Incorporate a Business
Incorporating your business is the way to take it to the next level, opening your business up to new limited-liability tax options and other corporate benefits. If you do not wish to become an LLC (limited liability company), you may want your company to become fully incorporated. Filing the articles of incorporation in your state can seem overwhelming, but by approaching the task with a bit of planning, you’ll be on your way to incorporation.
Part 1 of 2: Getting Started
1. Decide if your business will benefit from incorporation
Decide if your business will benefit from incorporation. Incorporating gives you the benefit of limiting your personal liability and making your business easier to transfer to others. Limiting your personal assets will protect your home and other belongings from being seized as collateral. Depending on the type of company you’ve started and your long-term goals for it, incorporating might be right for you, or it may be superfluous. Being incorporated enables you to:
Legitimize the business.
Limit your personal liability.
Take your company public.
Issue stock options to employees.
Transfer ownership or shares among members of the corporation.
Have your corporation outlive you.
Raise investment capital.
2. Appoint a board of directors
Appoint a board of directors. A board of directors (or BOD) is selected by a company’s shareholders. Often, a company’s initial founder or CEO will begin on the board and appoint more members after the business is established. The directors’ names and contact information should be designated on your incorporation paperwork, so it’s important that you assign the roles before you file the papers. If you change the board throughout the life history of the company, this information is usually communicated to the state by filing a statement of information.
Directors are legally obligated to act with the best interest of the company in mind, protect the investments of shareholders and appoint the company’s officers, whom they may fire and hire as they see fit.
3. Assemble the shareholders
Assemble the shareholders. The major stockholders in your company are generally called upon to elect the board and financially back the company in exchange for holdings in the company. In general, their return for this investment is a say in the election of the board. When you file for incorporation, the stockholders should be consulted and should agree to the incorporation decisions.
4. Decide between filing as a C corporation and an S corporation
Decide between filing as a C corporation and an S corporation. The standard is usually to file as a C corporation if you have a sizable operation. An S corporation is more appropriate if you intend on having fewer than 100 shareholders.
C corporations are individually taxable, file a corporate tax return and pay taxes at the corporate level. Double taxation is a possibility for C corporations if the company’s income is distributed as income, resulting in taxation at different levels based on the number of shareholders. C corporations can also have multiple classes of stock, such as preferred and common.
S corporations are available to companies that intend on having fewer than 100 shareholders. S corporations file an informational federal return, but do not pay tax at the corporate level. Profits and losses are reported on the business owners’ individual tax returns. An S corporation has pass-through taxation (which means that you can pass business losses to your personal taxes) and is only eligible for one class of stock.
5. Hire a corporate lawyer
Hire a corporate lawyer. It is best to hire an attorney to deal with the articles of incorporation. The paperwork and the laws are quite complicated and, without careful consultation, you risk making mistakes that can cause you serious financial trouble down the road. Don’t risk your stake in your company by filing wrong; consult an unbiased attorney who has no stake in your company.
An attorney can help you make the best entity choice for your business and draft the appropriate paperwork for the filing.
Part 2 of 2: Filing the Forms
1. Contact the Secretary of State’s office in your state
Contact the Secretary of State’s office in your state. Generally, the Secretary of State’s office will handle all matters related to incorporation. In some cases, other offices, such as the Business Bureau, may need to be consulted. The Secretary of State’s office should be able to direct you more specifically in that case and direct you to the proper forms (which are usually available on the state government website).
2. Acquire the articles of incorporation
Acquire the articles of incorporation. For any given state, a group of several separate documents (sometimes as many as 10 or 15) make up the articles of incorporation, each with its own particular fee and required information. Since every state differs slightly in the breakdown of paperwork, you need to contact the Secretary of State’s office to request the documents. Then, go over the documents with a lawyer and fill them out with the necessary information.
All of the necessary paperwork should be available on the Secretary of State’s website for self-filing. A corporate lawyer will provide the forms as part the service that he provides.
3. Pay the incorporation fees
Pay the incorporation fees. Some forms will have fees attached to them, generally in the neighborhood of $80 to $100 each. Not every form with have an attached fee, but you’ll generally pay these at the time of filing with the Secretary of State’s office.
Incorporation fees vary from state to state.
If you need to rush your paperwork, you can usually do so for an increased fee.
4 File a Statement of Information form
File a Statement of Information form. You’ll also need to file a Statement of Information form in some states. This document must be filed a few months after the initial filing of the articles. Some states require that a Statement of Information form be filed each year following the incorporation. Check the Secretary of State’s website to see whether the form is required in your state. This form can usually be submitted online and includes fairly basic information about the corporation; think of it as a company census you must complete every year. It usually includes:
Names and addresses of corporate directors.
Members of the board.
Vacancies or changes in leadership.
Mailing and street address of the corporation
If no changes occurred in the corporation’s structuring and staff, you won’t need to file a new information statement.
5. Register your corporation with the United States Internal Revenue Service (IRS)
Register your corporation with the United States Internal Revenue Service (IRS). After you register with the state, you also need to register your corporation with the IRS, according to your new tax status. In general, C corporations will file IRS Form 1120, and S corporations will file Form 1120S.
If you’re incorporating as an S corporation, you also need to complete IRS Form 2553. Found here, the Form 2553 involves the legality of corporate elections and is somewhat tough to understand. Be sure to consult your attorney when completing this form.
6. Designate a registered agent if you live elsewhere
Designate a registered agent if you live elsewhere. If you want to hold an incorporated business in a U.S. state but you live in a foreign state, you will need to designate a local registered agent to accept official paperwork on behalf of your business.
A registered agent is typically found by a lawyer’s recommendation. Many lawyers work with a registered agent on a normal basis since they incorporate companies regularly. Otherwise, an internet search will help you find qualified registered agents.
You will likely have to pay an annual registered agent fee to keep your business incorporated in the state.