1) First, decide whether you want an in-state, out of state, or foreign incorporation. As a general rule, smaller businesses decide to incorporate within their own state.
2) Next, draft up and enter into a pre-incorporation agreement. This is done with the other founders of the business for the purpose of deciding who will serve on the board of directors. It also helps to make stock decisions, such as who will buy stock and how many shares.
3) Once the pre-incorporation agreement has been signed, you must file an application for registration of the name that you want to incorporate (the business name.) The Secretary of State's office has the necessary forms. Once you file, the office will tell you whether the name you have chosen has already been taken or whether you will need to find a new one.
4) The Secretary of State's office will send you a number of incorporation forms for your business that you will then have to fill out. These documents include a certificate of incorporation, which includes the name of the company, why it is being formed, where the company is located, and various other information.
5) The certificate will then have to be signed by the owners and co-owners of the business. After this, you will then hold a stockholders' meeting upon receiving your charter from the state.
6) Finally, you will need to instate corporate bylaws and officially elect the board of directors. Once this is done, you will send the agenda to shareholders.
Making the decision to incorporate can ultimately offer the business owner greater savings and more protection of personal assets. In addition, there are many tax advantages that are associated with incorporating a business. When incorporating your business, you must first contact the Secretary of State office in your hometown to obtain the proper paperwork.