A Step-by-Step Guide to Incorporating Your Business

You know how, when you are about to have a child, your partner and you sit on the comfy couch and have a talk about how you want to raise your child? Like what method of nurturing you will use, what kinds of parents you are going to be? Are you going to be “very much involved in the child’s life” parents? Or are you going to be “a friend parent”? Or maybe you are going to be the strict parent and use fear as a method of keeping your child away from danger? Well, just like that, you might be sitting in your office and thinking about incorporating your business. Is it a good idea? Is it a bad idea? What comes first? The research!

A corporation is a body: a legal person in the eyes of the law. And just like a person, a corporation can bring lawsuits, can buy or sell property, contracts, pay taxes and sometimes even commit crimes. The remarkable feature of a corporation is that it protects its owners from personal liability for corporate debts and obligations within limits.

Why incorporate?

There are three main reasons for it. First, a corporation has an unlimited life, unlike proprietorships and partnerships. The life of a corporation doesn’t depend on the life of a particular individual. It can continue indefinitely unless it accomplishes its goals, merges with another business or goes bankrupt. Second, transferability of shares gives an opportunity for you to sell, transfer or give away your ownership interest to another family member. And lastly, a corporation has an ability to raise investment capital.

Perks and Corks

To better understand your perks and corks lets go over some of the advantages and disadvantages of incorporating a business. First, owners of a corporation are protected from personal liability for company debts and obligations. Corporations have a reliable body of legal precedent to guide owners and managers. They are the best vehicles for eventual public companies. However, a corporation is more expensive to set up than a partnership or a sole proprietorship. They require periodic filings with the state and annual fees.

Step #1. Brand your business

A very important aspect of a business is its name. The name should express what your company is all about. Usually, people think it is only about the name of the company. However, the name is not enough. You should build a brand: give your company a personality. What is it trying to say? What is it trying to make others feel? Who is it talking to? Who is your target market? After, check the name with your state’s corporate filing office, the federal and state trademark registrars to see if it’s available.

Step#2. The big city of NY or a village like Napa in California?

Just like you decide where to raise your child, your next step is to identify a location for your business. Select a state as your headquarters’ location. You don’t have to incorporate in the state where your business is currently operating. Just choose from all the 50 states or from the District of Columbia.

Step #3. Private school or public school?

Just like you decide what kind of school your child should attend, you need to decide what type of corporation to form. It can be a C Corporation, an S Corporation or a Limited Liability Company (LLC).

Step #4. Who plays what role?

This step involves selecting the directors and all the other employees. The Board of Directors is effectively responsible for running the corporation. The next important people in your company are your shareholders. They are people who’ve been granted stock by the corporation in exchange for money paid or services performed for the corporation. And be very careful when choosing your officers: Chief Executive Officer (CEO), president, secretary, and treasurer. They are at a lower level than the board of directors, but they have a lot to do with the operations of your company.

Step #5. Capital Stock

Every company has a specific way of raising capital stock. For example, LLCs raise capital stock from member contribution. If you are thinking of incorporating your business you will have to state how you aim to raise the necessary capital stock. The needed information might include share per capital, share value, dividend per share and dates from the initial public offers.

Step#6. Certificate and Paperwork

You will have to acquire and complete a Certificate of Incorporation available from your state’s corporate filing office. The certificate needs to have your company name, the purpose of your business, the location, etc. And lastly, you will need to submit the article of incorporation to the state with the required registration fee. You can either undergo the filing process through your attorney or by using a third-party service. Having an attorney by your side will give you the advantage of doing everything legally and making sure your rights are protected. If you don’t have a lawyer there is always a chance you could miss some small but important detail in your state’s law.

Now, incorporating a business is a huge step. Make sure to do all the research you need and find out what you are getting yourself and your company into. But whatever you choose: to incorporate or not, do it confidently.

 

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