of the stock in the corporation and you may be its only employee, but when you form a corporation, you and it become separate legal entities. A corporation is a state law-approved legal structure in which the business is a separate legal entity from its owners.

Because a corporation is a legal entity, the state laws govern its organization and operation procedures. However, the corporate elements and procedures are generally the same for forming all types of for-profit corporate entities.

The following are eight basic steps to incorporating your proposed or existing business.

1. Choose and Reserve a Corporate Name

All states prevent two or more corporations from registering or using the same name, including names that are very similar. Accordingly, you should check in advance to see if the name you want to use is available.

Contact the state office that handles corporate filings (usually either the Secretary of State or Corporations Commissioner). They will be able to tell you by phone if there is a potential conflict, and if there isn't, explain how to reserve your proposed name for a month or two to give you a chance to file your formal incorporation papers.

Finding an "Available" name does not guarantee that you could use it. If the proposed name would be used to identify goods or services, you will also need to check whether the proposed name violates any business trademark. There are search firms which who do this for you. You will find them in Yellow Pages Directory listed under Corporate Services. You can also do it yourself by checking with state and federal trademark registers.

If you proposed name is fictitious, you will have to publish a DBA statement ("doing business as", another term for a fictitious business name) in your local newspaper. Incorporated business names will include the words "Corporation," "Incorporated," "Company," "Limited," Corp.," "Inc.," Co.," or "Ltd." after it.

2. Select a corporation type from the following:

Stock Corporations

• General Corporation
  The most common of all corporate structures is the general corporation. The General Corporation, like all other corporations, is a separate legal entity that is owned by stockholders and shareholders. A general corporation may have an unlimited number of stockholders. Due to the legal nature of the corporation, stockholders are protected, personally, up to the amount of their investment, from the creditors of the corporation.
  
  
• Close Corporation
  A close corporation has a few minor differences as compared to general corporations. In most states where they are recognized, Close Corporations are restricted as to the number of shareholders, usually between 30 and 50. The shares of stock upon sale are to be offered to existing shareholders first. Generally, a close corporation is particularly suited for the entrepreneur looking to operate a one-person corporation or for a small group of individuals who will all actively participate in the operation of the business.
  
  
• S-Corporation
  S corporations have the same basic advantages as general or close corporations, but differ in its tax treatment. Where as the previous corporations file and pay federal taxes on profits of the corporation, the S corporation eliminates Federal Corporate Income Tax. The IRS allows all profits to "pass through" to the shareholders personal tax return. This avoids "Double Taxation" or being taxed at both the corporate and personal level. An S corporation is formed from a General or C-Corporation. The S-status filing must take place within 75 days of the formation of the corporation. All stockholders must elect the S corporation status by filing the federal forms necessary.
  
  
• Limited Liability Company (LLC Corporation)
  LLCs have for long been the traditional business structure in Europe and Latin American countries and was first introduced in the US in 1977. Business professionals believe that LLCs present a better alternative to corporations and partnerships because they combine the advantages of both. With an LLC, the owners have corporate liability protection for their personal assets from business debt as well as the tax advantages of partnerships or S Corporations. The major disadvantage with LLCs is that they have a limited life (cannot exceed 30 years). Secondly, Lilac's are not corporations in the eyes of law and therefore do not have benefit of stock ownership and sales.

Non Stock Corporation

• Non-Profit
  These are corporations that meet the requirements in Section 501(c)(3) of the IRS code. They are non-profit corporations. Traditionally, most schools, churches, and organizations that provide benevolent services elect to incorporate under this method. For the organization to qualify for exempt status, its organizing instruments must contain a proper dissolution clause, or the state law must provide for the distribution of assets for one or more exempt purposes upon dissolution. The organizing instrument must also specify the organizational purposes and the purposes specified must be limited to one or more of those set out in Section 501(c)(3) of the IRS Code.

3. Decide where you will incorporate

You must file for incorporation in the state your business in the state is headquartered. Several businessmen setup business headquarters in states with liberal incorporation laws such as Nevada and Delaware.

However, in any state, you will be required to meet the business residency requirements of that state in order to incorporate. The best state in which to incorporate is generally where you and other incorporators associated with your business actually live.

4. Create a pre-incorporation agreement

This is best when you plan to incorporate a small business owned by a handful of shareholders, each of who will actively take part in the day-to-day operation of the business. Although not legally required, a pre-incorporation agreement can be a very useful aid in starting a new corporation.

This agreement should include:

• Shareholders' names
• The state in which you plan to incorporate
• Your corporate name
• Your corporate purpose
• Number of shares of corporate stock the corporation will be issuing
• Stock subscriptions per each shareholder (the number each initial shareholder is planning to buy and for how much)
• Tax status selected (this varies from one kind of corporation to another)

5. Prepare and file articles of incorporation

You begin the formal process of incorporation by preparing an Articles of Incorporation or alternately titled form (also called as "certificate of incorporation"). You can find pre-printed forms at the State Corporate Filing Office or on the Internet.

To put together this formal incorporation document, you must first consult an attorney, research the laws governing corporations in your state, and then decide on the following elements:

Who are the incorporator(s)
Incorporator (also called as "Promoter") is the person responsible for creating a corporation. Although several people can serve as incorporators and sign the Articles of Incorporation, all states have adopted legislation that permits a corporation to be formed by a single incorporator. (Except in Arizona, two is the current minimum).

Number and type of shares of stock to be held by one or more shareholders
The corporation is authorized under state law to issue certain number of shares of stock. The number is established at the time of incorporation and is often tied up with the fees paid for incorporation.

Business people often have plenty of stock authorized so that a reserve is available after the issue of shares to initial shareholders.

Besides the above, your articles of incorporation will also require:

• The name and purpose of your corporation
• The desired kind of corporation and tax status
• The principal place of business

Upon completion, file this document with the appropriate state agency. You will be required to pay a registration fee that can range from $200 to $1000 depending on the state.

6. Prepare corporate bylaws

Corporate bylaws list the rules of corporate life under state's laws and allow owners to fill in rules left to their discretion, such as the number of members on your board of directors, rules for calling and conducting regular and special director and shareholder meetings. Bylaws also include basic "rules of order" governing voting procedures. This document does not need to be filed with your Articles of Incorporation, however, it must be prepared as part of your incorporation process.

7. Record minutes of your first board of directors' organizational meeting

Meeting minutes are notes that record the topics and decisions discussed at a meeting. State law requires that notes are taken at your corporation's first Directors Organizational Meeting, as well as all subsequent board meetings, and kept on file. The Board of Directors Organizational Meeting is generally the first meeting of your Board, the individual(s) who will "direct" your business.

8. Issue Shares of Stock

The final phase of incorporation occurs when you file a "Notice of Stock Issuance" with the Department of Corporations, issue stock certificates to shareholders, and prepare stock documentation.

Generally smaller corporations qualify for federal and state exemptions and are not compelled to register issuance of corporate stock with the federal Securities and Exchange Commission (SEC).

For more information about small business exemptions, visit the SEC web site http://www.sec.gov/smbus/qasbsec.htm.

A listing of links to the security agencies in most states can be found at http://soswy.state.wy.us/sos/sos2.htm