{"id":4888,"date":"2016-04-04T10:47:49","date_gmt":"2016-04-04T15:47:49","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/the-basics-of-small-business-incorporation.html"},"modified":"2025-11-01T00:07:00","modified_gmt":"2025-11-01T05:07:00","slug":"the-basics-of-small-business-incorporation","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/the-basics-of-small-business-incorporation.html","title":{"rendered":"The Basics of Small Business Incorporation"},"content":{"rendered":"\n
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The Basics of Small Business Incorporation<\/h1>\n\n
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\n By Jade Yeban, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Key Takeaways<\/h2>\n

Small <\/span>business<\/span> incorporation<\/span> is the legal process of forming a corporation, making it a separate <\/span>legal entity<\/span> from its owners. This corporate structure<\/span> provides limited personal liability<\/span> protecting the owners\u2019 personal assets<\/span> from business debts or lawsuits.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n\n\n

Starting a new business<\/span> is exciting, but there\u2019s much to consider. One big decision is choosing a business structure<\/span> for your business. This can be a\u00a0sole proprietorship<\/span><\/a>, a\u00a0limited liability company<\/span><\/a>, or one of several types of corporations<\/span>. This choice will impact how you pay business tax<\/span> and how much liability protection<\/span> you have. It also determines\u00a0how you report to the federal government and the Internal Revenue Service (IRS<\/span>).<\/p>\n

As many small <\/span>business<\/span> owners<\/span> know,\u00a0forming a corporation<\/a>\u00a0may provide you with limited personal liability<\/span>. This means you are personally\u00a0not responsible for any debts that your business owes. However, incorporating a small business<\/span> and maintaining it as a corporation is not as easy as it may seem. Along with filing the necessary papers and fees, you will also need to keep very accurate and detailed business records. Read on to learn about the basics of small <\/span>business<\/span> incorporation<\/span>.<\/p>\n

Form your corporation with confidence with\u00a0our trusted partner LegalZoom.<\/a><\/i><\/b><\/p>\n

Small Business Incorporation and Limited Personal Liability<\/h2>\n

When you start a new business, you might first\u00a0consider\u00a0becoming a sole proprietor. As a sole proprietor, you and your business are one. If you incorporate, your business becomes its own business entity. At this point, it becomes separate from you. A popular choice is the limited liability company<\/a> (LLC). This type of business provides liability protection. This means personal assets, like your home or car, are often safe if your business owes money.<\/p>\n

Another option is the\u00a0C corporation<\/a>\u00a0(C-corp), which sells shares of stock to raise money. One of the biggest considerations of incorporation includes\u00a0limited personal liability<\/a>. Corporations\u00a0protect\u00a0the owners’ personal assets and property from creditors. It also protects owners from others making claims against the corporation.<\/p>\n

For example, suppose a court finds your corporation<\/a> owes a creditor $20,000. The creditor cannot take that court judgment and charge your personal assets. Personal assets include things like your personal bank account or home. Instead, the creditor must take the claim against the corporation. This is because the corporation is a stand-alone legal entity. Corporate assets pay corporate debts. By choosing small business incorporation, you only stand to lose the money or property you already invested.<\/p>\n

Exceptions to Limited Personal Liability<\/h2>\n

In most situations, limited personal liability laws shield corporation<\/a> owners. However, there are some situations in which this limited liability will not protect the owners of a corporation. If the board of directors does something illegal or dishonest, they can still face personal consequences. Not keeping business and personal funds separate can also affect your personal tax returns.<\/p>\n

An owner of a corporation can be personally liable for corporate debts or obligations if the owner:<\/p>\n