The main benefit of becoming incorporated is the limited liability status that incorporation affords the company’s owners. Personal liability of the owners is restricted to their capital invested.
The primary disadvantages of incorporation are double taxation and the additional burden of statutory controls and record keeping. Double taxation relates to the taxation of the corporation’s profits and the taxation of the dividends from the net profits. It may be possible to avoid the double taxation through filing to the IRS to become an S-Corporation (professional taxation advice should be sought on these matters).
Once it is decided that becoming incorporated is the right course of action for your business you need to decide on a company name and in which state to incorporate.
Name availability can be checked with the secretary of state for your chosen state of incorporation. At the same time you should also do a trademark check, this can be done at the US trademark website.
If you business is small and only likely to trade in your own state of residence then your own state is likely to be the one most suitable for incorporating in for your business. If you are likely to trade across states, and you are confident of significant growth, then a state such as Delaware or Nevada may be appropriate as they offer favourable trading conditions, although your set up costs and ongoing costs will be higher.
Once you have your name chosen and a state of incorporation decided on you are ready to prepare your incorporation documents. The documents will include:
- Certificate of Incorporation / Articles of Incorporation
- Bylaws for your Company
- Resolutions of the Board of Directors
- Stockholder Resolutions
- Stock Ledger
- Stock Certificates
With the introduction of the latest Corporation Act, the incorporation process has become less complex, and as such there are now many companies on the internet who will assist you to incorporate, and with simple incorporations being performed online. It is always advisable to seek professional legal and taxation advice though in advance of incorporation.
Once the certificate of incorporation and associated documents are filed with the secretary of state in your chosen state of incorporation your corporation becomes official.