How to Incorporate a Business

So, that business you started in your garage is actually starting to make you a little cash. As a business grows, entrepreneurs and business owners may start thinking about making it into a corporation. Included here are some pros and cons of incorporating, steps to incorporate and resources for incorporating a business. If you have decided that incorporation is the way to go for your business, here is how you can do it.

Although there are many potential benefits to incorporating, it generally boils down to one primary reason: eliminating personal financial liability from business liability. Incorporating a business creates a separate legal entity, effectively separating the risk involved with starting a business from the rest of an individual's personal life. After incorporating, if there is a lawsuit filed against the business for more than it's worth, personal assets (such as your house) will not be at risk.http://www.ahbbo.com/incorporatingyou.html

Before actually incorporating, each prospective corporation must establish a unique business name.http://www.entrepreneur.com/startupbasics/namingyourbusiness/archive116244.html

1. After choosing a formal company name, research thoroughly to ensure that the U.S. Trademark Office hasn't already issued the name to another entity.http://www.uspto.gov/

Each new corporation must select the actual state in which they will legally file their incorporation paperwork to establish a state charter. Generally, companies choose the state where they primarily do business. If a company has operations in multiple states, it may have other options.http://www.mynewcompany.com/whichstate.htm

1. Different states have different rules and guidelines for incorporating.http://www.lectlaw.com/files/bul06.htm Delaware, Nevada and Wyoming are among the states that do not require any incorporation fees.http://www.inc.com/articles/1999/10/14108.html

1. An S-Corporation doesn't pay income tax, but rather the profits/losses are passed on to the shareholders to file in their tax returns. However, there are restrictions to the number and location of the shareholders (no foreign shareholders).http://www.ahbbo.com/incorporatingyou.html
2. A C-Corporation files income tax, but there are no restrictions to how many shareholders there are or where they are located. This is what most businesses in the U.S. are.
3. An LLC (limited liability company) is usually suited to smaller companies with only a few owners. They must either be "member managed" (run by the owners) or "manager managed."http://www.microsoft.com/smallbusiness/resources/expert/strauss110807.mspx
4. In addition to filing fees, there are other payments you'll need to make in order to incorporate.http://www.allbusiness.com/legal/contracts-agreements-incorporation/2531-1.html
5. Specify how many shares your business will be split into. This will partially be determined by how many people currently run the business and what kind of corporation it will become.http://blog.washingtonpost.com/small-business/2007/11/how_do_i_choose_a_business_str.html

1. File independently. Individuals can file incorporation paperwork themselves. This won't add any extra fees, but there is a risk of potentially making a mistake that could be costly.
2. Choose an incorporation service companies (like the ones listed below) will do the paperwork correctly for a fee, but they don't usually provide extra advice on how to structure your business.
3. Consult and hire a Lawyer. Lawyers might be the most expensive option, but they can help you make the most out of your corporation.http://www.wikihow.com/Incorporate-Your-New-Business If you're not totally comfortable incorporating, consult an attorney.

Some benefits of incorporating include:

1. Indefinite lifespan (your business can continue beyond your lifetime).
2. Possible tax benefits (like tax deductions for unlimited capital losses and income shifting).
3. A separate credit rating for your business.

Some disadvantages include:

1. The costs of filing and possibly hiring a lawyer or accountant (especially around tax time).
2. Potentially higher taxes (if your dividends are taxed twice).
3. The giant pile of paperwork that is often involved.

If you're not sure if you should incorporate, contact a lawyer and/or accountant.

• LegalZoom.com

• BizFilings

• MyCorporation

• Incorporate.com

• Click&inc

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The content of this page is intended for general informational purposes only and is not a substitute for professional legal advice.