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An association can be formed for social purposes, or it can be business-oriented, provided one agreed upon purpose is the reason for its existence. There's nothing legally binding about an association until it becomes incorporated. Some are run by rules and by-laws, some have membership requirements, and some have no structure at all.
The benefits of incorporating come into play if an association is a business venture. Liability issues become a concern for business owners who've opted to maintain a non-incorporated status. Choosing to do so can eliminate much of the liability risk involved should the company be sued, or go out of business. -
The first step in becoming incorporated is deciding where, or what state, to apply. This will depend on where you operate your business. The second step in is to choose a unique name for your company, and then register it with your Secretary of State office. Once these two items are completed, then comes time to do the paperwork.
Documents needed to incorporate your business include: a certificate of incorporation, company bylaws, resolutions of the board of direcotors, stockholder resolutions, stock ledger, and stock certificates. Whether or not your company actually issues stock will depend on what type of incorporation model you decide on.
The transaction becomes official once the Secretary of State office files your paperwork on record. There are fees to pay when filing, all of which vary according to state. As the legalities and tax status surrounding your association will change once it becomes incorporated, it's always a good idea to get legal advice prior to filing. -
There are five options to choose from when deciding what type of corporation your business will be. These options differ as to how liability will be assigned. The first is the sole proprietorship where all ownership and liability is assigned to one person. The second option is a general partnership which is just like a sole proprietorship, only with two, or more partners. Liability is assigned to all the owners, and each owner assumes responsibility for whatever decisions are made.
Limited partnerships -a third option- is made up of partners who run the business, and silent partners, who just invest in it. Liability falls mainly on the active partners in the business, whereas the silent partners can only lose whatever money has been invested. The fourth option is a limited liability company in which the company name assumes much of the liability risk that would otherwise fall on its owners.
Forming an actual corporation is the fifth option. This is where the company becomes its own legal entity apart from its owners. This means the company and its owners will be taxed separately. Corporations are also required to issue stock certificates to shareholders. A variation on this option is the S-corporation that allows the company to be taxed as a partnership, rather than as a separate entity.
