Forming a Corporation? There are many benefits of incorporating for a small business owner. If you, your attorney, or your financial advisor has determined that incorporation is the right solution for your business, CorpNet can help. Here's how the process of incorporating works:
Consider the most common corporate business structures:
Incorporating a business requires the preparation and filing of a Certificate of Incorporation with the Secretary of State in the state in which you decide to incorporate. Once the corporation is established, it becomes its own separate legal entity and is subject to the laws governing corporations in the state of incorporation.
Using CorpNet® incorporation services to incorporate your business can save you both time and money with service that is fast, reliable, and affordable with a 100% money back guarantee.
Where to Incorporate?
For a small business with less than 5 owners / shareholders, incorporating in the business' home state (where the principal office is physically located) is often the best solution.
While a lot of hype exists about incorporating in Nevada or Delaware, the costs often exceed the benefit for most small businesses.
How to Incorporate?
Incorporating a business is much simpler today. Information about how and where to incorporate if freely available on the internet. The process, however, can sometimes be tedious. Therefore, using an affordable incorporation service like CorpNet is often a smart choice. For the determined do-it-yourselfers, here's how it's done:
See details about the incorporation process with state agency information in our How to Incorporate section.
Draft Articles of Incorporation
Incorporator executed Articles of Incorporation
Submit documents for filing
Standard Processing (up to 3 months) vs. RUSH Filings (as fast as 1 hour)
Receive your certified documents
Elect a Board of Directors
Incorporating yourself is not a daunting task. However, CorpNet is FAST...RELIABLE ...and AFFORDABLE. So, save time and money with CorpNet.
Do you know the difference between an S Corp and a C Corp? Have you ever wondered if you should form an LLC for your business or where you should incorporate? Or maybe you’re not sure if you need to create a non-profit for your activities.
Assembled here are all the answers to the most frequently asked questions when it comes to incorporating your business. If you’re a small business owner, read on to learn more about the various business structures and how you should incorporate your business.
Question: What are the benefits of incorporation?
Answer: The main reason to incorporate (or form an LLC) is to minimize your personal liability. Once your business is incorporated (either by forming an LLC or Corporation), it exists as a separate business entity. Essentially, you put a wall separating your personal assets from anything in the business.
Of course, there are other benefits too. Here are the top reasons to incorporate:
Minimize your personal liability and protect your personal assets
Get more flexibility when it comes to taxes (talk to your CPA or tax advisor for specific advice on your personal situation)
Boost the credibility of your small business
Add a layer of privacy (don’t use your personal name and home address to represent your business)
Start building your business credit
Protect your business name and brand at the state level
Question: What are the drawbacks of incorporation?
Answer: The only real “drawback” of incorporating is that you’ll need to operate your business at a higher administrative level than you’re used to as a sole proprietorship. In addition, incorporating as a C Corporation can result in higher taxes for some small business scenarios due to double taxation.
With a C Corporation, the business needs to pay taxes on any profits, and then owners are also taxed when any profits are distributed to them. Obviously, if you’re looking to put your small business profits into your own pocket, you may end up paying a lot in taxes. However, as the following question shows, there are ways to avoid double taxation, while still getting some of the benefits of incorporation.
Question: What’s the difference between a C Corp and an S Corp?
Answer: As mentioned above, the C Corporation’s tax structure isn’t optimal for many small businesses, since business owners often are taxed twice on the profits. However, Corporations can elect for “S Corporation” tax treatment. Often called a “pass-through” entity, an S Corporation doesn’t file its own taxes. Rather, profits and losses of the business are passed through and reported on the business owner’s personal tax return.
To qualify for S Corporation tax treatment, you’ll need to fill out Form 2553 with the IRS. You’ll need to do this no more than 75 days from the date of incorporation, or no more than 75 days from the start of the current tax year.
Be aware that not every business can qualify to be an S Corporation. For example, an S Corporation cannot have more than 100 shareholders and shareholders must be U.S. citizens or residents.
Question: What’s an LLC?
Answer: An LLC (Limited Liability Company) is a hybrid of a sole proprietorship/partnership and corporation. This structure is very popular among small businesses, and for good reason. The LLC limits the personal liability of the owners, but doesn’t require much of the heavy formality and paperwork of the corporation. This makes it a great choice for business owners that want liability protection, but don’t want to deal with exhaustive meeting minutes, addendum filings, or other paperwork you’d need to file as a corporation.
You can structure your LLC to be taxed as an S Corporation (as described above) where company profits flow through to the owners and are taxed at the personal income rate.
Question: What’s a non-profit corporation?
Answer: A nonprofit is created for charitable, educational or other purposes (actually there are five recognized purposes: charitable, religious, scientific, educational, and literary). Nonprofits cannot benefit the owners: all money above operating costs must be used to further the goals of the nonprofit. This allows nonprofits to operate tax-free. Approval is needed at both at the State and Federal (IRS) level.
Just like with other corporations or LLCs, a nonprofit corporation offers a corporate shield that helps protect the personal assets of the nonprofit’s stakeholders. In most cases, as long as the legal structure remains correct, stakeholders of nonprofit corporations are immune from individual liability.
Question: Where should I incorporate?
Answer: You often hear of companies incorporating in Delaware, Wyoming, or Nevada. That’s because Delaware offers flexible, pro-business statutes, while Wyoming and Nevada feature low filing fees, as well as no state corporate income, franchise, and personal income taxes.
However, as a general rule of thumb, if your business will have fewer than FIVE shareholders, you should incorporate in the state where you actually live or where your business has a physical presence (such as an office). When you incorporate in a different state from your physical presence, you’ll need to deal with added fees and paperwork since you’re considered “operating out of state.” And for most small businesses, the added hassle and fees just aren’t worth it.
Question: When is the best time to incorporate?
Answer: In most cases, it’s best to incorporate or form an LLC as soon as possible. After all, the main benefit is liability protection and by waiting to incorporate, you can be exposing yourself to liability.
Keep in mind that your corporation's 'start date' is not retroactive. This typically means filing two business income tax returns for the year. For example, if your corporation was formed on June 1, you’ll need to file as a sole proprietor (or whatever your previous entity may have been) from Jan. 1- May 31 and then file as a Corp. from June 1-Dec. 31.
Question: How can I incorporate?
Answer: There are three common methods for incorporating or forming an LLC. Each has its pros and cons depending on your needs:
Do-it-yourself: DIY is the lowest cost method, but you’ll need to do everything yourself. This is the best option if you’re more interested in saving money than time. With this route, you need to be able to deal with lots of details and arbitrary rules.
Online legal filing service: This option is slightly more expensive than DIY. A reputable online legal filing service such as the one we provide here at corpnet.com will complete and file the documentation for you. Like any legal document, the articles of incorporation and application are full of tedious details. A professional service can make sure that your application is done right and processed smoothly.
Lawyer: This is the most expensive option, but may be necessary in certain situations. For example, if you have complex requirements for how your stock should be allocated or you are working with millions of dollars, then you should turn to expert advice. And whichever method you choose, you may want to speak with a tax professional to determine what business structure will be the best for your particular circumstances.
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