How To Incorporate Your Business Online

What You Need to Do Before You Incorporate

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Home-based businesses sometimes think it is not necessary for them to incorporate. Often the thought is, "it's just a small business", and so business owners may not stop to think of the financial repercussions. Or maybe they don't want to incur the legal expense or take the time involved to protect their business. In today's society where everyone sues everyone, it makes sense to protect your assets. There are websites that can help you incorporate your business. If you need legal advice, there are also sites that provide this service. For the small business owner, the quickest and easiest way to incorporate is online. But before you do, this is what you'll need to know.

  1. The most difficult decision is deciding how to classify your business.
    • A sole proprietor is usually one person who has unlimited personal liability for all the business debts and losses. Income derived from the business is taxed at the owners personal tax rate.
    • A partnership has two or more owners. The partnership pays no tax on income earned. It is passed through to the individual partners who pay tax at their personal rate. Partners have general or limited ownership.
    • General partners are very risky as the partner has unlimited personal liability.
    • A limited partner's risk is limited to the amount of their investment.
    • A corporation has an unlimited number of stockholders. Income is taxed at corporate rates and is passed to stockholders as dividends. Liability is limited to the amount invested.
    • An S Corporation has a limited number of stockholders, usually less than 100. It pays no corporate taxes on income. Stockholders are taxed at their personal tax rate and their liability is limited to the amount invested.
    • A limited liability corporation is popular because, in some states, you only need one person to incorporate. The personal assets of the owners are protected and income is taxed at their personal rate.
  2. If you have not already done so, decide on a name for the business. You might want to have a back-up name picked out in case your first choice is taken. States do not incorporate duplicate names. If your name is already being used, you would need to try another state or pick another name.
  3. Choose the state you would like to incorporate in. Fees vary by state. Typically these include the state filing fee, preparing the documents, and checking the company name for availability. Taxes also vary by state. Often companies incorporate in a particular state because of lower taxes. Most states have websites that disclose their tax rates.
  4. Decide who will be your registered agent. This is a contact person for your company. Most states require corporations to have a registered agent. For a small business, that is usually the owner. But if you do need an agent, the website you are using to incorporate can provide one for you. I do not recommend that.
  5. The corporation must have at least one director. You will need to provide their name and address. For a small business, this is usually the owner.
  6. In addition to the director, you will need to provide the name of the president, vice president, secretary, and treasurer. In some states you can form a limited liability corporation with just one person. In that situation, the owner assumes all the above roles. Don't let these titles scare you. As a small business owner you are doing all of these functions already.
  7. Be prepared to disclose the nature of your business. This can sometimes be tricky. The applications are reviewed and usually someone will contact you if there are questions.
  8. Get a federal tax ID number. You can do this on the IRS website. This number is used when you file your taxes. When you incorporate, you will be asked to provide this number. If you do not have one, the website you use to incorporate will apply for you, at an additional fee. The IRS does not charge.
  9. Decide how you will pay. Online companies provide several payment options and payment is make after you have completed the application. You can purchase a corporate kit, which includes pages to record organization minutes, bylaws, corporate seal, and stock certificates. This might not be critical for the one-owner company, but is recommended if there are multiple owners.
  10. Incorporate. Once you have decided on all of the above, and decided which company you are going to use, all you have left to do is complete the application process. After doing this, you will receive a confirmation that your order has been received. If the company name you selected is not available, or if there are any problems, they will be in touch with you.

Knowing the answers to these questions before you apply saves time. For the small business owner, time is money. I decided to form a limited liability corporation for my company, Life Transitions with Margaret Norton. I am a personal coach, writer, and speaker. As a coach I try not to give advice because I am not a counselor, but I don't want someone to misinterpret something I said and sue me. As a writer I sometimes write about people and events. It can be tricky deciding the difference between personal and private news. I feel much better since I incorporated, knowing that my personal assets are protected.

Partnerships and couple-owned companies should definitely consider incorporating. More people mean more risk. It is important that they have everything spelled out and in writing. Company minutes and bylaws need to be current. The biggest problem with partnerships is that it's often difficult for two people to run a company together. Couples face the risk of divorce. Incorporating will not prevent either of these from happening, but could make a difficult situation a littler easier.

Years ago, when I incorporated another company I owned, I consulted an attorney and an accountant. There were forms to complete for the state and checks to mail. It was a difficult and time consuming task. Many weeks later, I received my certificate from the state. But this time it was much easier, thanks to the Internet. The website I used was www.101incorporate.com.

 

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