Incorporation is the process by which a business legally becomes a corporation. By undergoing this formality the company becomes a separate legal entity from its founding or current members and may issue stock publicly.
Once incorporation has taken place the assets and income of the entity become independent from the owner giving them limited liability. This protects owners from legal and financial consequences relating to the business.
Read on to learn more about what incorporation can do for a business and the process of registering a business as a corporation.
How Does Incorporation Work?
Incorporation is a legal process where a brand new business or an existing entity may register as a corporation in its state of operation. This allows owners to enjoy a number of special benefits, such as:
- Limited liability
- The ability to issue stock publically
- The possibility to be taxed at lower rates
- No limits on the lifespan of the business
Steps to Becoming a Corporation
Before a business can become a corporation there are a few steps that must be followed. Owners and operators must perform the following actions to incorporate a company:
- Decide what type of corporation the business will be.
- Create corporate bylaws for the business.
- Name directors who will be entrusted with the corporation’s duty of care.
- Obtain a certificate of incorporation from the state’s corporate filing office.
- Draft the articles of incorporation and submit them to the state.
What Legal Documents are Required for Incorporation?
Business owners must have several important legal documents prepared to ensure the legality of a new corporation. These include the following:
- Articles of incorporation
- Business plan
- IRS Form SS4 (Application for an Employer Identification Number)
- Share certificates
How Long Does Incorporation Take?
The process of incorporating a business is not a lengthy one. In many cases, the whole procedure can be completed within 10 days.
However, the length of the process always depends on the state you are registering the corporation in. In some jurisdictions, it can take as long as 4-6 weeks.