Are You Considering Incorporation?

If you have a business, you may be considering whether or not to incorporate. In order to properly evaluate whether a corporation is appropriate for your business, it is important to understand the meaning of the term. A corporation is a legal entity created by statute. The law regards a corporation as an entity distinct from its shareholders. The major characteristics of a corporation are: 1) the power to acquire, own and dispose of assets in the corporate name; 2) the power to sue and be sued; 3) a continuous existence, despite the death of individual shareholders; 4) limited liability of the shareholders; and 5) centralized management of assets by director and officers.

The following are types of corporations:
1.    General Business Corporation – In general, the term "corporation" or "domestic corporation" are one with shares formed under the general business corporation law of a particular state.
2.    Closed Corporation – A closed corporation or a closely held corporation is one having: 1) a small number of stockholders; 2) no ready market for the corporate stock; and 3) substantial majority stockholder participation in the management, direction and operations of the corporation. Closed Corporations are often small businesses whose owners want to keep ownership and control in a few hands; the owners may in fact have a partnership relation but desire incorporation to achieve limited liability and potential tax benefits.
3.    S Corporation – Subchapter S of the Internal Revenue Code allows certain closely held corporations to elect to avoid taxation as a corporation, but instead have the shareholders taxed individually or their respective shares of the corporation’s income. Otherwise known as "pass through income".
4.    Professional Corporations – A Professional Corporation is a corporation organized for the sole and specific purpose of rendering professional services (e.g., law or medicine) and which has as its shareholders only individuals who are licensed or otherwise legally authorized within the state to render that professional service.

The first step in the formation of a corporation is the filing of the articles of incorporation with the Secretary of State. The articles of incorporation must state the intent to incorporate, the name and address of the corporation, the purpose for which the corporation is formed, any relevant stock information, and the period of duration of the corporation. The articles of incorporation may also contain any other lawful provisions specified by the incorporators, for example, restrictions on transfer and repurchase of shares. If the Secretary of State finds, after examination of the articles of incorporation, that the articles comply with the legal requirements, a certificate of incorporation will be issued. Upon issuance of the certificate of incorporation, the corporate existence is deemed to have begun.

If you are interested in filing for incorporation or need additional information regarding the formation of a corporation, do not hesitate to contact Mattleman, Weinroth & Miller. We will be happy to assist you.

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