To prepare for incorporation, first choose your primary business location. If your business operates in only one state, you will need to incorporate in that state. If your business operates in multiple states, then you have the option to choose which state to incorporate in, usually the state that's more business friendly when it comes to taxes and laws pertaining to business.
Next, select a name for your corporation. Check with your Secretary of State to make sure the name you choose is not already taken by another company. Also, do research online to be sure the name is not taken by another business and doesn't have a patent by another company or individual. Once you're sure the name is free to use, you can register your company name. The name will likely need to be registered as "Doing Business As" or "DBA."
Choose a Filing Agent
The next step is to decide who will register your corporation, receive forms for incorporation, and file your paperwork. The least expensive route is to do all paperwork yourself, but if you're completely new to incorporation, you'll benefit tremendously by hiring an agent. The agent must live in the state where you will incorporate the business. The agent may be an attorney who provides incorporation services or the agent can be a service that specializes in incorporation. Hiring a service is usually far less expensive than hiring an attorney.
Develop a Corporate Structure
Whether you're the only member or shareholder of your company or you already have multiple shareholders, you should determine a corporate structure before registering the corporation. To structure the company means to determine how the stock will be spread among shareholders along with other rights such as voting rights and finances. Be sure everyone is in agreement with the structure and put everything in writing before filing your paperwork to incorporate the company.
Next, put together your corporate by-laws, or a set of rules that determine how board members will be elected, their duties, how and when board meetings are to be held, and other important details of how the corporation will be operated.
Ready to File Now you're ready to obtain an Employee Identification Number (EIN) and select a board of directors for your company. Once these two tasks are accomplished, check to be sure you have all necessary paperwork and check the company name availability once again to be on the safe side. Now, you're ready to file your corporate paperwork for registration.
Forming an LLC - Know the Difference
Keep in mind that forming a corporation differs from forming an LLC (Limited-Liability Company). When you form an LLC, your business will be treated as a sole proprietorship or partnership under federal and state tax laws. You will be required to report profits and losses, income, credits, and deductions on your individual tax return.
Corporations, on the other hand, pay taxes on the company's profits. The shareholders are treated as individual employees, and each receive their own salaries and file their personal tax returns separately. LLC formation requires less paperwork and has fewer legal issues than a corporation.
If you're pressed for time and want to get things moving quickly with your company's incorporation, there are websites available to help you incorporate online. These sites provide printable paperwork, state-by-state instructions, and other helpful items to make it easier than ever to incorporate your business.
The purpose of this article is to provide a compelling reason for you to consider incorporating your small business or self-employment activity.
The tax benefits can put thousands of dollars in your pocket every year.
But the Number One reason to consider incorporating has nothing to do with tax reduction and everything to do with asset protection.
Here's a story to help you decide whether forming a corporation is worth it.
A few years ago, one of my clients, let's call him Jim, decided it was time to stop working for someone else and start working for himself.
Jim was a plumber, and a good one.
It took a couple years of hard work, but Jim's reputation spread fast and he soon had all the work he could handle.
Jim finally had to hire an assistant, a young fellow named Tom.
One rainy Saturday afternoon, Jim got a service call and asked Tom to handle it. This job turned into several hours of lucrative labor, so by the time Tom was done it was dark. The roads were slick and Tom was tired.
As luck would have it, another service call came in as Tom was heading home. Jim offered Tom yet another chance to make some good overtime pay. Tom reluctantly accepted.
Tom thought about stopping for a cup of coffee, but he was eager to get done. As he drove through the torrential downpour, Tom noticed the brakes in the company truck weren't working like they used to. He remembered the mechanic saying something about it the last time he took the truck in for a tune-up, but he and Jim were so busy lately they just forgot to get them fixed.
As he came to the next stoplight, Tom knew he was in trouble. The brakes failed and the truck collided with another vehicle.
Tom's injuries were not nearly as serious as those of the other driver, who eventually died.
Jim's insurance policy covered all the medical costs, but the liability coverage wasn't enough to take care of the amount that the other driver's family sought via the negligence lawsuit.
End result: Jim suffered serious financial loss. Because Jim's business was a sole proprietorship, he had to use all of his personal savings to satisfy the claims of the lawsuit.
So it can happen. And it can happen to you.
Need I remind you just how prevalent lawsuits have become in our society?
So if you are a sole proprietor, why run the risk of losing your personal assets from a business-related lawsuit? If you have employees, you can be held responsible for their actions.
"But I don't have any employees", you say.
It could just as easily have been Jim rather than Tom who was driving in the rain that night. Likewise, it could be you who is the cause of unintentional damage or some other business-related accident.
Bottom Line: If your business is a sole proprietorship you need to incorporate because all your personal assets are at risk.
Make the move from the world of unlimited liability to limited liability.
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Both Chris Robertson & Wayne M Davies are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.