ContractsCounsel Logo

Incorporation: What You Should Know

Updated: March 28, 2023
Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 9,832 reviews
No Upfront Payment Required, Pay Only If You Hire.
Home Blog Incorporation: What You Should Know

Jump to Section

What Is Incorporation?

Incorporation is the process of legally forming a company or corporate entity and separating it from the entity's owners. The result of the incorporation process is a corporation, a legal entity that separates a firm's income and assets from its investors and owners.

ContractsCounsel Incorporation

Image via Unsplash by wocintechchat

There are three common corporate structures:

  • C Corporation: C corps have no limit on the number of shareholders. You'll be taxed on shareholder dividends and corporate profits, and you need to hold annual meetings.
  • S Corporation: These types of corporations give shareholders liability protection. Additionally, shareholders gain tax breaks that are not available with other business structures.
  • Limited Liability Corporation: LLCs allow members to report profit or loss on individual tax returns. As a result, LLCs sidestep double taxation in terms of corporate profit.

Different Types of Corporate Structures

If you're incorporating your business, you should consider which type of corporation to choose.

S Corporations vs. C Corporations

S and C corporations vary in how they are taxed, how they are owned, and how shares work.

S corporations:

  • They are taxed once, and only the shareholders pay taxes on profits received.
  • They are limited to 100 shareholders, and these shareholders must be U.S. citizens or residents.
  • They offer only common stock to owners, which comes with voting rights.

C corporations:

  • They are taxed twice. The business pays taxes once at the corporate level, and shareholders pay taxes on income they receive.
  • They do not have limits on how many people can own shares, nor do they place limitations on who can own the shares.
  • They may provide owners with preferred stock. Preferred stock does not include voting rights but will give them priority of dividends before common shareholders.

LLCs vs. S and C Corporations

LLCs are similar to S and C corporations, but they offer more flexibility when it comes to taxation and management. They also don't usually have as many requirements in terms of recordkeeping. Instead of shareholders, LLC owners are known as members. Each member owns a percentage of the business, and restrictions almost always come into play when transferring these membership interests.

Here's an article to give you a better understanding of LLCs.

Corporations offer predictable structure and make transferring shares easy. These factors can be important for companies seeking outside investors.

How Does Incorporation Work?

Corporations are the most widely used method for business operations around the world. Legal details about how a corporation forms, as well as a corporation's organization, can differ between jurisdictions. However, most corporations have certain elements in common, including:

  • Incorporation is the way a business is officially brought into existence and formally organized.
  • They require articles of incorporation, a set of legal documents that enumerate the shareholders of a firm along with other important information.
  • They have limited liability, which keeps a business's assets and cash flow separate from the assets and cash flow of owners and investors.

Incorporation offers a variety of benefits for a business and its owners, including:

  • Achieving a lower tax rate than the rate on personal income
  • Allowing for the easy transfer of ownership to another party
  • Gaining the ability to raise capital through stock sales
  • Protecting the assets of the business owner against company liabilities
  • Receiving more lenient tax restrictions on loss

Advantages of Incorporation

Incorporation creates what is often called a corporate veil to protect a company's directors and shareholders. This corporate veil is essentially a protective bubble of limited liability, which allows businesses that incorporate to take risks that enable growth. Incorporated businesses can take these risks without exposing owners, directors, and shareholders to personal financial liability beyond their original investments into a company.

In order to limit the liability of shareholders, corporations must be properly formed, capitalized, and operated. This includes having the appropriate annual meetings for both directors and shareholders. With proper management, shareholders can only lose their investment in stock in situations where a corporation is unsuccessful or held liable for damages through a lawsuit. Shareholders cannot lose personal assets because of corporate liabilities.

Creating and Organizing Corporations

The process of incorporation includes drafting what is known as "articles of incorporation." These articles list:

  • The primary purpose of a business
  • A business's location
  • The number of shares/class of stock issued, if any (a closed corporation does not issue stock)

Here is further reading about articles of incorporation.

Shareholders own companies. A small company might have just one shareholder, while a large, publicly traded company can have thousands of shareholders. Shareholders are only responsible for paying their own shares. As shareholders are owners, they are entitled to get the profits of a company. These profits usually come in the form of dividends.

Additionally, shareholders elect a company's directors. These directors deal with the daily activities of a company, and they must act in their company's best interests. Shareholders typically elect directors annually. A small company may have one director, while a larger company often has a board made of up of many directors. Directors do not have personal liability for a company's debts, except regarding specific tax statutes or in cases of fraud.

