One of the main advantages of incorporating is that the owners personal assets are protected from creditors of the corporation. For instance, if a judgment is entered against a corporation, the business owner usually cannot be forced to personally pay the amount of the judgment. Only corporate assets need to be used in order to pay the corporations debts.

There are some circumstances in which a business owners personal assets may not be protected. An owner of a corporation can be held personally liable if they: (1) personally guarantee a bank loan; (2) if the corporation fails to deposit taxes withheld from an employees wages; (3) conduct fraudulent or illegal activity; or (4) if a business owner treats the corporation as an extension of their personal affairs, rather than as a separate legal entity. Even though forming a corporation normally protects a business owner's personal assets, a business owner must maintain adequate insurance coverage in order to protect corporation assets. A solid liability insurance policy can protect a business owner against the risks of doing business.

If an owner of a corporation works for the corporation, he or she is generally paid a salary, and possibly bonuses, like any other employee. A business owner pays taxes on his or her income, the same as any other employee, and the business owner reports the income on their personal tax return. The corporation pays taxes on whatever profits are left in the businesses, after paying overhead and expenses. To do this, the corporation files its own tax return, Form 1120, with the IRS and pays taxes at a special corporate tax rate. Alternatively, corporate shareholders can elect to become an "S corporation", by filing Form 2553 with the IRS [please confer with your accountant]. This means that the corporation will be treated like a partnership (or LLC) for tax purposes, with business profits and losses "passing through" the corporation to the business owners individual tax return.

To form a corporation, "Articles of Incorporation" must be filed with the Georgia Secretary of State. For some corporations, Articles of Incorporation can be very complicated to prepare. In addition to having Articles of Incorporation, a corporation must have "Bylaws." While Bylaws do not have to be filed with the Secretary of State, Bylaws are important because they set out the basic rules that govern the corporation.

Corporations and their owners must observe certain formalities in order to retain the corporation's status as a separate entity. Specifically, corporations must hold annual shareholders meetings, keep written records of major decisions, make sure that corporate officers and directors sign documents in the name of the corporation, maintain separate bank accounts from their owners, keep detailed financial records, and file a separate corporate income tax return.

Starting a corporation requires planning, a little hard work and good advice. If you have any questions regarding the formation of a corporation, you should always consult with your accountant (CPA) and attorney.