Factors To Consider in Company Formations

2007-03-08 10:33:40

( Business )



In forming a corporation, one will need to decide what type of company to set up.

A sole proprietorship is a business owned by one person. To set up this type of company one only needs to accomplish certain forms, which can be obtained from the country clerk office, and obtain a tax identification number. As the only owner of the company you are liable to pay for any debts, and will be responsible for any lawsuits against your company.

A general partnership has two or more people involved in the company, and whose profits, financial and legal obligations are shared among the partners.

A C-corporation or general corporation is a form of small business incorporation whose owners are not liable for any financial or legal liabilities. With this type of company one can obtain investors so the company can grow, the losses are limited to the amount of the capital invested and whose company can continue to run even at the death of the owners. Special income tax rates apply to this type of company, and dividends are paid out depending on the earnings of the company. Company shares can be sold to other parties.

An S-corporation or sub-chapter corporation is another small business incorporation whose earnings are paid out directly to the shareholders, and whose earnings are tax-free. Unlike other types of corporations, an S-corporation is exempted from double taxation.

A closely-held corporation is a company owned by a small number of people, and whose owners are involved in the daily running of the business. A certain amount of shares are available for trading.

A closed corporation operates in the same way as a closely-held corporation, except that the shares are not available to the public and there are no outside investors.

Once you have decided on the type of company to form, you should choose a name for your business. The name should comply with certain rules set out by the agency that handles corporate business filings in your state.

If the type of company you have chosen is not a sole proprietorship, you should appoint a board of directors, and draft your by-laws to outline the dates of annual meetings, how these meetings are held, the voting requirements and the position of the owners among others. A shareholders’ agreement should also be drafted to define how shares are transferred from one person to the other and how stocks are issued.

Hold an initial meeting for the board of directors to appoint corporate officers, approve the by-laws and agreements and discuss the method for the issuance of stocks.

Company formation can be made easy through the technology of the Internet. Online application forms are available, and company formations can be done in a matter of minutes. There are also company formation agents that exist on the Internet who can give expert advise on steps of company formation.


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