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INCORPORATE YOUR BUSINESS
area inevitably doing business in Virginia, Maryland, or Pennsylvania, plus the District of Columbia, are examples. If that is your case, you will need to reserve a name (and later register) not only in your home state but also in all the states in which you may do business. What if you do not register your corporation in these other states? You will be violating the law in those other states and your corporation will have no legal standing there. That means that if, for instance, your corporation is a builder headquartered in Maryland and you build a residence for a customer in Virginia without registering your corporation in Virginia, and your customer refuses to pay you for his home, your corporation would be unable to sue him in Virginia, because it is not registered as a foreign corporation in Virginia. So if you operate in more than one state, register your corporation in those other states as a foreign corporation.
The process of reserving a name also assures you that the name is available and that no other corporation has a similar name in your state or any state in which you are reserving the name of your corporation. Not infrequently, a small business will operate successfully as a sole proprietorship within one city, oblivious to the fact that a small corporation operates in another part of the state under the same name. For instance, when Bob
When you reserve a name and/or register your corporation in another state, you will find that you are known as a foreign corporation. Even though your corporation operates entirely within the United States, it is considered to be foreign in all states except that in which its corporate office resides. (The corporate office may not be the principal business office of the corporation, as that may be in another state. Indeed, a corporate office may be only the file folder in the lawyer’s office.)
Planning Your Corporation
started his bed store as a sole proprietor in one city, he was not aware that there was a corporation named Bob’s Beds, Inc. operating in another city within the state. Neither did that corporation realize that Bob was using the same name to operate his sole proprietorship. Therefore, when Bob sets up a corporation, the state will tell him of the conflict of name, and then it would be necessary for him to change his business name.
The name of your corporation is important, for as you operate your business you will, it is hoped, build goodwill that is attached to that name. If you later expand your market area, it will be a severe shock to find that someone else is using your business name. This conflict often results in expensive litigation that, usually, results in the business that was registered first with the state winning out. Notice that I use the word “registered” rather than “incorporated.” That is because there are other methods to protect your business name in addition to setting up a corporation with that name. Specifically, a trade name (or trademark) can be registered with a state even though the business is a sole proprietorship or other noncorporate entity. Registration of a trade name is usually a matter of filling out a simple form and submitting it to the proper state agency. Even if you were to set up a corporation with a unique name, also registering the trade name should ensure that you have covered all the bases within your state. If you plan to operate in several states, or if that size of operation could materialize several years downstream, register your trade name with the U.S. Patent and Trademark Office.
What name you choose is a marketing decision, so we leave that discussion to marketing books. However, remember that the name of a corporation must identify the entity as a corporation. Generally, this is done by attaching a suffix to the name that does this task. The usual suffixes are Corporation, Corp., Inc., Limited, and a few others. Not all suffixes are
INCORPORATE YOUR BUSINESS
accepted by all states, so be sure to check with your state corporation authority. (Corporation, Corp., Incorporated, and Inc. are always acceptable for general business corporations.)
Determine If You Can Use a Simplified Procedure
Many states offer a simplified version of corporation specifically for small, often family-held, corporations. The most obvious simplification is the elimination of the board of directors, leaving the stockholders to operate as this board, appointing officers, setting compensation, and passing resolutions that may be appropriate or required. The number of stockholders allowed in such a corporation may be limited by the state, as in Nevada it is limited to 30. Also, there may be restrictions on the ability of stockholders to sell their shares except to certain eligible individuals, such as other family members. In my opinion, this provision is not significant enough to be a factor in selecting the state in which you want to incorporate. After you have selected the state, a telephone call or e-mail to the state’s corporation authority should provide information as to the availability of the streamlined procedure in your state.