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Incorporating a Small Business
Prepared by the
Office of the General Counsel
U.S. Small Business Administration
Summary
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 does not discuss the advantages and disadvantages of
the corporate form; its purpose 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 among
States. Detailed information about the requirements of your State can be
obtained from the secretary or other official designated to supervise the
granting of corporate charters.
Choosing the Location
The majority of small and medium-sized businesses, especially those whose
trade is local in nature, find it advisable to obtain their charter from
the State in which the greatest part of their business is conducted.
Out-of-State, or "foreign," incorporation often results in the additional
payments of taxes and fees in another jurisdiction. Moreover, under the
laws of many States the property of a foreign corporation is subject to
less favorable treatment, especially in the area of attachment of corporate
assets. This legal difference could prove especially hazardous to a small
business.
On the other hand, you should look into possible benefits to be gained from
incorporation in another State. Such factors as State taxes, restrictions
on corporate powers and lines of business in which a company may engage,
capital requirements, restrictions upon foreign corporations in your State,
and so forth should be taken into consideration in selecting the State of
incorporation. For example, you should be aware that some States require a
foreign corporation to obtain a certificate to do business in their State.
Without such certification the corporation may be deprived of the right to
sue in those States.
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