How To Become Incorporated
 

How To Incorporate

 

  As part of learning how to incorporate, you need to consider carefully the all the legal and financial implications when you incorporate a business.

As an overview, when you incorporate a business, it means you are giving your business a separate legal identity.  Prior to incorporation, you as the proprietor of the business own the assets of the business, but more importantly are personally responsible for its debts and liabilities.  If you choose to incorporate a business you will protect your personal property.  Following incorporation you will only be liable for amounts owed by the business up to the amount you have invested in the business.  Beyond your invested shareholding you will have no liability for the settlement of amounts owed to creditors (unless you have signed separate personal guarantees for any specific loans or debts).  Conversely, your business will also be protected from any personal debts you incur in your private live away from the business.  When for any reason an incorporated company ceases to trade, all creditors and liabilities must be paid before any capital can be released to the shareholders, simply put the shareholders are last in line for repayment.

The decision to incorporate a business can be very important if you are looking to grow your business in the future. Incorporated businesses often find it easier to raise capital for expansion from financial institution’s, also your personal credit rating will not effect that of the business when you are seeking to raise additional funding. 

When you incorporate a business it gives the financial world a feeling of security that your business will be around for the long term.  In the event of death or ill health of a partner or shareholder, the business continues to trade providing longer term stability.  Becoming incorporated also allows you to transfer ownership of your business easily and aids in putting a valuation on the business.  Becoming incorporated also facilitates easy introduction of retirement plans and insurance schemes.

Once incorporated, the business is governed by its Board of Directors.  The Directors are elected by the shareholders, who then act as agents of the company on behalf of the shareholders.  The directors are authorised to act and sign on behalf of the company, allowing the company to own property, sign contracts, employ people and pay taxes as an independent legal entity.  Incorporation Law dictates that the company forms bylaws to govern its operation which are approved and implemented through the voting of shareholders.

Business tax rates are much lower than personal tax rates, although there are issues of double taxation to consider.  An incorporated business though can carry forward any losses to the next financial year to offset against future profits.

 

When choosing the state of incorporation for your business, you need to consider the different laws and taxation regulations of each state, and how they will benefit or disadvantage your business.  Usually it is a choice between your home state and the State of Delaware, which offers significant tax advantages.

As the owner of a small business, you may be considering whether to incorporate or not.  Previously, whilst attracted by the tax advantages and reduced personal liability of becoming incorporated, you may have been put off by the legal costs involved. 

How To Incorporate

The latest Business Corporation Act has now made the process of incorporating your business much simpler and quicker than it used to be.   You now have the much cheaper and easier option with the internet to Incorporate Online ... to download the forms needed for online incorporation, click on our Incorporation Forms page.