At some point, every small business needs to be incorporated, and the company you choose to set up will affect your business at every turn in the future.
If you are not sure where to start, I can help you understand the options for incorporation and why you choose one type over another. Then, there are 5 steps you can take to incorporate your small business:
Types of Corporations
First, corporations are regulated by different laws and have different tax requirements. Here are 3 major types of corporations you can choose from:
C Corporations
C corporations pay their taxes, which are paid by the company itself. Meanwhile, owners and employees still pay their income tax on what they receive from the company
S Corporations
S corporations are not required to pay taxes. However, employees and owners of S companies are taxed on their income.
Limited Liability Companies
Limited Liability Companies (LLCs) are corporations where the owner is not responsible for the company's liabilities or debt. This helps to separate a person from a business regarding legal issues. A sole proprietorship means that you and your business are legally the same, and the LLC recognizes the business as a separate entity. This is popular with freelancers and owners of small, service-oriented businesses.
How to Incorporate Your Business in 5 Steps
Step 1: Check the Availability of Your New Business’s Name
You will not be able to use a company name you already have. Find out if your company name can be obtained using the online database of the U.S. Patent and Trademark Office (USPTO), digging through all the trademarked trade names for any competition.
Step 2: Create Your Business’s Articles of Incorporation
Incorporation letters are documents that you file when you register your business. They act as a platform for the survival of your business and outline its mission and purpose. You can hire a writer to write your incorporation articles, or you can view examples of incorporation from other companies and compile a document for your company.
Step 3: Pay the Fee and File Your Articles of Incorporation
Once you have prepared your document, the next step is to submit your incorporation letters and file for incorporation by paying the fee. Each state has its application, which is usually online
Step 4: Create Bylaws and a Records Book
By-laws of your company outline important policies or rules governing it. It includes the internal policies of the employees and the company itself. For example, when are board meetings held? How to keep records? When it comes to records, your company's record book should act as a ledger that confirms IRS compliance, so make sure it is ready to go.
Step 5: Hold a Board Meeting
Holding a board meeting is an essential step in incorporating a new business. The agenda of this meeting is quite simple because it is all about the adoption of by-laws and articles of incorporation. At this meeting, you can arrange future meetings and appoint officers to represent your corporation.
Conclusion
After reading this article, we hope you are ready to begin the process of consolidating your small business. As a business owner, it is important to ensure the legitimacy of your business with the government for tax and liability purposes and to separate you and your business into different entities on legal matters.
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