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R E S O U R C E S
Legal Paperwork 101:
Incorporating your Startup
Any company that's serious about success eventually needs to
formalize its legal and tax status by transforming into a specific
type of business entity. Complicating things,
there are a variety of different business entities - some
of which aren't formal corporations - from
which you'll need to choose:
- Sole proprietorship
- Nice and simple; you are your business. However, you are also
personally responsible for all debts and court judgments.
- General partnership
- A business run by two more more people, and the partners can
also be other companies, not just people. Each partner has personal
liability for debts, and usually all partners share in the responsibilities
of running the company and any profits earned.
- Limited partnership
- Think of this as 'general partnership' + limited partners, and you'll
understand the difference: limited partners are usually passive investors
and are not personally liable for any corporate debts or obligations.
- Limited Liability Company
- An interesting hybrid, LLCs offer the limits on personal liability
of the limited partners in a limited partnership, but have more flexibility
to get involved as desired, based on the Articles of Incorporation.
- Corporation
- There are two types of corporation, the most common business organization.
A standard corporation is a separate entity with its own debts and
liabilities.
As a separate entity, standard corporations are liable for taxes on income.
An "S" Corporation is a slightly different type of corporation
that lets owners avoid double-taxation of income and allows owners to personally
claim some limited corporate expenses.
Note that incorporation also assumes an annual corporate tax liability, though
in California (and other states) the corporation tax can be waived for a
certain period. Most companies incorporate in their state of
business -- indeed, there are regulations about if you must do this -- but
some companies opt to incorporate in
the state of Delaware. Delaware has particularly liberal incorporation laws
and tax advantages if you qualify.
The actual articles of incorporation are quite simple:
Articles of Incorporation
but there are a raft of additional documents that need to be filed for the
incorporation to be completed.
There are many more legal considerations regarding your new
startup than we could fit in this tutorial,
but the best advice we can offer is for you to find a good
attorney who has experience working with startups.
Finally, if you have any feedback or thoughts on this tutorial,
we'd love to hear from you.
Back to the main resources area
Disclaimer: all documents presented on our Web site are as-is and we do
not warrant the accuracy, legality or suitability of these documents
for any purpose.
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