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Business Incorporation 101

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What does it mean to incorporate?

Incorporation is the process wherein a business or company becomes formally recognized by their state of incorporation. When a company incorporates, it becomes a legal business entity set apart from the individual(s) who founded the business. The corporation may be a small business, nonprofit organization, club, or a government of a new city or town.

Is incorporation right for you? Find out in this article on the pros and cons of forming a corporation.

You may be dreading the thought of formally incorporating your business. The lines, fees and forms can seem intimidating. You'd much rather be developing your products or services and focusing on growing your fledgling business, not answering mundane forms and questions.

We get it.

The process can seem daunting and fraught with red tape. Local, state and federal government websites provide murky answers at best. Despite the volumes of information available on how to incorporate a business, there's little actionable help available for starting enterprises. For entrepreneurs, it's often easier to just continue operating as a sole proprietorship and forego incorporation until some future date. In fact, according to the Small Business Administration, over 70% of businesses in the US do just that.

However, once you learn about the benefits of business incorporation, you may reconsider the status quo.

Incorporating your business is vital to ensuring compliance with a variety of laws, each of which differ from state-to-state. More importantly, business incorporation protects you and your personal assets, and depending on the business structure you choose, may even reduce your tax liability.

Don't delay incorporation any longer – let MaxFilings handle all the burdensome legwork of formally establishing your LLC, partnership or corporation.

How much does it cost to incorporate a business?

Get a free quote today.

If you have any questions about the business incorporation process, please feel free to contact us.

Benefits of Business Incorporation

Should I incorporate my business? What do I gain from doing so?

This line of questioning is common among companies in their infancy. The truth is, many new business owners and entrepreneurs are unsure about business incorporation. The paperwork is tedious and the fees are expensive, especially for a start-up. And while there are several structures to choose from when incorporating a business — limited liability company (LLC), C corporation, S corporation and more — there are several key benefits to taking this important step.

Limited Liability Protection

One of the core benefits of incorporating your business is that it separates liability between you and your business. The risk to personal assets is one reason why many people never even start a business in the first place. Incorporating your business provides some legal protection to personal assets like your home, bank accounts and other private property unrelated to the business. An incorporated business, especially a corporation, is considered its own legal entity that's treated separately from the founders, officers and shareholders of the company. This reduces the liability of these individuals.

There are limited exceptions where an individual can be held to account for actions undertaken by the company, but this typically only occurs in cases of willful negligence or criminal activities. Consult with an experienced business law attorney to better understand liability and your business.

Other Advantages

Besides protecting your personal assets, other benefits of incorporating your business include:

  • Ability to transfer ownership
  • Lower your personal tax burden
  • Separate credit rating from your personal rating
  • Improved business credibility makes it easier to raise capital
  • Stock incentives
  • Perpetual existence (a corporation continues to exist even if the owner passes away or leaves the business)

Overall, if any troubles do arise, an incorporated business is much better equipped to weather the storm.

Disadvantages of Business Incorporation

As with anything, there are some disadvantages or challenges to business incorporation as well.

Although the benefits to you personally and your venture often outweigh the cons, there are some downsides to incorporating that you should know about.

Paperwork and Fees

Paperwork can be cumbersome and the fees expensive, especially for smaller businesses. For instance, should you choose to incorporate, you'll have to file articles of incorporation with the state, plus submit the applicable fees.

Certain states levy ongoing fees, whereas other states only charge an initial fee.

Also, incorporating will typically require more record keeping. Depending on the state, a corporation may be forced to meet certain record-keeping requirements such as annual reports, corporate bylaws and meeting minutes.

Other Disadvantages

Other downsides of incorporating your business include:

  • Double taxation (C corporations only)
  • Loss of personal ownership to a board of directors
  • A state-determined management structure may be required
  • More difficult to dissolve the corporation

Putting off forming a C-corp, S-corp or LLC may allow business owners to avoid such documentation and fees in the short-term, but you'll miss out on some of the unique benefits of incorporating.

The MaxFilings Difference: Get Maximum Results with Minimal Effort

MaxFilings is an online-based small business incorporation service. We help fledgling enterprises in all 50 states and the District of Columbia navigate the choppy waters of formally setting up a partnership, LLC or corporation. We handle all the filings and other forms needed to get your company off the ground.

