How to Incorporate a Business
The word corporation is derived from Latin corpus, meaning body. In other words, a corporation is a body that’s authorized to function as a distinct entity and recognized as so, in the law. In fact, the most distinct feature of a corporation is that it protects its founders from personal liability.
From this definition, it is easy to deduce the importance of incorporating a business. There are perks such as protecting the owners’ personal assets from creditors, lawsuits and more. Incorporating a business can also lead to significant tax savings.
That said, let’s take a closer look at what incorporation entails and how you can go about it.
Breaking Down an Incorporation
Incorporation is simply the act of registering your company as a corporation.
Corporations are controlled by three key parties: the executives, stockholders and directors. Stockholders become a part of the corporation by purchasing shares of the company. They’re also tasked with choosing the board of directors and making decisions on crucial policy matters.
The board of directors is then responsible for appointing different officers. These include individuals such as the chief financial officer and the chief executive officer.
Related: How To Form An LLC
If you’re thinking of incorporating your business, first familiarize yourself with the two main types of corporations: S-corps and C-corps.
The C-corp is the standard corporation while the S-corp is one that arranges a special tax status with the IRS.
S-corps are so named because they are regarded as “pass-through entities” in Subchapter S of the Internal Revenue Code. Simply put; s-corps businesses don’t get taxed. Instead, their income is recorded as the owner’s personal tax returns.
In contrast, c-corps are not pass-through entities. This means that the companies are taxed at the corporate level. And, if there are dividends to be shared, at the individual level as well.
The requirements needed to register a business as an s-corp are stricter than for a c-corp. However, the biggest difference between these two is how they handle their taxes.
How To Incorporating a Business -The Procedures
Depending on where your company is located, there may be more requirements for incorporating your business. But the basic steps are:
1. Know the Law
The first thing you should do is to familiarize yourself with the local business licensing and zoning regulations. Ensure that you’re adhering to all the stipulated laws. In most industries, you don’t need to have permits or licenses to carry out business activities.
But there are a few that have this prerequisite such as food service and child care services. Verifying that your enterprise is complying with the law is important to avoid encountering problems down the line.
2. Pick a Business Name
The next step entails choosing a unique name for your business. Remember you cannot share a name with another corporation, especially one that is in your state. Doing so would mislead customers, not to mention, lead to trademark infringement. In the latter case, your business might get sued.
Another point to consider when choosing a name is that you have to add a signifier at the end, that is, Co., Corp. or Inc.
Liaise with the secretary of state office to check whether your chosen business name is available. In some states, business owners can complete certain forms to reserve their name for a period of 2 to 3 months.
3. Designate your Registered Agent
A registered agent refers to an individual or a business that a company nominates to officially accept the service of process (SOP) on its behalf. The nominated third-party is the one that receives correspondence from the Secretary of State and other official documents such as tax forms and notice of lawsuits.
If your business already has a lawyer, this could be the perfect individual for this role. Whoever you choose to be your registered agent, they have to be residing in the same state as your business.
4. Prepare the Articles of Incorporation
Also known as the corporate charter or the certificate of incorporation, this is a one or two-page document containing details of your incorporation. It outlines:
- Your business name
- Your business location
- Number and types of shares
- Name and residence of your registered agent
- Name of the incorporator- this could be you, your lawyer or someone working for an online legal firm
This is the basic information included in every certificate of incorporation. But some states ask for additional details like:
- The purpose of incorporating your business
- Names and addresses of everyone in the board of directors
- Names and addresses of the corporation’s officers
- The duration the corporation is expected to last
5. File the Articles of Incorporation with your State
After coming up with the articles of incorporation, and evaluating them, the only thing left is to file them with the state. You’re likely to be charged a filing fee, which ranges between $100 and $500.
List Of Online Platforms To Help You Incorporate A Business
6. Write your Corporate Bylaws
Corporate bylaws are the rules and regulations that govern a corporation. These are usually formulated by the board of directors and they include details such as shares, voting rights, time and frequency of shareholder and board meetings. These bylaws tend to contain more in-depth details than the articles of the corporation.
It’s not mandatory for corporations to file their bylaws. However, business owners should keep these records as they’ll come in handy when applying for a loan and during an audit.
7. Create a Corporate Records Book
As the name suggests, this is where you keep all the documents pertaining to the operations of your corporation. The records are such as:
- Copies of the corporate bylaws and articles of incorporation
- Minutes of the stockholder, board and yearly meetings
- Transactions of shares
- Annual reports
- Business loan records
- Copies of the corporation’s contracts
- Real estate transactions that the corporation engages in
While the term ‘book’ suggests storing your records in physical form, it’s perfectly fine to keep them in the cloud or computer.
8. Schedule a Board Meeting
After filing all the necessary paperwork, the next step is to plan the corporation’s first board meeting. During this event, the board of directors are expected to:
- Officially adopt the bylaws and articles of incorporation
- Determine the corporate seal
- Authorize and issue stock to the first group of shareholders
- Hold elections to choose different officers
9. Complete Other Requirements by the Federal and State Governments
There are a couple of other steps you need to take before naming your business a corporation:
- Get an EIN- employer identification number. You can apply for this free of charge on the IRS website
- Apply for your corporation bank account. Now that your corporation is considered as a separate entity, it’s vital that you separate your personal and business finances as well.
- Make your first tax payment. The federal corporate taxes are paid quarterly while those of the state differ from one state to another.
- Check whether you’re required to announce the creation of your corporation in a newspaper. Some states such as Nebraska, Georgia, Arizona and Pennsylvania have this requirement
Incorporating your company opens it up to a ton of opportunities such as tax advantages and protecting its owners from personal liability. If you do not wish your personal assets to be seized, you may want your business to be incorporated. Simply follow the steps outlined in our guide and before you know it, you’ll be operating a corporation.
How to Incorporate A Small Business?
The above steps will help you to incorporate a small business, either you’re a business owner or you about to start. There are many companies that can help you register your company or business and you only require to pay a small amount of money.
How much does it cost to incorporate a business?
The cost to incorporate a business may vary depends on the state and the incorporation service. But the price is between $100 to $250 for administrative and filing charges.
What are The best Incorporation services?
The are many reliable incorporation services online that can help you incorporate your business or company. Below are the few of the best to guide you and incorporate your business.
Can I incorporate business online?
Yes. You can incorporate business online without any stress. You can register with My Company Works to incorporate your business.
Why incorporate a business?
As I said before, you incorporate a business to protect your personal assets and your business.
In case you have any question about how to incorporate a business, let us know from your comment.