As your small business expands, incorporating can unlock its full potential. While the process is straightforward, careful adherence to specific steps is crucial. This guide provides a clear path to successful incorporation.
**Preparing for Incorporation**
Begin by identifying your primary business location. If you operate solely within one state, incorporation should occur there. Businesses spanning multiple states have the flexibility to choose a state, often selecting one with favorable tax laws and business regulations.
Next, select a unique name for your corporation. Verify its availability with the Secretary of State and conduct online searches to avoid conflicts with existing businesses or trademarks. Once confirmed, register the name, potentially as a “Doing Business As” (DBA).
**Choosing a Filing Agent**
Decide who will handle the incorporation process, receive documents, and file paperwork. While self-filing is the most cost-effective option, first-timers benefit significantly from hiring a registered agent. The agent must reside in the state of incorporation and can be an attorney specializing in incorporation or a dedicated service. Incorporation services are generally more affordable than attorneys.
**Developing a Corporate Structure**
Establish a corporate structure, detailing stock distribution, voting rights, and financial arrangements among shareholders, regardless of whether you’re a sole proprietor or have multiple shareholders. Ensure all parties agree and document the structure before filing.
Also, draft corporate bylaws—a set of rules governing board member elections, responsibilities, meeting schedules, and operational procedures.
**Ready to File**
Obtain an Employer Identification Number (EIN) and appoint a board of directors. Double-check all paperwork and reconfirm name availability before officially filing your corporate registration documents.
**Corporation vs. LLC: Understanding the Difference**
Distinguish between forming a corporation and an LLC (Limited Liability Company). LLCs are treated as sole proprietorships or partnerships for tax purposes, requiring profits, losses, income, credits, and deductions to be reported on individual tax returns.
Corporations pay taxes on company profits, with shareholders treated as employees receiving salaries and filing separate tax returns. LLC formation typically involves less paperwork and fewer legal complexities than incorporation.
For a swift incorporation process, online resources offer printable documents, state-specific instructions, and tools to streamline the process.