We support small businesses through the entire incorporation process:

  • Federal Tax ID. Obtain your unique ID number for federal tax purposes. This special ID puts another wall of separation between your personal assets and your business.

  • Articles of Incorporation (Preparation & Filing). We will take the information you provide, prepare all the necessary forms, and submit them to the proper agency in your state.
  • Business Forms CD. This special CD from MaxFilings contains templates for over 60 common business forms.

  • Name Search. We'll make sure the name you wish to incorporate is available.

Once you've incorporated your business, it doesn't mean we go away.
MaxFilings is always available to help your small business ensure legal requirements are met in your state.

How to Incorporate Your Small Business in 6 Steps

Incorporating a business may differ depending on which state you wish to incorporate in. In general, though, the standard process typically looks something like this:

Step 1: Choose a business name

It's hard to overemphasize the importance of selecting a good name for your business — one that pays dividends for the life of the business. Try to choose a name that's simple, yet delivers the right message to potential customers. You'll also need to consider the availability of a name in your state as well as an appropriate web site address (URL) online. This step won't be easy but it will be worth your effort in the long run.

With MaxFilings, you get a FREE name check with your state of formation to make sure a name you want is available. This service is included as part of our business formation service packages or, if you like, MaxFilings will do a name check alone. Learn more

Visit our blog for 5 tips on naming your business.

Step 2: Select your state

Where should you incorporate? Since you aren't required to incorporate in the state where your business operates, this can be a difficult question to answer. Some factors to consider when deciding where to form your business include the main location of your physical facilities, a cost analysis comparing incorporating in your home state versus incorporating in another state, and the advantages and disadvantages of each state's corporate laws and tax structure.

Find out which states have the best tax climate for business.

Step 3: Choose a business type

Next, you'll have to choose a business incorporation structure.

According to the National Small Business Association's 2015 Economic Report, most small businesses surveyed choose to incorporate as S-corporations (42%), followed by LLCs (23%). One of the reasons S-corps are so popular is because, unlike C-corps, they're not double-taxed, meaning you don't pay taxes on the earnings of the business itself.

For more tips on how to choose the right business structure, see our helpful chart showing a basic comparison of common business entities.

Step 4: Name company directors

All corporations are required to appoint a board of directors to help manage and run the business. Choose carefully when selecting directors because this is an important process that can affect your business in many ways in the short- and long-term.

Step 5: Determine types of shares

Next, you must determine the type of shares your business will offer to stockholders. In the beginning, most corporations are private, meaning the availability of shares is limited to just a few individuals (often the board of directors).

Step 6: File articles of incorporation

Lastly, it's important that you file all the required paperwork and pay registration fees to the proper state office. This step finalizes your business incorporation and allows you to legally start doing business in your selected state.

First, you must complete and submit the articles of incorporation (or certificate of incorporation) obtained from your state's corporate filing office. This document will include the information you've gathered in the previous steps, including:

  • Company name
  • Purpose of the business
  • Location (primary place of business)
  • Name and address of your registered agent
  • Company's duration
  • Number of shares and classes of stock the corporation is authorized to issue
  • Names and addresses of the incorporators, or of the initial officers or directors
  • Authorized signatures

Business incorporation specialists at MaxFilings have years of experience preparing and filing articles of incorporation, along with other critical steps like preparing and obtaining your federal tax ID, running a preliminary name check and expedited/rush processing if necessary.

Learn more about the similarities and differences between articles of incorporation vs. operating agreements.

Additional Resources

Learn more by visiting our blog and the MaxFilings Small Business Owner's Manual. If you're ready to begin the incorporation process, first check our pricing page for a quote. Simply choose the business structure you want (LLC vs. S corp. vs. C corp.) and the state you wish to incorporate in for a quote.

From there, begin entering your information into our secure, no-obligation system. If you can't finish at once or need to gather more documents, save your information and come back later – you're not charged until you complete the process. Our user-friendly system lets you save your information and come back later to finish – all with no-obligation.

Incorporating your business may seem like a real hassle, but MaxFilings will handle the legwork so you can focus on delivering the best products and services.