Steps to Incorporating a Business

If you are planning to incorporate a business as either a C corporation, S corporation, or LLC, you need to follow a few steps:

  1. Choose where you want to incorporate your business.
  2. Determine which type of structure fits best with your business goals. By consulting with an attorney or an accountant, you can make a more well-informed decision for you and other stakeholders.
  3. Decide who the directors of your corporation or who the members/managers of your LLC will be.
  4. Select your registered agent. A registered agent is appointed to receive important tax and legal documents on behalf of a business and must be listed on the articles of incorporation/articles of organization. Owners are often registered agents.
  5. Determine the business licenses that your corporation requires. For example, if you plan to hire employees, you need payroll tax registration, and if you plan to sell goods, you need sales tax registration.
  6. Prepare and then file the articles of incorporation/articles of organization, following instructions from the appropriate agency in your state.

Forms, Taxes, and Requirements

Corporations must file Form 1120 with the IRS. Corporations also have to pay their own taxes. While salaries paid to shareholders who are also employees are deductible, dividends paid to shareholders are not deductible. Therefore, these dividends do not reduce a company's tax liability.

A corporation must conclude its tax year on December 31 if income is derived primarily from personal services provided by shareholders, such as:

  • Business consulting
  • Dental care
  • Legal consulting

Certain additional requirements may vary based on the size of a corporation:

Small Corporations

Shareholders of a small corporation must prepare and sign a buy-sell agreement. This type of contract stipulates that stock must be offered first to surviving shareholders if a shareholder dies or wants to sell the stock. These contracts also often provide a method that determines the fair price for those shares. Life insurance generally funds the purchase of stock of a deceased shareholder.

If a corporation only has a few shareholders, the responsibilities of these shareholders can just be defined in corporate minutes.

Large Corporations

A large corporation that sells shares to many shareholders may need to register with the U.S. Securities and Exchange Commission or with state regulatory bodies.

Work with a trusted lawyer when you're ready to take the next step and incorporate your business.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Alan B. on ContractsCounsel
View Alan
5.0 (1)
Member Since:
November 25, 2023

Alan B.

Business Attorney
Free Consultation
Tulsa, OK
10 Yrs Experience
Licensed in MO, MS, OK
University of Tulsa College of Law

In my professional career, I have been a commercial litigator practicing nationwide, in-house counsel at publicly-traded and start-up companies, a private transactional attorney, and a registered lobbyist. With my broad experience, I focus my practice on transactional and regulatory matters for new and existing businesses. I work comfortably in-person and remotely, and I am available for travel, as necessary.

Daniel K. on ContractsCounsel
View Daniel
5.0 (2)
Member Since:
October 11, 2023

Daniel K.

Managing Partner
Free Consultation
Los Angeles, CA
14 Yrs Experience
Licensed in CA
UC Berkeley School of Law

I graduated from Yale University magna cum laude, served as a Fulbright Scholar in Italy and attended UC Berkeley School of Law. In 2023, I was named a "Legal Visionary" by the Los Angeles Times. I have broad experience in corporate transactions and in serving as outside general counsel to clients. I started my legal career in Silicon Valley and Hong Kong working on large equity and debt financings and matters for private wealth clients. After returning home to Los Angeles, I advised startup companies with formations, acquisitions and day-to-day matters such as sales contracts and licensing. More recently, I have focused on data, IT and SaaS contracts for both providers and customers. My clients include NASDAQ-listed companies, a top ranked children’s hospital and local startups.

Casey B. on ContractsCounsel
View Casey
5.0 (1)
Member Since:
October 16, 2023

Casey B.

Free Consultation
Atlanta, Georgia
6 Yrs Experience
Licensed in GA
Mercer University, Walter F. George School of Law

I have a Juris Doctorate degree from Mercer Law School, and I am an active member of the Georgia State Bar Association. I have spent the last eight years reviewing, drafting, editing, and negotiating hundreds of contracts on a monthly basis, working in-house for a Fortune 500 company. I am a results-driven, self-motivated, experienced contracts attorney with exceptional drafting, research and communication abilities.

Michelle T. on ContractsCounsel
View Michelle
4.9 (12)
Member Since:
October 10, 2023

Michelle T.

Business Lawyer
Free Consultation
Alexandria, VA
19 Yrs Experience
Licensed in TX, VA
Florida State College of Law

I am an experienced, well-rounded attorney with a background specializing in trusts and estates, contracts and business law. I have extensive experience working with simple contracts all the way up to multi-million dollar deals.

Angela P. on ContractsCounsel
View Angela
Member Since:
October 4, 2023

Angela P.

Free Consultation
21 Yrs Experience
Licensed in NY
New York Law School

I am an experienced New York Real Estate Attorney and Florida Licensed Title Agent with extensive knowledge in the Real Estate industry. With more than 20 + years and over 2500 closed transactions, I have become an expert at accurately assessing realtors', lenders' & investors' needs and proposing/implementing viable solutions that bring value to them. I focus on real estate settlement services, education, and training of real estate professionals. I am also skilled working with high-end clients, managing large and complex projects, building solid relationships, effectively and creatively solving complex issues, producing results under stress all with impeccable customer service.

