For people — more specifically women — who start a business, they’re adding more to their existing to-do lists. In addition to shuttling the kids to soccer, planning dinner, and managing the household you now have to register your business, choose a name, set up a site…the list goes on and on!
I have made a career for myself out of helping entrepreneurs in their journey to starting a business. The biggest decision you’ll make in legalizing your business is choosing what type of business entity works best for your brand. Here’s an overview of your options:
- Corporation (C Corp or S Corp)
- Protects your personal assets.
- Offers certain tax deductions and benefits.
- Acts as its own entity.
- Also protects your personal assets.
- Has fewer hoops to jump through than a corporation.
- Doesn’t require you to file business taxes (just report the income on your personal tax forms).
- Sole Proprietorship or Partnership
- Your personal assets are liable, should you be sued, and can be taken from you.
- You file taxes as an individual.
Many business owners end up with the wrong business entity simply because they don’t know which one best suits their needs.
If incorporating a business is the best strategy for you, there are many benefits you’ll reap from becoming a corporation:
- Should you be sued, your personal assets (bank accounts, house, cars) cannot be touched.
- You may be eligible for certain tax deductions that can lower the amount of tax you pay.
- You create a sense of trust. Customers tend to trust “official” business entities!
- Your business can outlive you. If you sell it, you simply sell the corporation and it carries on.
- You can have shareholders and raise capital.
How to Incorporate
You’ve got a few options when it comes to incorporating your business. The first is to do it yourself. It requires a bit of legwork and patience, but is a perfectly reasonable option. Another option is to hire a lawyer. Many people feel comfortable having an expert advise them on this important decision, though in my opinion, most of the time a lawyer isn’t needed, and is an unnecessary expense. And finally, you can work with a business filing company like CorpNet.com that has the experience to help you through the process.
If you file your own incorporation, please be sure to read the requirements for your state and turn in your Board minutes as required. You’ll need a Board of Directors to comply with government regulations for corporations.
Busting the “Where to Incorporate” Myth
Like many entrepreneurs, you’ve likely heard that it’s best to incorporate your business in a state like Delaware or Nevada. Not so. While these states have favorable tax benefits for corporations, you’ll still be subject to tax laws in your own state.
Filing in a state other than the one you operate out of will just cost you additional fees and paperwork. Stick to filing your corporation or other business structure in the state where you conduct business.
Editor’s Note: This was originally written by Nellie Akalp on Strategies & Tactics for Women by Dr. Shannon Reece.