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Forming a New Business Entity

When forming a new business you must choose to operate it as one of the six types of business entities:

1. Sole Proprietorship
2. General Partnership
3. Limited Partnership
4. Limited Liability Corporation
5. "C" Corporation
6. "S" Corporation

There are advantages and disadvantages to each of these entity types. In general, the last two types are the most advantageous. However, "C" and "S" type corporations require more paperwork and general overhead than the other four types of business entities.

Despite the additional maintenance, we believe it is well worth your time and effort to setup a corporation for the following reasons:

1. Protect Personal Assets

By incorporating, you make a distinction between your personal assets and your business assets. If your business is sued, and you are incorporated, in most cases your personal assets will have a degree of protection not afforded under other business entity types.

2. Increase Credibility

An incorporated business exudes a higher degree of professionalism and seriousness of purpose. Potential consumers are generally reassured to know that they are dealing within a legitimately established business with a formal business structure.

3. Tax Deductions

A corporation can reduce its taxable income by deducting any costs that are related to the business in the pursuit of profit. These charges can include operating expenses and advertising costs, as well as the salaries, bonuses, and medical and retirement payments paid to employees.

4. Ability to Raise Capital by Issuing Shares of Stock

If a corporation needs more capital, the owners can issue shares of stock to investors. Capital can be raised in this way whether a company is a startup or is an established firm that is looking to expand.

5. Corporations Are the Most Enduring Legal Structure

A corporation is the oldest legal structure. They are entities that continue even if an owner dies or decides to sell a business. Because of its long history, there is also a wealth of case law to refer to in the event of a corporate lawsuit.

Upstart Raising can make the process of incorporating your new or existing business quite simple. We recommend you purchase an incorporation package from MyCorporation.com. They will not only file all the required paperwork for you, but they'll provide registered agent services and mail you an initial set of legal business forms for recording your corporate records. You'll save a tremendous amount of time by partnering with them. However, if you're on an incredibly tight budget, you can save a little money by purchasing the required paperwork and filing with the appropriate state agencies yourself.

Regardless of how you file your initial formation papers, be sure to keep appropriate records to insure the legal standing of your newly formed business entity. A corporation that has not been properly maintained can leave its shareholders and directors open to liability. This is called "piercing the corporate shell" and over 50% of existing corporations run the risk of having their shells pierced in the event of legal action due to insufficient record-keeping. One easy way to maintain the proper records and protect your personal assets is to purchase and use a kit of properly worded legal business documents.

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