Incorporating your business provides multiple benefits, including protecting your personal assets, providing a variety of tax-related savings, reducing the chances of an IRS audit, and increasing your company's credibility with customers. Corporations are classified as one of the following:
- General - This is the most common type of corporation.
- S Corporation - Popular with entrepreneurs and small business owners.
- Limited Liability Corporation (LLC) - Similar to an S corporation, but with fewer IRS restrictions.
Select an all-in-one incorporation packageThe Company Corporation has been helping entrepreneurs incorporate their businesses for over 100 years. They offer soup-to-nuts incorporation services through their Web site, along with helpful, step-by-step advice on getting it done correctly in any state.
Decide on a corporate nameCome up with at least two back-up names in case your first choice is already taken. You must file your corporate name with the Secretary of State in the state where you choose to incorporate. Note that some states may allow you to reserve a name for a nominal fee prior to sending in your documents.
Select a state of incorporationMany business owners choose to incorporate in their own state, but you can choose to incorporate in any of the 50 states or the District of Columbia. Some states have more corporate-friendly laws than others-for example, no corporate income tax-so it's worth checking into other states.
File the appropriate paperworkThe Secretary of State where you choose to incorporate will provide you with a checklist of items and downloadable forms to complete. If you find the paperwork too time-consuming, think about hiring an outside company or an attorney to handle the details.
Obtain State and Federal Tax ID NumbersAs a corporation, you'll need a Federal Tax Identification Number (also called an Employer Identification Number or EIN) from the IRS. The IRS uses this nine-digit number to identify businesses that are required to file various tax returns.
IRS website. To find out if you need a State Tax ID Number, check with your state.
Select a board of directorsCorporations are required to have a board of directors. Board responsibilities include meeting at least once annually, establishing business policies, possibly electing the president of the company, and assuring that the company is operating lawfully. Keep it simple in the beginning, and elect only a few members to your board (including yourself).
BylawsBylaws are your official game plan, and are used for running the operations of your corporation. In general, your bylaws will outline the responsibilities of your directors and officers.
- Keep business and personal finances separate by opening a corporate bank account.
- Keep accurate records, including financial records of all transactions and the minutes of all meetings.
- Hire an experienced accountant to file all of your corporate tax returns. Get expert help when you need it to avoid any problems down the road.
- Don't go out and order business cards and stationery with your corporate name until you've received notification that your name has been approved.