If you own a small business all by your lonesome, you likely have it set up as a sole proprietorship. But if you have business partners or you are looking to expand your business in dramatic fashion, you may be looking into the local laws in your state for forming corporations. Before turning your business into a corporation, there are a number of things you'll want to keep in mind.
Figure Out Who Will Be on Your Board and Realize That You Are Giving Up Some Power
In order to become a corporation, you will likely be expected to appoint a board of directors. These directors can be partners who have already expressed interest in helping you with your business or you could advertise with an agency to find outside parties with expertise in your industry. Having a board of directors can help you diversify your company's points of view and give you valuable feedback before important decisions are made.
That said, if you are moving from being the sole business owner to a corporation with a board, understand that you are giving up some of your personal power in exchange for the things a board of directors can help you with. You may retain power as the chairman of the board or the company CEO but you can expect there to be some back and forth or debate in the interest of reaching the best decision for the firm.
Get Your Paperwork and Stock Structure If Necessary All Spelled Out and Ready to Go
In addition to naming your board, you will need the paperwork to incorporate your business. This could possibly also include setting up a structure for stocks. Some of your stock may go to you and to your current employees but there might also be plans to take the company public. Use a corporation kit to get the documents you need or talk to an expert in this field to get advice as you move forward.
Your Specific State Might Have Specific Laws to Follow and an Expert May Be Able to Help
Different states might have different laws for forming a corporation, but you will at least have to file your company name with the state or the corporate name that you as a person are now doing business as (DBA). Some states, like Delaware, may offer better tax breaks and other benefits compared to other options, so talk with your future board about your options and consider hiring an outside expert with expertise in forming a corporation in your state of choice.
To learn more about forming corporations, reach out to a service provider near you.Share