A 5 Step Guide To Starting Your Corporation
When starting a new business, one of the most important steps you will have to take initially is deciding what type of business entity to register your company as.
Whilst the majority of businesses are registered as sole proprietorships, most large-scale and jointly owned companies choose to adopt a different approach (registering as corporations).
This is because corporations possess a plethora of structural and fiscal benefits- including limited personal liability, transferable shares, and centralized management through a board of directors.
In pragmatic terms, this means corporations can allow entrepreneurs to conduct and manage their day-to-day operations easily and quickly. Moreover, as all owners and shareholders benefit from limited personal liability under the law, any future debts accrued or loans borrowed by the company will never jeopardize their personal assets (such as their cars or houses).
Generally speaking, each business structure comes with its own advantages and disadvantages; below we will discuss everything you need to know about starting a Corporation in 2021.
What is a Corporation?
A corporation (unlike a sole proprietorship or a general partnership) is a separate legal entity that is owned by its shareholders (investors who have bought shares).
As briefly already touched on above, this means that shareholders cannot be liable for any debt accrued by the company that is not sold back; of course, this is not the case in scenarios whereby a shareholder personally guarantees a loan or where their personal negligence gives rise to unforeseen damages.
Shareholders additionally do not have any direct ownership of the capital and assets of the business, they get paid exclusively through the dividends which are distributed by the Board of Directors. These are not tax-deductible (unlike salaries and bonuses).
Apart from dividend checks, shareholders of a corporation do not receive any other sort of monetary payment (such as a salary) unless they sell their shares in the company.
This means that a corporation is entirely managed by its board of directors, who have to consent to certain business initiatives, set a plethora of different procedures and policies, and appoint executives (President, Treasurer, etc).
Steps to Form a Corporation
Forming a corporation can be quite a bit more complicated in comparison to other business structures. This means that (generally speaking) most entrepreneurs either hire an incorporation service or go with the traditional approach of hiring a specialized attorney and letting them handle the whole process for them.
If you are interested in carrying out the process independently, however, keep reading below.
Choose a Business Location: The first step in starting your corporation company will be to choose your business location. This can depend on a variety of different factors, such as your business partners’ preferences, your personal specificities, and your target customer base. The local government agencies present will also need to be considered, as the benefits, costs, and rigmarole can differ significantly between states.
Choose a Business Name: After choosing your business location, you will need to think about the business name that you will want to use. Whilst this may seem simple, choosing a business name can be one of the most important decisions you make in relation to your long-term sustainability and growth, as it can ensure that your brand image is reflective of the products and services that you will be selling.
Trademarks: After you have discovered your perfect business name and registered it, you may want to take a few extra steps to ensure that you protect your business name as an Intellectual Property. It should be duly noted that it is very important that you register your business in the state in which you carry out your day-to-day business transactions (this is also the case for LLCs, partnerships, and non-profit organizations).
Satisfy Certain Filing Requirements: Finally, before registering with your chosen state you will be legally required to satisfy certain prerequisites. These include: a) having a business that has a ‘’physical presence’’ in your state, b) commonly conducting face-to-face meetings with your clients in your state, and c) having your employees physically present in your state.
You will also need to hire a registered agent and submit all relevant state documents that are mandated.
Whilst setting up a corporation involves significantly more rigmarole and hassle than an LLC or a sole proprietorship, it provides certain structural benefits that make it very desirable.
Online Incorporation services have also meant that entrepreneurs no longer have to rely on expensive lawyers if they choose to delegate these tasks to a third party.
We hope you enjoyed reading.