How to Form a Corporation

A company corporation is a distinct business entity that functions independently, according to the law anyway. You may be the sole proprietor, the business owner, the primary shareholder, the president and CEO. These are all fantastic titles when your business is booming and you’re hauling in tons of profit. However, if the tide turns on you, there could be many liabilities associated with running a business too. You may be dealing with an unscrupulous business partner who suddenly decides to sue you for all your assets. With no delineation between your personal property and your business property, you could wind up with a lien placed on your home, a repossession order for your boat or court-ordered bank account garnishing. This is never what you have in mind when you’re creating a homegrown business, but many California corporations chose to incorporate to protect themselves from being held personally liable for the success or failure of the business. Once you learn how to form a corporation, you will find that the worst thing that can happen is that your business can be sued. Your personal property will remain protected, provided that you weren’t involved in any illegal activity.

The Benefits of Forming a Company Corporation

When you create a C-Corporation, an S-Corporation or a Limited Liability Company corporation, you are declaring a separate entity that can issue shares of stock to shareholder members for profit. When profits are made, you can then return a portion of the capital to the shareholders in the form of dividends. For many small businesses, this form of raising corporate capital is necessary for the survival and expansion of the business. It can seem like a monumental task to raise $100,000 without stocks. Yet once you are incorporated, you’ll be able to sell 25,000 $4 shares to 25,000 individuals world-wide or 2,500 $4 shares to ten local investors to reach your goal. Most small businesses fail because they are under-capitalized and under-funded. While there’s no guarantee that people will want to buy your stock, choosing to form a company corporation is still considered to be the smartest move for an aspiring business professional.

First Step of How to Form a Corporation

At first, figuring out how to form a corporation may seem like a matrix of paperwork. It’s true that becoming a company corporation does take more work than a partnership or sole proprietorship to set up. You’ll need to send in corp filing documents (like the Articles of Incorporation) to your secretary of state’s office, set up a board of directors and outline how the company will be run. You’ll also need to ask an attorney how your new tax structure will be set up, as rules and regulations change depending on the type of business entity you choose and which state you’re located in. Generally speaking, the taxes usually favor incorporation, versus sole proprietorship or a partnership. The first step to get the ball rolling on your new business entity formation is to contact a corporation service company like The Chapter Group to walk you through the process and assist you with all your corp filing needs.