A natural person is one who is born in a land and enjoys the civil rights of the society where he or she is living. Before the industrial revolution, man depended on farms and crafts for a living. The advent of the industrial revolution and the discovery of new lands opened up opportunities for new ways of living. One struggled hard, ventured to form new businesses, employed people and succeeded in the business. Very often, these businesses failed, and the profits or debts were borne by the individual. Furthermore, society had to find to way to regulate these businesses.

These businesses were registered as separate legal entities and enjoyed certain rights as bestowed by the society. They were registered as partnership, proprietorship and corporations. Proprietorship and partnership were limited by the number of people and unlimited liability. Corporations held a greater number of people and limited liability.

The word 'corporation' is derived from the Latin root 'corpus' meaning group of bodies. The businesses founded became a legal entity separate from the founders. There are corporations, limited liability companies (LLC) and non-profit organizations like churches. Even though corporations are founded by a group, it is the corporation that does transactions with the government, other corporations and individuals. The founders have liabilities only to the extent of their investments.

The main benefits to the corporation are limited liability and perpetual lifetime. The corporation lives or continues as a legal entity even after the founders are gone, giving it stability. Furthermore, the corporation enjoys benefits in the form of tax deductions and concessions. Corporations are entrepreneurial in nature. According to an estimate, there were 22.5 million corporations in the United States in 2002. Ninety-nine percent of these corporations are small in nature employing fewer than 500 people.

Why Incorporate

Business is a risky nature. It is also said the higher the risk, the greater the benefit. Discretion is the better part of the valor, as the potential downfall might lead to complete financial failure and recovering could be a mammoth task. It is important to know how much money you should risk, and incorporating a business venture reduces the risk and the personal liability.

There are many advantages to incorporating a business. They are personal liability, tax advantages, anonymity, perpetuity, easier access to capital and transfer of ownership. A Corporation is made up of a group of persons called shareholders. Each has limited investment in the venture. The benefits they accrue is in the form of salaries if they are employees, as well as dividends and capital appreciation if the shares are listed. If the business incurs any loss, the shareholders are liable only for their investments. Their personal assets are protected.

Corporations enjoy many tax advantages when compared to proprietorship and partnership. Many expenses like rents, insurance plans and retirement plans can be claimed for deductions. In proprietorship and partnership, debt is the only way to raise capital. This comes at a higher interest due to unlimited liability. But corporations can raise capital by selling shares and can borrow money from institutions because of the credibility. As ownership is held in the form of shares, it is easy to transfer ownership by selling the shares. Corporations exist on their own by their legal entity status. This makes the corporation live longer and provides the founders anonymity as they are separate from the corporation.

It is important to note that incorporating a business allows for public scrutiny, and the founders have a responsibility to society to file returns properly and follow laws set by the state. It is important to understand that incorporated business is not their alter ego, but a separate legal entity.

Incorporate Business

According to the US Bureau of Census, 550,000 new businesses were formed in 2002. It is not known how many were incorporated. There were approximately 22.9 million businesses in the US. These are small businesses that form the backbone of the American economy. Small businesses represent 99.7% of all employers and create more than 50% of non-farm private gross domestic product.

Most businesses start out small. In the beginning, data reveals that 82% of the small businesses are financed by personal loans or savings and loans from friends and relatives. Hence, when these firms grow large, it is important that easier access to finance from banks and the public is available. Moreover, the owners' liabilities have to be reduced to decrease personal and business risk.

A checklist for starting a business runs like this: select a business structure, choose a tax year, select accounting method and payment of business taxes. The need for incorporation arises if the business structure chosen is either a LLC or corporation. Either of these requires mandatory filing with state authorities. If it is sole proprietorship and partnership, registration is not required, and business activities may begin immediately. In the cases of LLC and corporation, a lot of legal counsel, understanding the filing procedure, tax compliances, formation of business structure as per the type of corporation and the role of management and members are required.

The actual filing procedure is filling out proper forms and handing them over to state authorities where incorporation is done. Filing the papers can be done by hiring the services of an incorporating agency. These agencies file the papers in all the states required and provide some value added services including information of fees and duration calendars that vary from state to state. States like Nevada and Delaware are corporate friendly; therefore, most firms incorporate in either of these states.

