Importance and State Requirement of Being Incorporated and Having a Tax-Id

being incorporated is important to avoid personal liability and to safeguard your personal assets against creditors and lawsuits in the event that your business fails to repay a debt or is sued, respectively. Employees of a corporation are not held personally liable for debts or wrongdoings in these events, and are only liable to the amount that they have invested in the corporation. There are many other reasons to incorporate, however. Corporations are taxed at a lower rate than individuals, the ownership of the corporation is transferable (if the owner of a sole-proprietorship, for example, decides to stop, dies or is otherwise unable or unwilling to run the business, the business ceases to exist) and the ability to sell shares of stock in your company.

One other important reason to incorporate is to be able to build a separate credit history for your business, regardless of your own personal credit scores. If you are having trouble getting a loan for your small business does to personal credit problems, incorporating essentially gives you a new credit base to build upon. With incorporation comes the Employer Identification Number, or EIN, also known as a Tax-ID. The EIN is the business equivalent of a Social Security Number. Like your personal Social Security Number, it is used to track taxes, credit and other items related to your business. Any business owner may obtain an EIN, but they are of importance to your corporation to ensure taxes are handled properly and to track your business credit rating.

In order to incorporate, your business must meet certain requirements. First, you must file Articles of Incorporation, sometimes known as a Charter or Certificate of Incorporation. This paperwork must include the name of your corporation, the purpose of your corporation, the name and address of a person willing to accept notice of lawsuits filed against your corporation, as well as other legal documents, the number of shares your corporation will offer, and the signature(s) of the business owners. Lastly, all necessary fees must be paid and you must file your Articles of Incorporation at the correct state office.