Even if you are still running your small business from your basement, you might want to think about incorporating. There are distinct business, personal and even tax advantages to keeping your personal and professional selves separate. Here's a checklist to help you learn how to incorporate.
Pick a Business Name and Location
Sounds pretty easy right? There's more to a name than just branding. Your business name is official when you incorporate and you'll need to check with your state's corporate filing office and the U.S. Patent and Trademark Office if you plan to register the name or mark as an official trademark. (It's a good idea to have a second choice ready, just in case.)
Check to make sure a domain is available that uses the name as well, if you plan to have a business website. (You can set up your website and find a domain through Weebly.)
Then you need to register your company in the state where you want to incorporate. While it is not mandatory to do this in your home state, most small business owners opt to go that route because it is an easier process.
Pick a Type of Incorporation
You have three choices when it comes to the type of business you incorporate:
- C Corporation: This type of company is owned by shareholders and has a very formal structure with lots of rules. It is most often for large companies of businesses that require venture capital for funding.
- S Corporation: This standard type of incorporation comes with tax benefits and some flexibility if you have employees.
- LLC (Limited Liability Corporation): The most common for small or individual business owners is the ideal setup for startups and does not require a highly formal structure.
You can compare all three types thanks to BizFilings.
Hire an Attorney/Fill Out the Paperwork
After you have done the initial legwork, it's time to hire an attorney to file all the necessary paperwork. While you can do it yourself, finding an attorney to help you incorporate isn't that expensive—and is a tax deductible business expense. Your attorney will help you create all the necessary documentation for incorporation, including articles of incorporation and operating agreements. They will file your paperwork to incorporate with your state corporation commission and can refile on your behalf annually. (Fees for filing vary by state and incorporation type.)
The information that is necessary for corporate formatting paperwork can vary somewhat by state as well (which is why having an attorney helps). You'll likely need to list basic information such as company name and address, name and address of a registered agent, purpose of the company, names and addresses of directors or officers or manager.
Get an EIN
An Employer Identification Number is like a social security number for a business. Once the incorporation is done you can file an EIN application online and will get a tax ID number instantly.
You'll need to know your social security number, the type of business you formed and your company fiscal calendar year to get started. (Plus the online form prompts you with easy instructions along the way.)
Open Business Bank Accounts
Once all your paperwork is in order, you officially have a business. Take your documents with you and head to the bank to open business checking and savings accounts. You may also want to acquire a business credit card. There are a lot of different accounts types available and what you need will be based on the types of transactions to your account.
You might find that for your first business account, it is best to visit a local bank branch and walk through some of the options rather than just opening an online account.
Get Bookkeeping or Financial Help
You're probably going to need some help. Consider hiring a CPA and payroll accountant, for starters. A CPA will help you negotiate all of the tax rules associated with your new business and a payroll accountant will ensure that you are paying yourself fairly while complying with all employment tax regulations.
There's a lot to think about when it comes to your business and hiring a handful of people to help is a good investment in your future.
There are personal and business reasons that make incorporation a good idea once your business is starting to turn a profit (and maybe even if it is running at a loss). But many of the rules for a business versus an individual are different, especially when it comes to taxes.
Overall, incorporation is a good way to keep your personal and business lives separate and while it might seem like an intimidating venture, it is easier than you think with a little help. And the protection incorporation provides to you and your business is totally worth it.