What is a Corporation?
A corporation separates your business assets from personal assets, establishing the company as a separate legal entity. This comes with the benefit of limited liability, distinguishing it from a sole proprietorship or simple partnership. However, forming a corporation is more complicated and expensive because paperwork must be filed with the Secretary of State.
How to Start a Corporation
Starting a corporation is achievable in several steps:
- Obtain an Employer Identification Number (EIN)
- Choose a company name and address
- File incorporation paperwork with the state
- Hold your first board meeting
- Get a separate tax ID number
Ownership and Management
Corporations are owned by shareholders who possess common stock representing their ownership. Entrepreneurs can opt to form One Person Corporations (OPCs), which allow combining the control of a sole proprietor with the limited liability of a corporation.
The Incorporation Process
To incorporate, you must:
- Choose a business name
- Appoint directors and necessary officers
- Decide on the number and type of shares to issue
- Obtain a certificate of incorporation
- File the necessary paperwork with authorities
Pros and Cons of Incorporating
Advantages include protecting personal assets, making it easier to access capital, and shielding shareholders from corporate debts. However, corporations face certain disadvantages such as double taxation, higher costs, and more complex reporting requirements. Despite losing some owner power to shareholders and directors, corporations remain a popular structure for large businesses due to their ability to raise capital while limiting personal liability.