A corporation exists as a separate entity apart from the owners and may engage in business, make contracts, and sue and be sued. The corporation pays its own taxes. Incorporation involves the filing of a charter or a certificate of incorporation with the secretary of state in the state where you want to transact your import/export business and where the principal office of the business is located, as well as payment of a fee.
A corporation can be publicly or privately owned. A public corporation is one whose stock is openly traded on public stock exchanges, and anyone can buy or sell shares of stock he owns in the company. A private corporation is owned by one or a few people who are actively involved in managing the company.
For details on what's required to incorporate in the state where you want to do business, go to State & Local Government on the Net and select the state. You can find links to business organizations and find all the steps required to incorporate your business.
Typically, businesses hire an attorney when filing to form a corporation. However, several businesses online can process the paperwork necessary to form a corporation. Here are two worth looking at:
The Company Corporation, 2711 Centerville Rd., Suite 400, Wilmington, DE 19808; phone 800-818-6082
My Corporation Business Services, Inc., 23586 Calabasas Rd., Suite 102, Calabasas, CA 91302; phone 877-692-6772 (877-MY-CORP-2)
Pros of a corporation
The advantages of forming a corporation include the following:
Liability is limited. Because a corporation exists as a separate entity, there's a distinct separation of the business assets and the shareholders' personal assets. If the business fails, the stockholders aren't personally responsible for the debts of the firm; their liability is limited to the amount of their initial investment.
Transfer of ownership is easy. Ownership changes hands when stockholders sell or trade shares of stock.
A corporation can continue indefinitely. The existence of the corporation doesn't depend on the fate of any one individual. Unlike a proprietorship or partnership, which ceases to exist on the death or withdrawal of an owner, a corporation has perpetual life.
Cons of a corporation
Here are the disadvantages of a corporation:
The process of incorporation involves time and money. Incorporating can require a variety of fees that aren't applicable when forming a sole proprietorship or partnership. Corporations are chartered by the state; the registration process is the responsibility of the office of the secretary of state, and fees can vary from one state to the next. Plus, maintaining the corporation can be costly and time-consuming.
Because a corporation is a separate legal entity, it's responsible for paying federal taxes and possibly state and local taxes on its net income. These taxes are due on the amount of income even before any distribution of dividends. Earnings distributed to shareholders in the form of dividends are then also subject to taxation. In other words, the income of the business is taxed, and then the dividend is distributed to the shareholders; shareholders need to report their dividends as income on their personal taxes. So the profits of the business are taxed twice.
Corporations are subject to more requirements than either a sole proprietorship or a partnership. These additional requirements are legal, reporting, and financial.
When shares of stock are sold in a corporation, the owners give up some control. When you take on investors, you take their money and give them part of the company.