Thursday, July 25, 2024

Incorporation Basics

There are three major requirements for incorporating your business: securing your corporate name, filing the necessary documentation and paying the necessary filing fees. You can complete these steps yourself, use an incorporation service provider or have an attorney complete them for you.

Name Check, Documentation and Filing Fees –

When incorporating, you must first ensure that your corporate name is available in the state in which you want to incorporate. Your corporate name must not be deceptively similar to a name that is already in use in that state. A name check must be performed in the state of incorporation.

You must also prepare and file all the necessary documentation – the Articles of Incorporation – with the appropriate state agency in the state of incorporation. Additionally, you must pay all state filing fees, initial franchise taxes and any other initial fees. Each state charges a filing fee to form your corporation in that state. These state filing fees vary greatly by state. They range from under $100 to over $400.

Do it Yourself, Use an Incorporation Service Provider or Use an Attorney –

If you decide to incorporate on your own, you need to be well versed in the laws of the state of incorporation. You will need to prepare and file your own documentation and undertake all communications with the necessary state agencies.

If you use an incorporation service company, you submit the necessary information, and the company checks your name, prepares and files your documents and pays the initial state filing fees on your behalf. Incorporation service companies charge a nominal service fee on top of the state filing fees, and you can submit all the necessary information to them over the Internet.

Attorneys will also undertake all of the necessary steps for you. If you use an attorney to incorporate, you can expect to pay their hourly fee on top of the state filing fees.

How Long Does it Take?
The time the state requires to approve and return your completed Articles of Incorporation varies by state. On average, it takes 4-6 weeks to become incorporated. Most states will allow you to expedite the filing process for an additional charge; expediting filings typically take about 1 week. Those charges also vary by state.

After Incorporation – The Next Steps –
After your corporation is formed, an organizational meeting of directors must be held. At this meeting bylaws are adopted, stock is issued and the incorporation process is completed. Minutes of the organizational meeting should be kept in a corporate record book.

Why Incorporate?
Provided by Business Filings Incorporated (

Incorporation is an important step in the life of a business, but unfortunately the true value of incorporating a business is often not seen until the business faces a negative situation such as a law suit or bankruptcy. A primary advantage of incorporation is the limited liability the corporate entity affords its shareholders (owners). Typically, shareholders are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder to pay debts of the corporation. In a partnership or sole proprietorship the owner’s personal assets may be used to pay debts of the business.

Other advantages –

  • A corporation’s life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell their interest the corporation will continue to exist and do business.
  • Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.
  • Ownership of a corporation is easily transferable.
  • Capital can be raised more easily through the sale of stock.
  • A corporation possesses centralized management.

Corporations are not without disadvantages. The primary disadvantage to a corporation is double taxation. Profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. They are taxed first as income to the corporation, then as income to the shareholder. All reasonable business expenses such as salaries are deductions against corporate income and can minimize the double tax. Further, the double tax can be eliminated by making the S corporation election with the Internal Revenue Service.

Other disadvantages –

  • There is a certain level of complexity and expense of forming a corporation.
  • Corporations have extensive record keeping requirements.
  • Operating a corporation across state lines requires the corporation to qualify to do business in the other state.

Both the Limited Liability Company (LLC) and S corporation also provide the limited liability to the owners/shareholders of the company, without the potential disadvantage of double taxation. While like corporations these two entities also have advantages and disadvantages, it is a good idea to learn about all three when deciding what form your business should take.

Provided to you by Business Filings Incorporated Business Filings Incorporated is the Internet leader in providing incorporation services in all 50 states and internationally. We incorporate businesses, form Limited Liability Companies as well as nonprofits.

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