Incorporation

The Basics Of Incorporation

Incorporation is the process of creating a legal entity with a separate juridical personality. This separate entity - the corporation - is recognized by law as a person separate and distinct from the people creating the corporation. The corporation is therefore a fictitious "person" - albeit with real obligations. In particular, the corporation has its own tax duties separate from its investors or owners.

Types of Corporation

The juridical entity or corporation may take several forms. The types of corporation vary depending on the rules of the country, state or territory where it is incorporated, but basically, a corporation can be profit or non-profit oriented. Its nature can also be social, religious, political, charitable, and educational. There are government corporations; they are with or without their own charter.

Usual Procedure for Forming a Corporation

A corporation comes to life after the issuance of the Secretary of State of the corporation certificate. The process of incorporation is similar in almost all states although, there are variations in incorporation requirements.

Typically, the process includes the filing of the Articles of Incorporation which lists the purpose of the entity being created, the names of incorporators and their addresses, the principal place of business, the total number of shares of stock, and the number of subscribed stock as well as paid-up capital stock.

The filing fees vary with each state and could range from $20 to $1000. The corporation shall also file its by-laws with the Secretary of State. The by-laws include all of the corporation's policies and procedures - date of annual meeting, manner of voting, rights of stockholders, and other details necessary to the corporation's operation.

A corporation could either be a C corporation or an S corporation. The taxation for these two types of corporation varies. The C corporation is taxed at two levels while the S corporation is taxed only once as an entity separate from its incorporators. Some states do give tax exemptions to non-profit corporations. Corporation taxes, however, are usually at a much lower rate than individual taxpayers'.

Why Incorporate?

There are a lot of benefits that you could get out of creating a corporation. One of these benefits is the financial protection that it can give you. In a corporation setup, the stockholders or officers of the corporation are only liable to the corporation's creditors up to the extent of their share in the corporation. Thus, if the corporation is involved in a lawsuit or a bankruptcy procedure, the personal assets of the corporators are safe from court levy.

Corporators can also transfer their shares to the corporation without having to secure the consent of all the other corporators. The state laws vary in terms of requiring recording of the transfer before it could be legitimately recognized by the corporation. Some states require recording of the transfer in the corporation books while other states do not require uh a procedure. This corporators' right of transfer is another benefit that one can get from a corporation.