This topic on incorporating a business is targeted to entrepreneurs in the United States. If you would like to know how to establish a corporation in Europe or Asia, please contact us. We will be happy to assist you.
Incorporating your business, means that you register you legal business name, your initial articles of incorporation and the name of all your officers with the department of corporations for your particular state.
Before we go into details on how to do that, you first need to understand the different types of company structures.
Seek advice from an accountant as well as an attorney if this is the very first time you establish a business. You need to understand the different tax implications and liabilities for each of the forms.
We can only provide you with some basic information in this chapter, as our focus is on business advise.
Incorporating a business is not difficult, choosing the right structure for your enterprise is rather more important.
As it already indicates in the name, this is the description of an unincorporated single business owner. You do not have to register with the state, but have to file certain tax related forms.
You operate this business under your personal name but not under a separate company name. For your tax related responsibilities you will have to use your SSN.
A partnership is the relation between two or more partners which equally invest and share gains and losses.
The Partnership does not pay income taxes, but rather passes the tax responsibilities through to the partners in form of dividends.
Each Partner is responsible to file their own taxes.
Incorporating a business by forming a c-corporation. Potential shareholders exchange money and property for the corporation’s stock.
The corporation is allowed to take certain federal tax deductions; however, both the corporation and the shareholders are treaded as individual tax payers.
The corporation is taxed on its profits and the shareholders on their dividends; in other words a double taxation occurs.
Many small businesses decide on forming a S-Corporation, as it has similar benefits of a limited liability and at the same time is not treated as an individual tax paying entity.
S-Corporations do report income, but pass profits through, in forms of dividends to the shareholders. Certain conditions need to be fulfilled in order to be recognized as an S-Corporation.
An additional form has to be filed after you incorporate with your state, in order to select to become an S-Corporation.
Limited Liability Corporation
This is a form of corporation regulated by state statutes and might differ from state to state.
The owner or owners of the LLC are called members. Each member owns a certain membership percentage rather than shares. A member can be a person, corporation, LLC’s or foreign entities.
Depending on the amount of members the IRS will determine if you are taxed as a corporation, individual or partnership.
The main advantage of the LLC is that the actual business activities remain responsibility of the corporation as a separate entity and the members only have limited liability, depending on the role they have in the corporation.
Typically an operating agreement is drafted which regulates the details.
Incorporating a business slightly varies from state to state and can be done in multiple ways.
Attorneys, Business Consultants & CPA’s offer incorporating services. Depending on the multitude of your entity and the amount of money you budgeted this can range between $750 and $2500USD.
Step One – Decide on a business name. Once you have a name you would like to incorporate with, your consultant will check if the name is available.
Step Two – The company name, including with the name of the owner(s), officer(s), registered agent and initial issued shares, will be registered with the state.
Step Three – Your business now needs to be registered with the IRS for tax purposes. For this you will need to apply for a Tax Identification Number (TIN). If you elect to be an S-Corporation an additional form needs to be filled with the IRS
Step Four – Order and receive your book of incorporation, including minutes, shares, articles and corporate seal. This way you keep all your corporate documents in one place. Make sure to keep them current.
One important thing to keep in mind is that you have to file an annual report with your department of state to keep your corporation active.
Make sure you keep your shareholder meetings and minutes current in your book of incorporations.
For any questions or advice on incorporating a business, please do not hesitate to contact us.