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If you are the owner-manager of a small business you may have been wondering about the advisability of incorporating your business, particularly if you are seeking equity capital. This Management Aid is to acquaint you with some of the basic steps involved once you have decided to incorporate. This Aid is not to be considered a substitute for professional advice. Legal guidance will insure that(a)the articles of incorporation and the bylaws are tailored to the needs of your particular business enterprise, (b) you understand the various aspects of the tax obligations involved, and (c) you will be in compliance with the State, local, and Federal laws affecting the corporation. Laws governing the procedure for obtaining a corporate charter vary amont States. Detailed information about the requirements of your State can be obtained from the secetary or other officials designated to supervise the granting of corporate charters.

Choosing the Location: You can incorporate your business in your own state, or out-of-state. You can look into the benefits that can be gained from incorporating in another state. For example, you should be aware that some States require a foreign corporation to obtain a certificate to do business in their State. The fee or organization tax charged for incorporation varies greatly from State to State.
Generally, the first step in the required procedure is preparation, by the incorporators, of a "certificate of incorporation." Most States will require that the certificate be prepared by three or more legally qualified persons, but the modern trend is to require only one incorporator. An incorporator may, but not necessarily must, be an individual who will ultimately own stock in the corporation. Many States have a standard certificate of incorporation from which may be used by a small business. Copies of this form may be obtained from the designed State official who grants charters and, in some States, from local stationers as well. The following information is usually required: The corporate name of the company, the purpose for which the corporation is formed, the length of time for which the corporation is being formed, the names and addresses of incorporators, the location of the registered office of the corporation in the State of incorporation, the maximum amount and type of capital stock which the corporation wishes authorization to issue, the capital required at time of incorporation, the provisions for preemptive rights, it any, to be granted to stockholders and restrictions, if any, on the transfer of shares, the provisions for regulation of the internal affairs of the corporation, the names and addresses of persons who will serve as directors, and the right to amend, alter, or repeal any provisions contained in the certificate of incorporation. Next, the stockholders must meet to complete the incorporation process. The bylaws of the corporation may repeat some of the provisions of the charter and State statute. Special Tax Laws: you may consider adoption of a plan under a section of the (IRC 1244) that grants ordinary rather than capital treatment of losses on certain "small business stock." You should also be aware, fo the possibility of electing subchapter S status (IRS 1371-1379). The purpose of subchapter S is to permit a "small business corporation" to elect to have its income taxed to the shareholders as if the corporation were a partnership. If your business is at present a sole proprietorship or partnership, you will need to secure a new taxpayer identification number and umemployment insurance account. You should find out in advance whether present licenses and leases will be transferable to the new corporate entity.