When starting a business, one of the decisions you’ll need to make is whether to incorporate your company. Business incorporation is a legal process that transforms your business into a separate legal entity distinct from its owners. It offers several benefits, including liability protection and tax advantages. Let’s explore what business incorporation means, how it works, and the benefits it offers.<\/p>\n\n\n\n
Business incorporation is a legal process to form a corporate entity or company that separates the firm’s assets and income from its owners and investors. A new business can only run as a limited company once incorporated.<\/p>\n\n\n\n
Incorporation involves writing up a document known as the Articles of Incorporation and enumerating the firm’s shareholders. The chosen name should be followed with a corporate identifier such as “Corp.” “Inc.” or “Co.” and a preliminary name availability search is advisable before the submission of the Articles of Incorporation.<\/p>\n\n\n\n
Incorporating a business offers many benefits, which include the following: <\/p>\n\n\n\n
The primary drawback of an incorporated business is the operating constraints required to maintain its incorporated status. Companies must adhere to their bylaws and meet filing, reporting, and other ongoing requirements.<\/p>\n\n\n\n
The drawbacks of incorporating a business include the following:<\/p>\n\n\n\n
Due to the state’s business-friendly laws and services, business incorporation in Delaware has become a popular option for many companies. Delaware offers a complete package of incorporation services, including modern and flexible corporate laws, a highly-respected Judiciary and legal community, and a business-friendly government.\u00a0Also, you can file for business incorporation in Delaware online or in person.\u00a0<\/p>\n\n\n\n
Some benefits of business incorporation in Delaware:<\/p>\n\n\n\n
California business incorporation laws govern the establishment of a corporation within the state. For business incorporation in California, you must follow specific steps and comply with the California Secretary of State’s requirements and other relevant authorities. <\/p>\n\n\n\n
To incorporate your business in California, you must file articles of incorporation with the California Secretary of State’s office. Then, within 90 days after filing the articles of incorporation,\u00a0 you must file a “Statement of Information” with the California Secretary of State.<\/p>\n\n\n\n
The Florida Business Corporation Act sets the rules for business incorporation in Florida. Filing for business incorporation in Florida means the general corporation laws of Florida will govern your corporation.<\/p>\n\n\n\n
When filing for business incorporation in Florida, the first step is to check if the desired business name is available. The application will be denied if another company has already taken a name. Then, file the articles of incorporation with the secretary of state. You can also file for business incorporation online, in person, or by mail with the Florida Department of State.<\/p>\n\n\n\n
Business incorporation in Florida has many benefits, some of which are:<\/p>\n\n\n\n
Business incorporation online involves several steps and requires access to the necessary information and forms. The process can be done through the appropriate state agency or online business incorporation services. Online services can simplify the process by providing fill-in-the-blank forms, preparing and filing registration forms, and offering additional services such as checking name availability, preparing by-laws, and obtaining a federal tax identification number.<\/p>\n\n\n\n
When choosing an online business incorporation service, consider the following factors:<\/p>\n\n\n\n
Many online incorporation providers offer extra services such as business planning and legal help. While these features can be tempting, they may increase the cost and could be obtained for free.<\/p>\n\n\n\n
Incorporation services offer different packages, ranging from $200 to $1,000, excluding the filing fees charged by the state. These fees typically cover the preparation of resolutions of the board of directors and charter documents. Also, filing fees for incorporating a corporation with the secretary of state usually range from $100 to $250. Some states may require additional fees for registering a trade name.<\/p>\n\n\n\n
Many online incorporation services provide registered agent services for an annual fee of $100 to $300. Using an outside registered agent can protect your privacy as the registered agent\u2019s address is listed in public records, not your physical address.<\/p>\n\n\n\n
Other costs will include attorney fees ($500-$700), licensing fees ($50-$1000), accounting software fees ($7+ per month), and federal registration fees ($50).<\/p>\n\n\n\n
