How To Incorporate A Business

Do You Wish You Knew How To Incorporate A Business In A Easier And Faster Way?

Learn How to Incorporate a Business

The first question everyone should ask themselves when learning how to incorporate a business is whether or not they really need to incorporate. No matter what the size of your business venture it is usually a good idea to incorporate, even if it might mean spending some money up front and going through a few extra steps to have a legally viable company. The downside of incorporation is that you will have more yearly paperwork, some extra fees, and of course it means you have to file another tax return in addition to the one you already do for Uncle Sam every year. Incorporating also can add another layer of complexity to your business dealings.

Advantages of Incorporating a Business

There can be some serious advantages to incorporating your business. The main reason most people give for taking the time to incorporate is to separate their personal finances from their business finances. When you incorporate your business it is usually considered to be a separate legal entity from your personal assets, so that if something happens to your business your personal assets are protected. Another big reason you might want to incorporate is that companies can enjoy some pretty sizable tax benefits. There isn’t room here to go into all the tax and other advantages you gain by incorporating, but there are a lot of them, and before you select your business entity we can’t stress enough sitting down with a lawyer or attorney to learn which ones might benefit you the most.

How to Incorporate Your Business

Before you begin the incorporation process you need to make some decisions on who will run the company and where it will do the majority of its business. If you are only operating in one state, say the state you live in, this may be an easy decision. If you operate and have offices in a number of different states, or if you want tax and corporate privacy advantages only some states provide, you will want to do research to decide which state may give you the most tax and other kinds of advantages to benefit your business. After you have decided on where you will do business it is very often a good idea to create a pre incorporation agreement. This agreement spells out who will serve on the board of directors, who will own the company, including the percentage of ownership, as well as, who may purchase and vote with their stock.

Choosing The Proper Entity

One of the decisions that needs to be made is what kind of entity are you going to create? Is this a for profit corporation? Or is it a foundation or other kind of non-profit entity? If you are going to have a for profit entity what kind of structure will you put in place? The most popular are outlined below.

Most corporations in the United States are what are called C Corporations. A C corporation does have to pay income taxes, but there are very few restrictions on who can own stock and where they are located in the world.

One popular type of corporate structure is what they call an S Corporation. An S corporation has restrictions on who may own the stock, such as a limit to the amount of share holders and a requirement that they live domestically. (No Foreign Shareholders) There are many more restrictions, but one of the many reasons a Subchapter S is popular is because of the flexibility that it can allow in setting up the payment structure to shareholders to legally avoid some taxes.

The LLC or limited liability corporation is very popular as well. The LLC can be very flexible and it is popular because it does not have the same restrictions or paperwork of some of the other entities. It is also very popular because it can have some tax efficiencies that are very appealing to business owners.

Choosing The Name Of Your New Entity

Once you have done your due diligence and research you need to pick a name for your new enterprise. Most of the time you need to register the name with some governing body in the state you are planning to do business. You can contact the secretary of state’s office for more information on how you can register the new name of your entity.

The Home Stretch

After you have registered and learned what you need to do to file with the state you plan to do business in, you need to draw up your articles of incorporation. If there is a pre incorporation agreement, they should follow the terms and conditions that were specified in that agreement. Once you have filed all the proper paperwork with the secretary of state or other legal body, they should provide you with a certificate of incorporation or some other document showing your approval to do business under that name. Once you receive your corporate charter or other paperwork from the state you can hold your first board meeting to elect officers and adopt the new bylaws of the company. It may seem like a daunting task, but it can also be very simple. The first company I ever created was done on line for a few hundred dollars and while it can be complicated and confusing at times, the benefits can far outweigh the disadvantages, especially at tax time.

Good luck!

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