7 Things You Should Know About Incorporation

by Calyn Ehid

If you have not started your business yet, then that is the finest time to incorporate. As long as you have an idea that you plan to turn into a business someday, you need to think about incorporation immediately you get enough capital to start your business. This is especially important if you are planning to form a team, seek investor funding, join the stock market, enter into contract negotiations with suppliers, advertise your products and make profits. If you are already in business as a sole proprietorship or partnership, then the finest time to incorporate is at the end of the year. Incorporating at the start of a new year will enable you to file only one tax form for the previous year and start a new year with the business protected.

1. Where to Incorporate

Business incorporation occurs at the state level. You will need to visit the relevant department to determine the registration requirements. There are certain variables you need to take into consideration when choosing the state where you want to register your business. You need to consider the formation fees, annual fees and filings, legal and court system, franchise taxes, state corporate income tax and potential investors. You also need to consider the overall business environment and the rate of competition. Make sure you choose a state that will enable you to register smoothly and operate business without too many risks and challenges. If you need legal assistance you can also find additional legal aid here and you can search for a lawyer here.

2. How to Incorporate

Most small business owners ask a lot of questions when it comes to how to incorporate a business. The first step is to choose the name for your business. A good business name must have a close relation to what you do and your target audience. Once you come up with the right business name, you need to identify the primary location of its headquarters. Some of the things you need to consider when choosing the headquarters are the cost of incorporation, taxation regulations and corporate laws. After that, choose the type of corporation you want to form. This could be C-Corporation, S-Corporation and LLC. Next, indicate the name of the company directors and determine the type of shares the corporation will trade in the stock market. Once you submit the name, location and type of shares the corporation would like to issue, you will be provided with a certification of incorporation.

3. Maintenance Care is Required

Maintenance care is very essential for corporations, especially for relatively new businesses. It helps ensure the corporation runs without any interruptions or technical hitches. It also ensures the corporation performs all its tax obligations according to the federal and state laws. It is critical to have some good amount of money put aside for maintenance care. This could range between $10,000 to $10,000,000, depending on the number of assets the business has, the nature of the business and the size of the workforce. This money can be put in an emergency account or in any other form that guarantees its safety.

4. Personal Wealth

Incorporating your small business impacts your personal wealth. In most cases, many people start with sole proprietorships and partnerships. While these options enable the owners to share more profits, they bear all the risks the business is predisposed to, such as the risk of insolvency, losses and debt recovery. These risks are directly linked to their personal wealth. For example, if the business fails to pay its debts, then the lender will use the owner’s personal assets to recover the amount owed. Incorporation protects business owners against all the risks that may directly affect personal wealth. This enables them to do business without worrying about the security of their wealth.

5. Preparation

Before you apply for small business incorporation, you need to prepare in advance so that your application is accepted during the first attempt. Make sure you have the name of the business, its legal address, the name of the state where you want to set the primary location, business code, list of directors, the quantity of authorized shares of stock and the key goals and objectives. You must also ensure your accounting books are well balanced and that you do not have any pending cases of insolvency.