Incorporation Overview

Laws of incorporation in the United States are unique to each state. They are designed to provide rules and regulations for entities that intend to conduct business there. State laws also govern processes by which businesses file for their corporate status. States will specify how many individuals are required to be included in each filing, their roles, how company shares are sold and where company charters are to be filed.

Common Types of Entities

Advantages of Incorporating a Business

Small businesses, in particular, may benefit by incorporating their companies. Rules are in place in order to direct and instruct new businesses on the rules of commerce. The process is designed to protect business owners from legal actions and personal liabilities. Corporations also may benefit from tax incentives that are not typically available for sole proprietors. Incorporating is also beneficial for a company’s credibility and business reputation for prospects, customers and other key business relationships.

Corporate Bylaws

Bylaws pertain to the internal laws of a corporation. They usually take effect as soon as corporations are created. Because they control how a corporation will operate, they can greatly influence the day-to-day functions of the business. All applications for incorporation require a written copy of the company’s bylaws. These may include partnership contracts or limited liability company guidelines. Bylaws can also be used to help define businesses as separate entities. Banks also typically require copies of bylaws during the business loan and financing application process.

Nonprofits

Corporations for nonprofit organizations typically apply to receive 501(c)3 status by filing standard forms with the Internal Revenue Service (IRS). Nonprofit incorporation can still be a complex process due to the many different regulations, rules, requirements and tax implications. Therefore, it is advisable that whoever completes the documentation is thoroughly familiar with local laws and regulations.

Required Documentation

Each state has specific business statutes governing the formation of corporations. Articles of incorporation are comprised of specific statements of purpose that businesses register with the states in which they wish to conduct business. These documents must include:

  • The legal name of the company
  • The general purpose of the business
  • The name of the registered agent to receive service of process
  • A description of the various types and number of shares issued

Companies seeking to incorporate usually find the process to be much easier with the assistance of an experienced business lawyer. An experienced adviser can help minimize the chance that the state will reject submitted documentation due to error.