How to form a corporation
In the business world, a corporation is something entirely separate from its owners. To form a corporation, there are specific steps the business or organization must take which is known as incorporating. A business or organization may decide to form a corporation for any number of reasons including potential tax advantages and the ability to raise money by selling stock, but the greatest advantage may be to divert any personal liabilities. Forming a corporation is simply a formal process that has both advantages and disadvantages.
To form a corporation, the business will need a name that can legally be registered with the state where the business or organization is located. The state’s specific government office will require the owner to file forms, known as articles of incorporation, and will subsequently charge a filing fee. The actual process and fee will vary depending on the state’s laws and fees of $100 to $800 are typical.
An organization that has formed a corporation will need to be sure to comply with state and federal business laws. Usually, a board of directors will have to be formed and the initial board members appointed. The board of directors’ first job will be to create corporate bylaws - the set of rules that will govern how the corporation will do business and be managed.
In many cases, it is in a business’s best interest to form a corporation, especially when experiencing growth. Even though a corporation can be formed without an attorney, it may be in the owner’s best interest to discuss the different interpretations of the law and how they will affect the business once it becomes a corporation. It is especially important to understand the tax laws as they are applied differently to corporations than individual proprietors, especially where stock options are concerned.