Incorporating A Company

Starting a New Business? Here's Our Guide to Incorporating It

Lesetja Malope

Lesetja Malope

01 September 20234 min read

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incorporating a company

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    One of the first things a prospective entrepreneur needs to do when incorporating a company and developing a business plan is to choose a business name.

    Like a newborn baby is given a name before everything else, your business needs an identity first.

    And although this may sound like an easy task, it should be thoroughly thought through since that will be the name that a future successful business (or even a potential business empire) identifies with. It'll also be what your potential customers come to know your business as.

    Understanding the 4 business structures

    Many US business owners are in a hurry to get started, however:

    Before you start contemplating your next big business idea, creating a separate business bank account, getting your business license, and setting up business insurance, let's begin with the second step.

    Here you must choose the business structure suitable for the business you plan to start.

    There are generally four types of business entities a small business can choose from, and depending on the needs of the business, any may be suitable.

    Sole proprietorship

    The first business model is a sole proprietorship. These are simple one-person, self-employed types of businesses. Everything is owned and controlled exclusively by one person. That person assumes personal liability for any liabilities and profits or losses.

    Sole proprietorships are:

    • Inexpensive (hence why they're typically the first choice to start a business),
    • Easy to dissolve,
    • Generally have no taxes,
    • And except for basic bookkeeping, have no formalities.

    The disadvantage is that because there is no corporate veil between personal and business liabilities, both are treated the same. It also ceases to exist upon the death of the owner.

    Limited liability corporation (LLC)

    The second legal structure is a limited liability corporation (LLC). These protect their owners from liability, and there is a clear separation of assets and liabilities between the owners and the business.

    They're very flexible and work with almost any type of US business. And although they function as limited liability corporations, they're taxed and operate more consistently with partnerships.

    To ensure a limited liability company is not taxed as a corporation, it must check that it does not have more than two of the four qualities that characterize a corporation:

    1. Limited liability regarding assets,
    2. Continuity of life,
    3. Centralization of management,
    4. And the ability to transfer ownership interests.

    If more than two of these qualities are met, the limited liability becomes a corporation and is taxed as such.


    The third is a corporation. Depending on their respective tax levels, these are split between S corporations and C corporations. Either is suitable for brick-and-mortar business and online business.

    A corporation is a more complex entity separate from its owners, so regardless of what happens to shareholders, the corporation continues until it's legally dissolved.

    A corporation can be owned by a single person. However, this stipulation may vary depending on state law. All owners in a corporation are called shareholders. They elect directors to set the corporation's policies and represent their interests.

    The directors will appoint officers to manage daily operations. Corporations are legally bound to follow many formalities, unlike other entities.

    Taxation of corporations is also much more complex and depends on many factors such as the number of, residency of, and type of shareholders.

    A corporation can qualify to be treated for tax purposes as if it were a partnership (an S corporation) and, therefore, will not pay taxes. It can also be treated as taxable (a C corporation).


    The fourth is a partnership. Here, two or more people contribute to assets and hold liability. And they're an excellent option for small business owners.

    These are generally inexpensive (and thus will lower the costs for startups) and are also subdivided into two, that is, limited liability partnerships (LLP) and limited partnerships (LP).

    In limited partnerships, one general partner has unlimited liability, while the rest have limited liability. And in limited liability partnerships, all partners have limited liability.

    Unless otherwise agreed in the incorporation agreement, the partnership ceases to exist if one partner ceases to be a partner.

    And because all partners are considered self-employed, they must file their taxes as such.

    Getting registered

    Once a decision has been made about the structure, one can approach the Secretary of State office to register the relevant entity.

    Different states in the USA also have different administrative requirements.

    Incorporating a company: another (pretty essential) step

    And when the business is up and running, another essential layer of securing small companies, especially in the long term, is the registration of all its intellectual property assets.

    Safeguarding these will increase the business valuation and ensure the business is not unlawfully and unjustly exploited.


    What is the process of starting your own business called?

    The process of starting your own business is known as entrepreneurship. This is a vital aspect of the economy and economic growth. New entrepreneurial ideas bring life to the market.

    What is the most essential step in starting a business?

    One of the most vital steps when starting a business is separating your personal and business finances. This is a good idea for both legal and tax purposes. You can also see clearly where your business stands financially.

    What are the first things founders should do before establishing a new business?

    After choosing a good business name and determining the ideal legal structure for your US business, it's time to conduct market research. Research your competitors and get realistic about how you can compete in the market.

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