The incorporation process should be fully researched and understood. If you choose to incorporate, and all your articles have been filed, your corporation must hold an organizational meeting where bylaws are adopted and the incorporation process is completed. Share certificates should be distributed to shareholders, and all of this information should be kept in a corporate record book.
You do not need an attorney in order to perform company incorporation. You can prepare and file the articles of incorporation yourself; however, you should understand the requirements of your intended state of formation. If you are sure that incorporation will benefit your business, there are many different advantages and disadvantages that you should acknowledge.
Advantages of incorporation
One of the main advantages of incorporation is the limited liability the corporate entity affords it shareholders. Shareholders and directors are usually not liable for the obligations of the corporation; so, creditors will not come wanting money from the shareholder to pay debts of the corporation. Maintaining the limited liability requires annual meetings. A corporation possesses the feature of unlimited life and is therefore independent from its members. If an owner dies or wants to sell, the corporation will continue to do business. Retirement funds and plans may be set up more easily if you choose company incorporation. Another advantage is that the ownership of a corporation is easily transferable and the capital can be raised more easily through the sale of stock. Incorporation is an intelligent choice because the corporation possesses centralized management.
Disadvantages of incorporation
There are, as always, the downsides. Both advantages and disadvantages should be carefully weighed if you are considering company incorporation. The primary disadvantage is double taxation. All profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. It is especially bad because they are taxed first as income to the corporation, and then they are taxed again as income to the shareholder. Another disadvantage is that there is more complexity and expense with forming any corporation. Also, there are more extensive record keeping requirements that can become extremely difficult and stressful to maintain.
Where to incorporate your business
One of the initial decisions that a business has to make once they have decided to incorporate involves selecting the proper state of incorporation. Although not mandatory, many times the best decision may be to incorporate in your home state. There are two issues that you should carefully consider before deciding on a state. The first issue is a dollars and cents analysis. This might be done in order to compare the costs of incorporating in the state of operation versus qualifying to do business as a foreign corporation in the state under consideration. The second issue is determining the advantages and disadvantages of each state’s corporate laws and tax structure. You can choose from any one of the fifty states or the District of Columbia as an area to locate the area of company incorporation. If the corporation is a closely held corporation that does business primarily with a single state, local incorporation is typically the best decision.
By Vanina Sloan