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What is Incorporation?

Incorporation is the legal process used to form a corporate entity or company. It's a legal way for business owners to separate their personal assets from their business assets, providing an extra layer of security.

Incorporation Process: Steps and Requirements

Incorporation is the process of transforming a business into a distinct legal entity from its owner(s). To become a legal corporation, the owner(s) must go through a registration process and secure certain licenses and permits from the relevant authorities. Here are the steps required to incorporate a business:

  • Choose a Corporate Structure: Decide the type of corporation you want to form. Different types provide different legal and tax advantages.
  • Choose a Business Name: Select a unique and legally compliant name for your business. This name must not be similar to any existing business.
  • File the Articles of Incorporation: Submit official documents to the state that has jurisdiction over your business. This is usually the state in which the business will operate.
  • Appoint Directors: Elect directors to manage the legal and organizational affairs of your corporation. These will be the company’s decision makers.
  • Set Up Corporate Records: Create and maintain records of the activities of your company’s business. This includes items such as minute books, accounting records, and official shareholder registers.
  • Obtain Licenses and Permits: Secure the required permits and licenses from both the local and federal governments.

Legal Implications of Incorporation

Incorporation creates a distinct legal entity whose activities are kept separate from those of its owners. As such, the owners and officers of a corporation do not have to take personal responsibility for the actions or debts of the company. This is known as the “corporate veil”. In addition, the owners and directors are protected from personal liability, including lawsuits and debts. If the company is sued, creditors cannot pursue its owners for payment.

Types of Corporate Structures: Choosing the Right One for Your Business

When incorporating a business, it’s important to select the right type of legal structure that will provide the greatest benefits. The most common forms of corporate structures are the C-corporation, S-corporation, limited liability company (LLC) and nonprofit. Each of these structures have different rules and regulations and offer different legal and tax advantages. To decide which structure best suits your business, it’s important to gain a full understanding of each one.

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