Small Business Incorporation Lawyers
LegalMatch Law Library Managing Editor, Ken LaMance, Attorney at Law
What is incorporation?
Incorporation is the process by which a business organization officially becomes a corporation. In effect, corporations are recognized as a “person” under the law. Legally speaking, a business that has incorporated is treated much differently than a non-incorporated entity. For example, there are different tax consequences and liability factors for corporations.
With regards to small businesses, there are several types of corporate forms that the entity may incorporate under. Some common types of corporations are:
- Business (for-profit) corporation
- Non-profit corporation
- Private corporations
- Professional corporations
What steps are required to incorporate a small business?
Incorporation laws vary from state to state and can also differ based on the type of small business operations. In general, the following are required to incorporate a business:
- Articles of Incorporation: These are filed with the relevant state office and are also known as a “Charter”, “Certificate of Incorporation”, or “Letters Patent”, and must clearly state:
- The purpose of the business
- The principal place of business
- The business’ registered agent who will act as a contact person
- The types and number of shares of stock
- Corporate Name: All corporations must have a name that describes their business and includes a legal ending such as “Inc., Corp., or Ltd.” depending on the type of corporation
- Corporate Bylaws: The company must also file these documents with the state. These are written with the purpose of outlining important administrative details, such as:
- Date for annual shareholder meetings
- Voting guidelines
- Process for notifying shareholders of “special” meetings
Incorporation is a relatively straight-forward process in most states. There may be different fees associated with filing, especially when submitting Articles of Incorporation.
What are the benefits of incorporating a small business?
There are many pros and cons to incorporation. Some of the benefits include:
- Limitations on personal liability: Shareholders in any corporation are usually shielded from being personally liable on the obligations and debts of the company.
- Protection of personal assets: If the corporation gets sued, the individual shareholders they will absorb the liability (for example, the shareholder’s home cannot be repossessed to pay corporate debt)
- Transfer of ownership: Ownership rights in a corporation are easily transferable, whether in whole or in part. Many state laws are tailored specifically to make transfer of ownership easier
- Tax benefits: Corporations are generally taxed at a lower rate than are individuals. They may also own shares in other existing corporations and receive tax-free dividends.
- Continuity/durability of existence: Corporations do not end with the death or incapacity of a shareholder. They may also have more resources available for generating profits that may be reabsorbed into the business over time
- Credit scores: Corporations build their own credit rating and amass their own credit scores using corporation credit. Thus, individual shareholder’s credit ratings generally do not affect the business’ credit score
- Centralized management: In corporations, management responsibilities are delegated to specific actors.
Do I need a lawyer for incorporating a small business?
Whether you are incorporating a small business from scratch or are purchasing an existing one, it is important that you contact an attorney for advice. The laws governing incorporation vary widely depending the jurisdiction and the type of corporation in question. An experienced small business lawyer can help you navigate the laws in a manner that is most profitable for your particular business goals.
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Last Modified: 10-19-2010 02:45 PM PDT
