Corporations are treated as separate entities under the law. They generally have the capacity to perform the same types of functions that individuals perform including entering into contracts and promulgating or defending lawsuits. The primary incentive for forming a corporation is to grant limited liability to its owners.

One common misconception among the business community is that by merely filing proper documents with the state, the business owner has established a legally enforceable corporation. However, compliance with formalities is essential in order for the corporation to be granted with the status of limited liability and protect its owners from personal liability. Formalities are especially critical for corporations since they generally contain more rigorous standards than other business entities, such as LLCs.

WHAT STEPS ARE REQUIRED FOR ESTABLISHING A CORPORATION?

The first step required for establishing a corporation is filing an application for formation (e.g., Articles of Incorporation) with the state. It is generally recommended to establish the corporation in the state in which the business is going to operate. Of course, the corporation can do business in other states provided that the state allows the entity to operate in its state. However, a corporation will be required to file tax returns and pay taxes in any state that mandates state corporate income tax. In addition, different states have different requirements for other forms of compliance (e.g., Statement of Information).

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