Incorporating your business is probably one of the first thoughts that may come up in your mind when planning to start any new business; real estate dealing, a self-dependent contractor ship or merely owning small startup. Incorporation primarily means establishing a corporation, a limited partnership or a limited liability company, which are separate individual entities to ensure profits and even security to your profits. Wondering how? Well, it is more or less a legal body that defends the owner from being held responsible for corporate debts and incumbencies, of course within certain limitations.
Now, the question which might be arising in every novice entrepreneur’s mind, especially the ones who have started taking baby steps in their field, is if establishing a corporation would be of any benefit?
Well, it depends on the constitutional basis of your business type and its chances of growth. Corporation ownership allows hitch-free transfers among owners if they change, attracts external investing bodies, and has the capability of existing even after the founders decline.
This, however, does not define explicitly enough if and how you need to incorporate; hence it is important that you should strive to learn the limitations of these business entities as well, just like you do when discovering the benefits. Here are few suggestions that might be of help for you before establishing any relevant body that will address the setup’s business needs.
1. Corporation demands funding
Unlike a sole proprietorship or any simple partnership, incorporating demands a certain cost to set up, diffuse or fully dissolve a corporation or any entitled business entity (Limited liability Company or limited partnership).
In fact, its maintenance, involving additional recordkeeping and annual supportive materials for reporting, does stretch the budget even higher. One should consider the cost factor at the time of commencing a small set up, as the expenses may overweigh the pros of incorporating. Also, inquire about the money the taxation aspect with any accountant before you decide to incorporate.
2. Maintenance Care Required
Though incorporation lightens certain demanding responsibilities of a businessman but you cannot ignore the corporation completely after setting it. Once the structure of the respective entity is constructed, it will require some management regularly, demanding proper attention, care, and workings.
Establishing a corporation can be compared to keeping a unique, luxurious car which will be obviously fun to drive for the first few days, but then would also ask for regular maintenance. Also, as you can hire some mechanic to visit your car for a regular check up, many business owners believe that they can appoint an attorney or service for setting up and running a corporation. Yet, before taking any steps further, it is highly advisable that you probe every minute detail and learn about the binding nature that is part and parcel of incorporating a business.
3. Do some groundwork before finding the most knowledgeable Professional
As all professionals and firms are not alike, which one should you choose matters. Perhaps, one of the most challenging steps before setting up a company is to see if the individuals (attorneys, accountants) whom you are relying on are actually capable of handling your kind of business.
Browsing (online or reading) for and about the relevant state laws, corporation-like entities, and answers to the questions that might pop up in accordance with your business could be of immense help. It will not only provide you with sufficient knowledge about the multiple steps that are involved in the incorporation process but will also enable you to evaluate any concerned professional for his skills and level of understanding about entrepreneurship.
A little homework done prior to the venture can prevent you from the extra financial and time expenditures as well. For example, you can make an accountant’s job much easier by understanding and applying the knowledge for tax returns or IRS requirements yourself.
4. Preparing articles of Incorporation
Every state has a certain set of rules for incorporating a business, from setting business names and addresses to preparing the articles of incorporation; listing down names of incorporators or decision makers.
Incorporators can be one or more depending on the business size and investors. An incorporator is basically the person whose job ends after signing and filing the articles of incorporation and selection of the board of directors; they are the one’s setting the corporate goals and policies.
Gaining all the relevant information including appropriate background knowledge and ideas of how exactly things work in your state before deciding to incorporate is of immense significance.
5. Personal Wealth may or may not be protected
Paul DeLauro, a Beverly Hills-based senior vice president and manager of wealth planning for City National Bank says “The entire genesis of corporate law was to allow people to go into business without the fear that the failure of the business would lead to the collapse of one’s personal finances”.
This explains that the main reason behind establishing a corporation for many could only be asset protection by paying more cost for the paperwork. But, despite this, there are no guarantees as some entrepreneurs fail to pay heed to the laid condition of not mingling personal assets with business capital.
For situations of any fraudulent legal allegations, you may late hear the argument against you that the owner did not respect the corporate rules at the time of contingency.