Incorporation describes the forming of a new corporation. This "corporation" may also be a government of a new city or town.
1 Incorporation in the United States
1.1 Legal benefits
Protection of personal assets. Safeguarding personal assets against the claims of creditors and lawsuits. Sole proprietors and general partners in a partnership are personally and jointly responsible for all the liabilities of a business such as loans, accounts payable, and legal judgements. In a corporation, however, stockholders, directors and officers typically are not liable for their company's debts and obligations. They are limited in liability to the amount they have invested in the corporation (eg: If $100 in stock was purchased, no more than $100 can be lost). Corporations and Limited Liability Companies (LLCs) may also hold personal assets like houses, cars or boats. If one is personally involved in a lawsuit or bankruptcy, these assets may be protected. A creditor of the owner of a corporation or LLC cannot seize the assets of the company, however, they can seize their ownership shares in the corporation, as that is considered a personal asset.
Transferable ownership. Ownership in a corporation or LLC is easily transferable to others, either in whole or in part. Some state's laws are particularly attractive to this end. For example, with a Delaware Corporation, the transfer of ownership in a corporation in not required to be filed or recorded.
Retirement funds. Retirement funds and qualified retirement plans (like 401ks) may be set up more easily with a corporation. Corporations can also fully deduct the cost of paying its owner's health insurance.
Taxation. In the United States, corporations are taxed at a lower rate than individuals. Also, they can own shares in other corporations and receive corporate dividends 80% tax-free. There are no limits on the amount of losses a corporation may carry forward to subsequent tax years. A sole proprietorship, on the other hand, cannot claim a capital loss greater than $3,000 unless the owner has offsetting capital gains.
Raising funds through sale of stock. Capital from investors can be raised for corporations easily through the sale of stock.
Durability. A corporation is capable of continuing indefinitely. Its existence is not affected by the death of shareholders, directors, or officers of the corporation.
Credit rating. Regardless of an owner's personal credit scores, corporations acquire their own credit rating, and build a separate credit history by applying for and using corporate credit.
1.2 Steps for incorporation
The filing of the Articles of Incorporation (also called a CharterAlternate use, see charter airline or bare-boat charter''. A charter is a document bestowing certain rights on a town, city, university or institution. Charters were issued in medieval times by Royal decree, perhaps giving a particular town the right to h, Certificate of Incorporation or Letters Patent). The first step is to check with your state's corporate filing office (usually either the Secretary of StateUnited Kingdom In the United Kingdom, a Secretary of State is a senior Cabinet Minister in charge of a Government Department. Secretary of State positions can be created without primary legislation; and legislation refers to 'Secretary of State', which is or Corporations Commissioner ) and federal and state trademark registers to be sure the name you want to use is available. You then fill in blanks in a preprinted form (available from commercial publishers or your state's corporate filing office ) listing the purpose of your corporation, its principal place of business and the number and type of shares of stock. You'll file these documents with the appropriate office, along with a registration fee which will usually be between $200 and $1,000, depending on the state.
How to Select a Corporation's Name. A corporate name is generally made up of 3 parts: "Distinctive element", "Descriptive element", and a legal ending. All corporations MUST have a distinctive element and a legal ending to their names. Some corporations choose not to have a descriptive element. In the name "Tiger Computers Inc." the word "Tiger" is the distinctive element; the word "Computers" is the descriptive element; and the "Inc." is the legal ending. The legal ending indicates that it is in fact a legal corporation and not just a business registration or partnership. You can choose from the following words: Incorporated, Limited and Corporation, or their respective abbreviations: Inc., Ltd. and Corp.
You'll also need to complete (but not file) Corporate Bylaws . These will outline a number of important corporate housekeeping details such as when annual shareholder meetings will be held, who can vote and the manner in which shareholders will be notified if there is need for an additional "special" meeting.
