Thinking about Business Incorporation

by: Lindsay Rife

Ever thought about the gender of an oyster? What about business incorporation?

Me neither.

But again I’m here to conquer one of the questions with you—what exactly is a corporation, how does one go about incorporating a business, what’s the next step, and most importantly, why should we care?

But figuring out business incorporation is no small feat. Baby steps are necessary here—so let’s start with the basics. My young-and-inexperienced preconceived notion of a corporation basically depicts powerful guys in expensive suits who spend a lot of time in an office ordering their co-workers around. I think I’m wrong, though. I’ll show you why.

Again we come in contact with this concept of limited personal liability for business debts when considering a corporation. One must be organized to the hilt in order to tackle the creation and handling of a corporation, seeing as the corporate tax return is complicated, and strict abiding by corporate procedures is necessary in order to keep that limited liability.

Let’s go over this whole limited liability thing again. To sum it up in one sentence, only a corporation’s assets are used to pay off its business debts, so the owner can only lose the money he or she has invested in it. Basically, the creditor has zero permission to seize the corporation owner’s personal property—as in a car or a home. Pretty decent concept, huh?

But there are exceptions. A corporation owner can be held personally liable if he or she does not keep corporate business and personal business separate or deposit taxes withheld from employees’ wages, acts illegally, directly injures someone, or, seemingly most importantly, fails to follow routine corporate procedures.

How are corporations taxed, you ask? I learned that paying corporate income tax is rather unique—while corporation owners file and pay an income tax on their personal tax returns (just like regular employees), the corporation itself files its own. The corporation pays taxes on remaining profits following paying out all salaries, bonuses, overhead, and whatever else, and files Form 1120, its own tax return, with the IRS. It pays at a special corporate tax rate. There is also “S Corporation” status, but that’s a subject to tackle another time.

I also learned that a concrete liability insurance policy is highly suggested for corporation owners. It guards corporate assets from lawsuits, and provides protection where limited liability does not. Incorporating minus insurance equals risky business!

Now what exactly is incorporation? According to the dictionary, it is the act of forming a legal corporation. Simple enough, right? Only if you’re in the right hands. And you are; look around to learn how to incorporate your business online!

I’m 18 years old and I get to choose a career from scratch. One day I may ask myself, “Is this right for my business?” You may be in that spot. Business incorporation filings make sense. Establish a company.

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