Melissa T. on ContractsCounsel
View Melissa
Member Since:
October 5, 2023

Melissa T.

In-House Counsel
Free Consultation
Tustin, CA
12 Yrs Experience
Licensed in CA
Whittier Law

Having more than ten (10) years of experience in commercial law, I have garnered both relevant in-house and law firm experience. With more than a combined seven (7) years in-house experience, I have gained valuable insight in balancing the business needs with the legal risks and applying the legal skills I have acquired to various fields. I have specific experience with SaaS, vendor contracts, customer contracts, and general marketing agreements. Moreover, my law firm background has taught me to be detail-oriented and to be an effective negotiator in all types of commercial dealings.

Melody P. on ContractsCounsel
View Melody
Member Since:
October 5, 2023

Melody P.

Managing Partner / Owner
Free Consultation
Williamsport, PA
19 Yrs Experience
Licensed in PA
Duquesne University

I have been practicing law since 2005 and am licensed in the state of Pennsylvania. I started in Pittsburgh, PA and then moved to Williamsport in 2007 where I have practiced family law almost exclusively since. I am the managing partner /owner of Protasio & Jasper, P.C. I have had multiple Pennsylvania Supreme Court family law cases that have changed the law in Pennsylvania. I pride myself on being able to arm clients with information so that they can make informed decisions about their case.

Jessica G. on ContractsCounsel
View Jessica
Member Since:
October 10, 2023

Jessica G.

Free Consultation
Las Vegas, Nevada
8 Yrs Experience
Licensed in NV
William S. Boyd School of Law

Nevada Attorney with experiences in outside general counsel representation, contract drafting, and civil litigation.

Robert N. on ContractsCounsel
View Robert
Member Since:
November 21, 2023

Robert N.

Attorney & Counselor at Law
Free Consultation
Virginia Beach, Virginia
28 Yrs Experience
Licensed in VA
Chicago Kent College of Law

I'm an experienced practitioner with a diverse practice which includes civil and criminal litigation in state and federal court, personal injury, immigration, breach of contract, and entertainment law.

James D. F. on ContractsCounsel
View James D.
Member Since:
October 12, 2023

James D. F.

innovative Counsel [iC]℠
Free Consultation
Sydney, Australia
11 Yrs Experience
Licensed in CA
Queensland University of Technology

Unique Hybrid Background ➲ Deep Legal, Tech & Commercial Experience More by pure chance than design, I arrived late in life to pursue a career in law. My background spans more than 3 decades across Information Technology, entrepreneurship & the legal profession supporting my claim to being a 'Deep Generalist'. What is a 'Deep Generalist'? 'The professionals who develop into really great client advisors are deep generalists.' Quote from Warren Bennis. From 2013 I worked for established boutique property, finance & commercial law firms + an award-winning #newlaw firm of senior lawyers (formerly Nexus Law Group, now merged with before founding my digital law firm Blue Ocean Law Group in 2017. I also worked part-time for 2 years as a freelance online expert across all aspects of Australian Law with JustAnswer (H.Q. in San Francisco) and volunteered at the Caxton Legal Centre to give back to the community. Now I offer pro bono (free) legal assistance at my discretion. My achievements in the law are best reflected in the high number of settlements where civil litigation has been avoided, court judgements (incl. successful appeals) in my clients' favour & [90+] testimonials which can be seen on the [700+] page website which offers tons [585+] of both free & paid innovative legal products & resources. My personal experience as a client on the other side of legal matters affords me a unique perspective and goes some way to explaining my passion for the reinvention of the delivery of legal services. I am an early adopter of technology + gadgets, an avid reader and an animal lover. In January 2023, I joined the IAPP – International Association of Privacy Professionals and became a Certified Information Privacy Professional – United States by gaining the highly valued gold-standard ANSI-Accredited CIPP/US credential. I followed this up in August 2023, by obtaining the Certified in CyberSecurity qualification form ISC(2). Pre-Law Background From 1992 to 2002, I worked for Accenture as an IT Project Manager across APAC (including long-term project assignments in New Zealand & Singapore). I started a small business side hustle in 1997 and in 2003 I left Accenture to become a full-time entrepreneur in the transport industry. I later expanded into the mezzanine property development finance market as well as venturing into small-scale property development.Unique Hybrid Background

Kchris G. on ContractsCounsel
View Kchris
Member Since:
October 15, 2023

Kchris G.

Associate Attorney
Free Consultation
Norman, Oklahoma
4 Yrs Experience
Licensed in OK
Oklahoma City University School of Law

My name is Kchris Griffin. I am an licensed attorney practicing Family and Civil Law in Oklahoma. My goal is to help those in need with receiving efficient and effective legal services.

Find the best lawyer for your project

Browse Lawyers Now

Need help with a legal contract?

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

See All Corporate Lawyers
See All Incorporation: What You Should Know Lawyers
Learn About Contracts
other helpful articles

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city