The term “incorporated” often indicates that a business is a corporation. It means a business entity has filed documents with a state to become a corporation. By filing the certificate of incorporation and going on record with the state, the owners become legally separate from their investment and the business. The business operation and its pool of assets and liabilities are \u201cincorporated\u201d into a separate legal \u201cperson\u201d.<\/p>\n\n\n\n
There are three types of incorporation: C Corporation, S Corporation, and Limited Liability Company (LLC).<\/p>\n\n\n\n
This is the most common type of incorporation. It is taxed as a business, but the earnings go to the owners, who pay taxes on them as individuals. Having limited liability is a benefit of forming a C corporation. This means shareholders are not personally responsible for the company’s debts or court disputes.<\/p>\n\n\n\n
This kind of company is similar to a C corporation but can only have up to 100 owners instead of unlimited ones. S corporations are pass-through businesses, just like partnerships. This means that gains are only taxed once. Regarding liability security, S corporations are the same as C corporations.<\/p>\n\n\n\n
An LLC is a type of company that combines the liability protection of a corporation with the ease of a partnership. LLCs are pass-through entities, meaning the business’s income and losses are passed to the owners and taxed on their tax returns.<\/p>\n\n\n\n
There are two main types of business structures: limited liability companies (LLCs) and corporations.<\/p>\n\n\n\n
A limited liability company is a formal business structure that protects its investors. LLCs are created under state law and are generally easier to set up than corporations. They offer more flexibility regarding taxation, as members can be taxed as a sole proprietorship, partnership, or corporation. All income in an LLC flows through to the members, and LLCs may elect not to pay federal taxes directly. However, if fraud is detected or a company fails to meet its legal and reporting requirements, creditors may be able to go after the members.<\/p>\n\n\n\n
A corporation is a separate legal entity from the person or people forming it. Directors and officers purchase business shares and are responsible for its operation. Incorporation limits an individual’s liability in case of a lawsuit. As a legal entity, the corporation is liable for its debts, pays taxes on its earnings, and can sell stock to raise money. A corporation can also continue as an entity after the death of a director or stock sale. Corporations are more complex to set up than LLCs and cost more to administer. Corporations in most states must add a corporate designation, Inc., after their business name.<\/p>\n\n\n\n
If you’re an entrepreneur focused on growing your business quickly and attracting venture capital, you should incorporate it sooner rather than later. You’ll need to if you have co-founders, employees, investors, or customers. The earlier, the better, as incorporating a startup can be complex and requires time and resources. However, there are several circumstances in which you should or need to incorporate your startup, and in many of these cases, the sooner you incorporate, the better.<\/p>\n\n\n\n
Here are some specific scenarios that startups should incorporate:<\/p>\n\n\n\n
The most common type of incorporation is a private company limited by shares. This type of company makes up around 95% of all companies registered with Companies House. A private company limited by shares is a separate legal entity from its owners and shareholders and is owned by its shareholders. The shareholders are only responsible for paying their shares, and the owners receive profits and are taxed individually.<\/p>\n\n\n\n
Incorporation is a significant step for a business; therefore, consider several factors and consult a lawyer and accountant before deciding whether to incorporate. Consider the benefits and drawbacks of incorporation and your long-term goals for the business before making a decision.<\/p>\n\n\n\n
Other factors to consider include the following:<\/p>\n\n\n\n
An employer identification number (EIN) is a unique nine-digit number the Internal Revenue Service (IRS) assigns to business entities for tax reporting purposes. It is used to identify businesses the same way Social Security Numbers (SSNs) are used to identify individual country residents. The IRS issues EINs, which have the format XX-XXXXXX. All forms of businesses can apply for and be issued EINs, including sole proprietorships, partnerships, corporations, and limited liability companies (LLCs).<\/p>\n\n\n\n
Having an EIN is not equivalent to being incorporated. However, businesses that change ownership structures must apply for a new EIN. For example, sole proprietors who plan to incorporate their businesses must apply for a new EIN. The federal number the IRS assigns to a business is an incorporation number, also known as a Federal Tax Identification Number (TIN) or an EIN. The Internal Revenue Service requires every corporation or partnership to have one. The federal government uses the number to identify the company for tax reporting purposes.<\/p>\n\n\n\n