How To Become Incorporated

Before starting the process of incorporating your business, you need to decide whether incorporation is right for you and your business.

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.

Stock certificates should be issued to shareholders in compliance with securities laws and all corporate actions and meetings minutes should be recorded in your official Corporate Minute Book. You will also need to elect and record officers and directors of the corporation, the number of directors will depend on your local state law.

You will also need to contact the IRS and obtain your state and federal tax ID numbers, the federal forms you need can be obtained from the IRS website.

You should also decide whether or not filing for S-Corporation status with the IRS is appropriate for your business, as a small company the benefits of avoiding double taxation may be worthwhile. After becoming incorporated your will need to open a corporate bank account and ensure you have appropriate accounting systems and records in place to meet statutory requirements. If your newly formed corporation is a new business you should check with the local authorities to see if there any special licences required for your type of business to trade.

If you have to hire staff, you should have formal contracts of employment in place stating the terms and conditions of employment, and where necessary have confidentiality agreements in place.

Richard Taylor MBA is a Chartered Management Accountant and Corporated Director with a specific interest in small business start ups and How To Become Incorporated