How is corporation formed? That is a question asked by many hopeful potential business owners. There are a variety of different corporations that are available, depending on the form of organization you wish to start.

What Is a Corporation?

A corporation is a type of business that can be formed by a group of individuals. Different groups of people and organizations can form a corporation. A nonprofit organization, a municipal organization, or a private party can all form corporations to serve as an umbrella over the organizations. Private corporations, unlike the other examples, are meant to make a profit.

The corporation has its own rights and liabilities that are not connected to the group of people who started the business. On the same token, a corporation has mostly the same rights as people in the eyes of the law. They can:

·      Purchase, sell and own property through the use of leases and contracts

·      Bring lawsuits

·      Subject to taxation

·      Be prosecuted in court and punished through fines if found in violation of the law

There are some primary advantages of forming a corporation. A corporation has an indefinite life. That means it will outlive all the founding members and can last for generations. A corporation also protects the founders and members from being held personally liable for any financial impact that occurs within the corporation.

Among all of the different types of businesses you can form, a corporation takes the most time and effort to create and maintain. However, they also provide the best form of protection to you as a founding member, a greater ability to raise capital, along with other useful advantages.

Before you jump into forming a corporation, you should fully understand the process and follow the process carefully to ensure you set up the most useful type of legal structure for your business.

Limited Liability

With a corporation, there is going to be limited liability. If you are the owner in shares of a corporation and it is unable to pay its debts or is sued, assets within the corporation can be seized to repay those debts. But thanks to the corporate umbrella, creditors may not take any of your personal assets to repay those debts. This includes your cars, property, or money in any bank account.

However, you must be careful to keep your personal affairs and your business affairs completely separate. If they become overly entangled, the creditor or any entity that is suing the corporation can opt to ask the court to pierce the corporate veil. This will allow the shareholders to be held personally liable, meaning your personal assets could be at stake.

You could also be held personally liable if your corporation is not compliant with all the legal formalities or if records are not carefully maintained.

Form a Corporation: Choosing a Corporate Name

When you name your corporation, the name has to comply with your state laws. To get the rules, you need to contact an attorney or the governing body over incorporation in your state. However, there are some general guidelines that you need to follow in all states:

·      The name of the corporation may not be the same as other corporations already on file

·      The name must end with the corporate designator, such as corp., inc., or ltd.

·      The name may not include specific wording as prohibited by law including cooperative, bank, or federal

If you are unsure whether your corporation name is already in use, contact your state’s corporation office and have them check. If you know that you want to form a corporation in the future but are not ready to do so immediately, you may pay a small fee to reserve your name temporarily while you are filing your articles of incorporation.

In addition to following the corporation naming rules in your state, you have to also ensure that you are following the rules regarding trademarks, as you should not be in violation of another company that already uses it.

After you have determined your corporation name is legal, you do not typically need to file the name with your state. Once you file articles of incorporation, your business name is automatically registered.

One thing to keep in mind, however, is if you choose to sell your services or products using a different name, it will be necessary to file a name statement in your state or county that says you will be using an “assumed” name.

If you need help with forming a corporation, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.