Whether you have already decided to incorporate or are trying to decide if you should, various aspects of the process need consideration. Consider the reasons for incorporating a business. The most appealing aspect of incorporating is the limited liability it awards. What this means to the owners and shareholders is that they cannot be held personally responsible for debts or other liabilities of the corporation. The reason for this is a corporation is considered a separate legal entity. Being such, the corporation is also taxed separately from the owners and shareholders. Owners only pay taxes on the profits paid to them through salaries, dividends and bonuses, while the corporation pays corporate taxes on the remaining profits.
In addition to limited liability, there are other reasons for incorporating a business. Because of the built in stock structure, investors as well as potential talented employees are attracted to corporations. Some employees seek out corporate jobs because of the ownership interest in stock options. There is also a set management structure in corporations. The owners, who are shareholders, elect the Board of Directors and they in turn elect officers, such as the CEO and Vice President. Shareholders are not involved in the operations of the corporation beyond the electing of directors. In addition to electing officers, the Board of Directors is responsible for setting corporate policy and strategy and the management of the corporation. Because stocks can be transferred freely, and without the added gift taxes, incorporating is ideal for a family business. The corporation remains intact even if the owners die or leave the business. To dissolve a corporation, it must merge with another business or the shareholders must decide to end it.
Except for Non Profit, there are two types of corporations to choose from. A “C” Corporation, which is the traditional type, but is usually better suited for larger companies. This type is not limited to the amount of stock that can be sold. If the stocks are to be traded in the stock exchange or made available to the public by other means, it must be a C Corporation. This type of Corporation is probably scrutinized a bit more thoroughly than the others.
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The "S" Corporation is most ideal for small businesses. This type is limited to issuing 100 shares of stock. There are still formalities required, but this type corporation will have much less maintenance involved than the C Corporation will. Other legal structures for businesses include Sole Proprietorship, General Partnership, Limited Partnership and Limited Liability Company.
Incorporating a business involves a great deal of paperwork, fees, and once incorporated a set of formalities must be followed in regards to meetings and records. These things deter some from going through with the process. Perhaps because they see it all as a daunting task and are unsure of staying within the legal aspects of it. While it is possible to incorporate without the use of an attorney, having one may offer the peace of mind needed to see it through. There is a great deal of information available to enable anyone to research prior to making the necessary decisions.
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