A corporation is a legal entity, separate and distinct from its owners. Each state has its own rules and regulations surrounding corporations.
A corporation has the same rights as individuals to conduct business, such as entering into contracts and borrowing money. There are many advantages to incorporating, but there are rules you need to be aware of.
Every state has its own rules for forming and maintaining a corporation, including paperwork, annual filings, and tax requirements. It’s important to get these right from the start so you don’t run into compliance issues down the road.
There are a lot of upsides to incorporating. Along with liability protection, you may also get tax benefits, more credibility with banks and investors, and an easier path to raising money or bringing on new partners as your business grows.
No, a limited liability company (LLC) is a different business entity. Although both offer liability protection, protecting your personal assets from your business liability, they are very different types of business structures.
A corporation is more formal, and as a result it takes more resources to manage. It requires a board of directors, annual meetings, and strict recordkeeping. An LLC is more flexible — fewer formalities, easier to manage.
If you’re raising capital, hiring a lot of employees, or planning to scale fast, a corporation may be the better long-term move.
Each state has its own requirements to incorporate. Generally, you’ll need a business name, board of directors, registered agent, bylaws, shareholders’ agreement, EIN, and beneficial ownership information. You’ll also select your tax election.
Forming a corporation involves more than just filing paperwork though — it’s about establishing the legal and operational foundation of your business. As part of the process, you’ll need to create and adopt corporate bylaws that outline how decisions are made and how the company is governed. You’ll also need to file Articles of Incorporation with the state to formally establish your business as a corporation.
Once formed, a board of directors must be appointed. This group is responsible for setting high-level policies, overseeing key decisions, and ensuring the company follows its bylaws, fulfills its mission, and stays compliant with all state and federal regulations.
There are several types of corporations, each with unique benefits. C-Corps are the default and can be ideal for businesses seeking formal institutional investment. One of the key aspects to be aware of is that they’re subject to double taxation. S-Corps offer pass-through taxation to avoid that, but have restrictions on shareholders and stock classes.
Our Business Success Advisors can help you understand the differences and determine whether you need a corporation and if you do, which type will best suit your needs.
