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Small Business Tips

A step-by-step guide to incorporating your small business

Justine Rabideau

A corporation is a type of business entity. You may want to choose it because it protects the owner from personal liability.

Most people associate corporations with large, billion-dollar grossing, multinational companies. Yet, many small business owners can see benefits from becoming a corporation. But many small businesses can become corporations.

How to apply for corporation status

A corporation is a legal entity that exists apart from its founders. The corporation faces taxes and can be liable for certain crimes. Incorporating a small business is not as difficult as many people think.

You'll have to provide the following details:

  • The ultimate purpose of the corporation
  • The types and amount of stock the corporation will be responsible for issuing
  • Rights and privileges of shareholders
  • The addresses and names of the incorporators

The state has to approve your application before you get corporation status.

What are Articles of Incorporation?

A set of documents that record the formation of your incorporation. You file this with the government. Be sure your Articles of Incorporation have:

  • Choose a board of directors
  • Directors will track the performance and conduct of the executives.
  • Directors can elect to fire executives if needed

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Facts to consider before incorporating

Corporations have an unlimited lifespan. This is in contrast to sole proprietorships, partnerships, and limited liability corporations.

The life and operation of a corporation do not end when the life of an owner ends. A corporation can only "die" in a few ways:

A corporation provides the individuals administering it a high degree of personal immunity. Workers don't have to discharge a corporation's debt.

Many prefer to invest money in corporations. The corporation's limited liability can attract investors. You can also transfer stock shares to shareholders through a broker.

Corporations also allow for the easy transference of shares. A person can sell their shares to another person, such as a family member or business partner. That's not the case with other forms of businesses.

Establishing bylaws

Operating a corporation is not as simple as other business types. The law says a corporation must draft an official set of bylaws.

Furthermore, they must also detail the role of shareholders and directors. Corporations must schedule regular meetings. These discuss relevant issues and the health of the company. You must do this before you incorporate your company.

Choose a state to incorporate in

When incorporating your business, you must choose a state to incorporate in. You're not required to incorporate in the state you live in. You may establish your corporation in any state or the District of Columbia.

Ask yourself the following questions when choosing where to incorporate:

  • Does the corporation have a physical location in the state?
  • Are there corporation employees in the state?
  • Does the corporation have the right to accept orders in the state?
  • Does the corporation have a bank account in the state?

You may want to hire an attorney to incorporate to make sure you're covered under the law.

Is incorporating worth the cost?

Incorporating a small business is lengthy and at times, a complicated task. It may be worth it for some business owners. The limited liability incorporating offers is a major selling point. It can be wise to separate the actions of individuals from the actions of the corporation.

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