The physical process of filing for incorporation simply requires a business owner or controlling group to submit the proper paperwork and pay the filing fee within their respective state. Filing for incorporation first requires that the business elect a board of directors to decide how the controlling interest within the company will be split. Once that step is completed, the legal documents and the corporation name, the business address, and the reasoning behind the formation of the corporation can be submitted to the US Secretary of State for approval. If the application is accepted, additional questions may be asked to determine stock information, controlling parties, and other information. After the paperwork is resubmitted and accepted, a certificate of incorporation is issued by the local authority.
A common mistake when filing for incorporation is confusing the business name with the corporation name—these are normally two separate titles, and each corporation name must be unique within the state. For example, there may be hundreds of a certain restaurant chain within a given territory, but each one owned by a separate owner would have a different incorporation name. Also, the same corporate tax identification number would be used for each additional business opened by that company. Some corporations own many different types of businesses, so choosing this method limits the paperwork required after the initial application.
Others may decide to have separate incorporations within each of their businesses to limit their overall liabilities when some of them are more profitable than others. Business owners must decide before filing for incorporation which companies will be included as assets, and this decision will affect both future tax filings and stockholder potential. Many investors would prefer to support small, specialized incorporations that do not have excess liability from numerous businesses, so this decision is often critical when it comes to a future stock offering.
It is also important to research the different types of incorporation since each of them will have numerous benefits and limitations. A Shareholder Corporation (S Corp), for example, is designed for businesses that pay out dividends to a group of individuals who have invested in the company, and businesses filing for incorporation under this title are able to pay the shareholders without the income being essentially taxed twice. Forming a Limited Liability Company (LLC) offers many of the advantages of an S Corp, but also provides protection to the business owner’s assets, making it a smart choice for smaller companies that have a sole owner or a small partnership. Choosing the right type of incorporation will ultimately decide the amount of protection that the controlling interests have within the company, so it is not a decision to be taken lightly.
