A corporation is a legal entity that is entirely separate and distinct from its owners. Also occasionally called a legal person, corporations still enjoy most of the rights and responsibilities that are granted to individuals in this country.
Corporations can enter contracts on their own, loan and borrow money in their own name, sue and be sued, and hire employees. Corporations also own their assets and are independently responsible for paying their taxes.
How Do Corporations Work?
Corporations function as their own legal entity, but they still need some management. After all, a corporation can’t sign its own checks, calculate its own taxes, or manage its own investments. Corporations also certainly can’t form themselves, so you need to know what you’re getting into if you’re thinking about starting a corporation.
What is the Process like to Start a Corporation?
It’s not difficult to start a corporation, but it’s important to make sure you’re following the right process to start your corporation.
File Articles of Incorporation
Corporations are started when a group of shareholders file articles of incorporation. You can file articles of incorporation as a sole shareholder, or with a group of shareholders
These forms generally include all the basic information about the corporation. That includes the name of the new corporation, its address, the agent for service of process, and the amount of stock to be released by that corporation.
Flexible Tax Management
Because LLCs are created under State governments, they have a lot more options when it comes to federal taxes. They can be taxed as sole proprietorships and S or C corporations. If you have multiple members in your LLC, you can also choose to have your LLC taxed as a partnership depending on which tax structure gives your business the most advantages.
You can also form an LLC anonymously, which can help keep your connection to the LLC out of public view. Of course, your bank and the government will still know that you’re connected to the LLC, especially if you’re the sole member of that LLC. But it will make things a little easier to maintain your privacy and keep your personal life separate from your business life.
Having an LLC can also make your business appear more professional and trustworthy to other businesses and their representatives. It’s a good way to indicate that you are serious about what you’re doing and that your company is trustworthy.
How to Form an LLC
Choose a Location
The first step to forming an LLC is to choose where your LLC will be registered. Generally, you'll form your LLC in your home state since that's where it will be active. However, if you're planning to operate your LLC in multiple states you have a choice of which state you want to register in. Some states are more popular than others based on their regulations surrounding LLCs. Here are some of the most popular options:
- New Mexico
Choose a Registered Agent
As an LLC you are also required to have a registered agent who will receive mail and information on behalf of your LLC. They are also critical for receiving notice if your LLC has been sued and to receive other critical notifications.
These agents are also known as your statutory agent or resident agent.
Your agent is required to have an address in the state your LLC is registered. Most LLC’s use a member or employee as their registered agent, but you can also use a company that offers registered agent services instead.
Choose a Name
You also need to choose your LLC's name. While the exact requirements can vary from place to place, almost every state has these two requirements:
- Your name must be unique to you, you cannot register a name another business is already registered under in the same state.
- You must include a variation of Limited Liability Company or LLC in the name, usually at the end.
Your LLC’s official name doesn’t have to be the name you use in public in every state. Some states will also allow you to register a separate Trade Name that you use in your day to day business dealings.
Operating agreements aren’t required in every state, but it’s always a good idea to have one. Your operating agreement covers all the details about how your LLC should be run, including management style, leadership, and any other management details.
Articles of Organization / Formation
You’ll also need to file Articles of Organization with your state, usually with the Secretary of state, the Division of Corporations, or your state’s equivalent. Every state uses a slightly different form, and some states may also call their form something different. These forms declare your LLC and register with the state so that you can start doing business. It’s also a way for the state to track your business and make sure you’re paying the appropriate state taxes for your kind of business.
Who Should Start an LLC?
Starting an LLC is a good idea for anyone with a small business, a side business, or even a profitable hobby. Since the main purpose of the LLC is protective, they can help keep your personal assets secure while you’re pursuing your entrepreneurial dreams.
Who is an LLC best for?
First, let’s talk about who an LLC isn’t for. LLCs cannot be formed to help shield you from the losses associated with a less than a profitable hobby or side business. If you flip cars, but usually put more money into each vehicle than you get out of it, then you probably won't qualify for an LLC.
But an LLC might be a good option for a professional makeup artist who consistently brings home money and works for themselves.
LLCs might also be a good option if you’re looking to start a business and don’t mind investing some of your money as starter funds into accounts to get your LLC started.
Articles of Organization / Formation
What is the purpose of forming an LLC?
Can I file for an LLC on my own?
What must be filed to form an LLC?