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Business formation: incorporating a business

When a small business grows to include many employees and sees significant financial success, its owners may decide that it is time to incorporate. Of course, each state, including New Jersey, has its own laws on incorporating a business. Moreover, forming a corporation can be a complex endeavor, so seeking legal advice may be necessary.

A corporation is considered to be a separate entity for legal purposes that is owned by its shareholders. This is important because with regards to responsibility for the business' actions, it is not the shareholders but the corporation that is legally liable. In addition, corporations give the business the opportunity to "go public" and sell shares of ownership of the corporation via stock offerings. This may draw in not only potential employees but also investment capital.

State law establishes what requirements must be met in order to form a corporation. In general, a corporation needs a business name and a legal name that is registered with the state. A corporation can use a name other than the registered name, but if so, this name needs to be filed. In addition, at the end of the business name a corporate designation must be included.

When registering a business, certain documents need to be filed with the state's Secretary of State office. These documents might include the articles of incorporation, among others. In some states, registration also involves the establishment of directors and the issuance of stock. After registering the corporation, the business must procure the necessary permits and licenses. These requirements differ based on state law, local law and industry.

Corporations are taxed at both the federal and state level, and sometimes at the local level. In addition, they may need to register with the Internal Revenue Service, along with state revenue agencies. The corporation will then be given a tax identification number or permit. Corporations are, for the purposes of paying taxes, separate entities. They pay income taxes on any profits they make, as well as when the shareholders receive dividends.

In the end, there are many advantages to forming a corporation. That being said, business owners cannot rely on this post as grounds for forming a corporation. Instead, it may help to contact an attorney familiar with business formation to make sure all the necessary formalities of forming a corporation are met.

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