Reasons People Incorporate Their Small Businesses
Business owners choose to incorporate for several good reasons. For example, once a business starts netting around $60,000 a year or more, tax savings make incorporating a smart idea. After incorporating, some business owners see dramatic reductions in their tax liability.
Incorporating also confers asset protection when there is liability risk. Even small businesses can be seriously affected by liability, and incorporating protects personal assets against liability, since the corporation is a separate entity from the person who runs it.
In general, if significant personal assets are at risk, or if the business is exposed to high liability, incorporation makes sense. Many businesses use incorporation services to help with the process of incorporation.
How Do You Incorporate Your Business?
The first step in incorporating your business is deciding if you want in-state or out-of-state incorporation. Smaller businesses usually incorporate in the state where they conduct most of their business, but they are free to incorporate in other states. If you're in business with others, you'll need to create an agreement about who serves on the board of directors, who buys stock, and how the stock will be priced.
You will need to file an application for registration under the name you want to use. The forms for this come from your state's Secretary of State office. They will let you know if the name you want has already been taken. Next, you'll need to prepare articles of incorporation, after which you'll receive a certificate of incorporation, which you will need to sign.
You will hold a stockholder meeting after getting your charter where you'll adopt corporate bylaws and elect your board of directors. The documents created in the pre-incorporation agreement will need to be adopted by the board.
What Do Incorporation Services Do?
Many small business owners use incorporation services to help them incorporate. These services run a preliminary name check to make sure the name you want is available, ensure that the information you provide meets your state requirements, and prepare your incorporation documents to be sent to the applicable state agency.
Once state approval is granted, you will be sent a package of documents, including your incorporation documents. Many incorporation services also offer support to make sure you have any necessary permits or licenses and meet any ongoing compliance requirements in your state.
Business owners use incorporation services for convenience, or because they don't feel like they have the time to do all the necessary research and legwork necessary to incorporate.
Do Incorporation Services Deal with Different Types of Corporations?
If you've looked into incorporating, you quickly learned that there are many different types of corporations, such as:
- C Corporations
- S Corporations
- Limited Liability Corporations
Many incorporation services help you determine which type of incorporation is right for your particular business. If you are interested in incorporating as an S corporation, you have to incorporate as a C corporation first, and your incorporation service can help you do that. Businesses are incorporated as S corporations because of tax advantages. Limited liability corporations (LLCs) are more flexible than S corporations and C corporations, and are very popular due to their flexibility of ownership and division of profits.
Generally speaking, it is cheapest to incorporate as a C corporation, slightly more expensive to take a company from being a C corporation to being an S corporation, and more expensive still to incorporate as an LLC.
What Should You Expect to Pay for Incorporation Services?
The least expensive incorporation services start at around $40, plus the cost of state incorporation fees. You may pay up to $200 plus state incorporation fees for incorporating as a C corporation, depending on the service and what state you're incorporating in.
While some services charge different prices for incorporating as a C corporation, an S corporation, or an LLC, others charge a flat fee regardless. With services that use a tiered pricing structure, expect to pay the lowest fees for incorporating as a C corporation and the highest fees for incorporating as an LLC.
Fees are generally higher for incorporation services where the work is done by attorneys, and lower with services where most of the steps are carried out by paralegals or assistants.
Is an Incorporation Service Worth It?
Running a business requires a great deal of your time and attention, and you may not feel like you have the time necessary to deal with the intricacies of incorporating. This is where incorporation services come in: they are there to help the process go quickly and easily.
Many businesses find that spending a few hundred dollars to have an incorporation service handle the process is a wise investment of their resources and allows them to focus on running the business while incorporation professionals take care of all the steps involved in incorporating.