A CPA can help you to assess the tax and other implications of incorporating your business. Remember Me? One way to limit your personal liability is by incorporating your business, reports the California Society of CPAs www. While incorporation requires more paperwork and expense than a sole proprietorship or a partnership, it offers important legal and tax advantages. Protect Your Personal Assets Incorporating your business is one of the best ways you can protect your personal assets.
Have Easier Access to Capital Raising capital is generally easier for a corporation, since a corporation can issue shares of stock. Perpetual Existence Corporations are the most enduring legal business structure. Small businesses can elect to operate as one of several forms of ownership.
Each form of ownership, or business structure, provides the business with a certain amount of liability protection, tax advantage or startup simplicity. According to the Small Business Administration, the most common types of incorporation include sole proprietorships, partnerships, corporations and limited liability companies. You will want to become incorporated if your business will be in the best position to succeed under one of these structures.
Incorporating your business has many advantages. A legal business structure establishes a company as a legitimate and financially sound organization, which can attract investors and business partners.
This is because Delaware offers competitive tax rates compared to other states. Also, its business law is generally favorable toward corporations.
Its court system is efficient, and plenty of corporate legal precedent means cases are handled expediently. If you choose incorporating in Delaware but your company is not actually based there, you will need to hire a registered agent service with an address in Delaware.
On your own : It is possible to incorporate your business on your own. After deciding on a name, bylaws, a registered agent, a board of directors, and stock allocations, you can draft and file your articles of incorporation with the Secretary of State.
Online legal service : There are many Internet-based services that can help automate the incorporation process for you. While most are not free, they are generally less expensive than hiring a law firm to handle incorporation. Many of these businesses include registered agent service, accounting reviews, and templates for corporate documents such as meeting minutes and by-laws. A business lawyer can also provide legal advice beyond simply filing paperwork to help your company use the law to its advantage.
Creating and maintaining a corporation can be a challenging process, requiring a financial investment and administrative resources. However, many businesses find the process to be worthwhile due to its myriad benefits, including limited liability for personal assets, tax benefits, and enhanced credibility. Depending on the corporate structure you choose and the state in which you decide to incorporate, there may be additional benefits and challenges to weigh. A corporate attorney can provide assistance and guidance as needed.
Make sure to first check on the financial health of your business by accessing your free business credit scores and a copy of your business credit report. This article currently has 5 ratings with an average of 4.
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One of the first steps you must take in the incorporation process is to prepare a certificate or articles of incorporation. Some states will provide you with a printed form for this, which either you or your attorney can complete.
The information requested includes the proposed name of the corporation, the purpose of the corporation, the names and addresses of the parties incorporating, and the location of the principal office of the corporation. The corporation will also need a set of bylaws that describe in greater detail than the articles how the corporation will run, including the responsibilities of the shareholders, directors and officers; when stockholder meetings will be held; and other details important to running the company.
Once your articles of incorporation are accepted, the secretary of state's office will send you a certificate of incorporation.
Where to Incorporate One major decision to make when incorporating involves selecting the proper state of incorporation. You're not required to incorporate in the state where your business operates; you can choose from any one of the 50 states or the District of Columbia. A corporation is referred to as a foreign corporation in all states except for the state where it is incorporated.
If a corporation is transacting business in a state other than where it was incorporated, it may be required to register for a certificate of authority to transact business also called foreign qualification in the other state. If a corporation is transacting business and fails to register as a foreign corporation, it may lose access to that state's courts and face tax fines and penalties.
A foreign corporation that registers for a certificate of authority in another state must pay state filing fees for the qualification filing; these fees are typically more expensive than the cost of filing for a domestic corporation.
Also, foreign qualified corporations are subject to taxes and annual report fees from both the state of incorporation and the qualifying state.
Thus, the actual advantage of incorporating in a state with very low initial filing fees and low corporate income tax is not as great as it appears if your business must still qualify to do business in its state of operations. The definition of "transacting business" depends on the state and the situation.
Consult your attorney to determine how the law applies to your situation. In general, though, some factors that a state considers when determining whether a corporation is transacting business in a state include:. Note that simply transacting business via mail order or the Internet typically does not equal transacting business; however, the determination is made on a case-by-case basis.
Again, consult your attorney for specifics, as this list is not intended to be comprehensive. How Incorporating Affects Funding If you plan to seek investment, the preferred entity of most investors and VCs is the C corporation, which is the standard corporation formed by incorporating.
Limited Liability Companies, Limited Liability Partnerships and other entities are not favored due to the variation in rules between states and because they do not have the legal structure of shareholders, a board of directors and officers, which are standard components of investment.
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