Starting a business requires that you make many important decisions. One of them is choosing a legal business structure for your company.
Many business owners choose to form a Corporation in the USA as this entity type offers the strongest protection to its owner from personal liability. However, the cost of incorporating your business is higher than choosing other business structures.
In this article, we’ll discuss what a Corporation is, why you should choose it as your business structure, and how to form one.
Why Should You Consider Forming a Corporation?
A Corporation is a legal business entity established by one or more people. Once formed, it can make profits, be taxed, and be held legally liable as a separate entity from its owners.
This business structure has many advantages over other structures, which is why you should consider forming one.
Let’s take a look at some of the benefits of forming a Corporation.
- Unlike a Sole Proprietorship or a Partnership, a Corporation limits the liability of its owners. The owners will not be held responsible for business debts and lawsuits.
You can protect your personal assets such as your home, cars, properties, personal bank accounts from creditors and lenders.
- A Corporation has a completely independent existence separate from its owners and shareholders. Even if a shareholder leaves the company or sells their shares, the Corporation can continue operating undisturbed.
- A Corporation offers infinite growth potential. You can easily attract wealthy investors to raise funds by selling company stock.
- A Corporation can easily transfer its assets and accounts to new owners using a stock certificate.
You should consider forming a Corporation if you need to raise money from investors. It is also the preferred entity type for all medium- and high-risk businesses.
When you’re ready to start a Corporation, take advantage of quick and hassle-free filing services by GovDocFiling to complete all of the paperwork correctly. They offer a secure and expedited filing process, which is much cheaper than hiring a lawyer to do it for you.
The Step-by-Step Process to Form a Corporation
If you’ve decided to form a Corporation, you should follow the steps below.
1. Pick a Business Name
The first step to form a Corporation is to pick a business name that is unique, easy to remember, and relevant to your industry and nature of business.
You should check that your preferred business names don’t infringe on any trademarks. You can quickly perform a trademark search on the USPTO website, and if you want to trademark your business name, you can look for lawyers who specialize in this, such as Goldstein Patent Law.
It is also important to check that the name you choose is available as a domain name. You should buy the domain name from registrars such as GoDaddy to build your business website.
2. Register Your Business with the State
To register your business as a Corporation, you need to appoint a Registered Agent with a valid, physical address in the state where you want to start your business. They will be responsible for receiving all legal documents on behalf of your company.
You will have to file Articles of Incorporation with the Secretary of State’s office and pay the filing fee. The fee may vary from state to state.
This document includes information like:
- Your company’s name
- The purpose of your business
- Number of shares offered
- Value of shares
- Directors and officers
You also need to create Corporate Bylaws, which is a legal document that defines the operational and internal governance rules of your Corporation. It will define the roles, responsibilities, and powers of all shareholders, directors, and officers of the company.
Some business owners also file a DBA (Doing Business As) to register a trade name or a fictitious name of the company.
3. Apply for Business Licenses and Permits
As a business owner, you might need to file for necessary licenses and permits from both state and local governments. The requirements and fees may vary based on your state, county, and city and your business activities.
For example, if you want to manufacture, import, or sell alcoholic beverages, you will have to acquire licenses from the Alcohol and Tobacco Tax and Trade Bureau.
Some licenses and permits come with an expiry date. You should keep track of the renewal time and renew them before they expire.
4. Acquire a Federal EIN/Tax ID
File for your federal Employer Identification Number (EIN)/Tax ID with the IRS. You will need this nine-digit number to pay federal taxes, hire employees, and open a business bank account.
Corporations are subject to double taxation, which means that the company will pay taxes on profits and then, the individual shareholders will also pay taxes on the dividends of the profits they receive.
However, as the owner of a Corporation, you can avoid this double taxation by paying yourself and other owners a salary. You can also offer a year-end bonus to yourself and others to leave the company with minimal or nil profits.
This way, you can save on taxes by getting your Corporation taxed at a lower tax bracket.
5. Open a Business Bank Account
It is important to separate your business finances from personal finances.
Once you’ve formed a Corporation, you should open a business bank account by submitting your formation documents, EIN, ownership agreements, and other required documents.
A business bank account offers benefits such as:
- Limited personal liability protection as you can keep your business funds separate from personal savings
- It will allow your customers to make payments to your business directly instead of paying you.
- You can get a business credit card to cover business expenses such as new equipment, rent, etc. This will help you establish a credit history for your business and make you eligible to get larger loans (often at lower rates) over time.
Many banks also provide exciting introductory offers to new business bank accounts.
Ready to Form a Corporation for Your Business?
Starting a Corporation in the USA is a complex process. You need to ensure that you have met all legal requirements and completed all of the paperwork correctly.
Many new business owners prefer to let professionals handle the filing and formation processes for them. It can help you avoid mistakes and focus on the other important aspects of starting a business.
Do you need help forming a Corporation in the USA? Feel free to connect with our business formation experts in the comments below.