How To Incorporate

Hard work, a good business acumen to spot opportunities and a little bit of luck are the key ingredients for success in business. Equally, there are many factors for failure that are out of one's control. Business structure determines the level of risk one is exposed to and is the ultimate facture for the failure of the business. One can choose to be a sole proprietor, partner with others, form a limited liability company or a corporation. The first two need not be registered with the state. The procedure to incorporate a business requires certain steps. One has to decide the type of corporation, name of the corporation, state of incorporation and the filing of the papers.

As the corporation is a separate legal entity, the identification has to be unique. It is essential to check with the authorities as to whether the name for the business already exists. If it exists, some other name has to be chosen. Some names can be appended with the name of the business like XYZ bank. The type of corporation is decided by determining whether or not one has to raise capital through the public, the duration of the corporation, the management structure and control and the type of corporation like LLC or corporation. There is a S form of corporation that has a special tax structure so that double taxation of the income is avoided.

The procedure for filing papers for all types of corporation remains the same. By law, it is required to register the corporation in the state the business is operating. It is also possible to incorporate in one state where the tax structure and other conditions are favorable and operate in another state. For this, the corporation should designate a registered agent with a physical address in the state. This is done to facilitate communication between authorities and the corporation.

Finally ,the incorporation is done by filing papers that contains details about the business along with the registration fees. Usually registration is about $400. It takes some time to complete the process. and if one needs to expedite, an additional fee is required.

Incorporate Online

Businesses can be incorporated online. Incorporation can be done filing papers and handing over the forms to the office of the Secretary of State where they will be incorporated. It can be done by the applicant or by a lawyer. If you chose to do it yourself, online medium offer a fairly easy way. There are intermediaries who will do if for you, but you must keep in mind that they are just service providers and don't offer any legal advice.

There are many of service providers on the Internet who provide incorporation services. The services include filing the papers, providing registered agents for those states where the business is to be incorporated, name checking and final delivery of the documents. The charges include state filing fees that vary from state to state and service and shipping charges. If the incorporation process has to be expedited, the charges are usually higher.

Before filing online, you have to do a lot of homework either by yourself or with the counsel of a lawyer. This includes deciding on the type of corporation -- the most important part of the incorporation process because a wrong choice could lead to business losses. Secondly, you have to decide the states in which to incorporate.

To file, an online form has to be filled out, and once the 'submit' button is pressed, the online registration is over. A form may have to be filled in again, if the name chosen for incorporation is not available. Many online services act as registered agents in different states. Usually the fees are paid by credit cards. The number of days to process the application varies from state to state. The fees vary from $89-$329, plus state fees. Some online service providers offer value added services like compliance services and international services.

Incorporate LLC

LLC (limited liability company) provides the benefits of liability protection and pass through taxation features of sole proprietorship or partnership. Many small business owners prefer this form of corporation as it provides greater flexibility in management. The general characteristics of LLC's are limited duration of existence, no double taxation and member or owner managed business.

LLC's can be incorporated by filing with the state authorities. The general procedure is that of incorporating a corporation. The advantages over a corporation are that there is no need to get the consent of shareholders, no need to issue shares and no need for the board of directors. When selecting the name of the business, it should end with LLC. Since the existence of LLC is limited, the duration has to be mentioned. Since LLC's are run by member-owners, they have their own operating agreement. Once these are decided, the LLC can be incorporated by filing with the state authorities.

LLC's have to comply with state laws and regulations. The tax on LLC is passed on to the members. A Federal Employer Identification Number(EIN) has to be obtained by filing Form SS-4 under IRS, if there is an intent to employ people. There is no need to obtain federal licenses except for certain businesses. Also a sales tax permit must be obtained. To incorporate LLC, one can get the help of a lawyer or an intermediary agency to help file or do it by themselves. Because the LLC lets the income flow through the owner, it doesn't mean that the owner can siphon money to their account. If the state finds this out, the owner will be held personally liable. Running a business is important and equally important is the choice of business structure and the incorporation of it. Hence, it is advised to get counsel from a lawyer before incorporating.

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