Corporation Formation: 8 Myths Demystified

Posted by Josh Twilley
February 18, 2021

Corporation formation is an essential step in starting (and running) a company. It can feel like a daunting task, thanks in part to many myths that surround it. 

Let’s dig into—and demystify—some of the most common corporation formation myths. 

Myth 1: Forming a corporation is expensive

Corporation formation is, in fact, not expensive. Fees vary from state to state, typically costing no more than a few hundred dollars. 

Myth 2: Corporation formation takes a long time

Nope! Most states can turn around a filing within a few days. Some states, such as Delaware, can actually form your corporation within 30 minutes. Just be prepared to pay a little extra for that speed!

Myth 3: Corporation formation requires a lot of information

Also not true. In most states, all you need is the business name, the DBA (if applicable), a physical address, the type of entity you’re forming, a list of officers and contact information.

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Myth 4: Corporation formation is a one-time thing

If only. A corporation’s status requires constant attention and maintenance. Each state has its own set of recurring requirements too. For example, in Delaware, an annual franchise tax and filing is required

Myth 5: You can be your own registered agent

As a statement of fact, this is true. You can be your own registered agent. No laws prohibit it. As a matter of practice, however, serving as your own registered agent is probably not a great idea. A registered agent is responsible for managing the tax and legal document relationship between a company and the state in which it’s registered. They’re responsible for maintaining good standing. Few business owners want to add that scope to their plate. 

Myth 6: You have to form your corporation in the state you live in

This is definitely not true. You can incorporate your business in any state you like. Oftentimes, incorporating in a specific state is a strategic decision. For example, Delaware’s legal system is very business friendly and processes filings rather quickly. The important thing is to do your research and consult with your legal and tax advisors. 

Pro tip: Just because you decide to register in a certain state doesn’t mean don’t have to register in other states in which you do business. 

Myth 7: Forming a corporation is a federal requirement

False! Entity formation requirements are established at the state level. 

Myth 8: Forming a corporation will reduce your personal taxes

Since we’re not in the business of providing tax advice, the answer here is “talk to your accountant.” That said, this line of thinking is common but far from hard and fast.There are too many dependencies at play such as the entity type, the size of the company, your household income, etc. Bottom line: corporation formation is not a personal tax strategy. 

Are you ready to form your corporation? Get started today with our formation order form.