How to Incorporate

The first step is to carefully consider the benefits and drawbacks of incorporating and to evaluate whether this is the right move for your business.

Advantages include:

• Personal asset protection.
• Adds business credibility.
• Affords name protection.
• Perpetual existence.
• Easier to raise capital.
• Easy to transfer ownership.

Disadvantages include:

• Double taxation.
• Time-consuming formalities.
• Regular filings and annual fees.
• Additional paperwork.
• Shared ownership.
• More difficult to dissolve.

Consult with your accountant and lawyer to gain a better understanding of the financial and legal implications of incorporating.

Deciding to incorporate in the state of your primary business is the least complicated option. Incorporating in your home state is sensible for businesses only operating in that state since, regardless of the state of incorporation, the business must still be registered and pay fees and taxes in every state in which it operates.

Incorporating out-of-state may be financially advantageous. If you have or intend to have active business locations in several states, it is worth researching the tax regulations, costs of incorporation, and out-of-state qualifications in each state to determine whether it might be more cost-efficient to incorporate out-of-state.

To ensure compliance you should familiarize yourself with the state's naming rules. Keep in mind that usually the name must be unique and end with a designator such as Inc., Co., or Corp.

Take keywords from your market research and brainstorm name ideas.

Find out what your target market thinks of your business name ideas by posting online surveys or approaching them in person.

Once you have decided on a name, you should trademark it to ensure that no other business uses it. You can search the USPTO trademark database to see if your name idea is available.

The two main types of corporations are C and S corporations. The main differences between the two are how they are taxed, the number of shareholders they can have, and how much stock can be issued.

A C corporation is good for fast-growing businesses that eventually want to go public. This type of corporation is subject to corporate taxes but is not limited in the number of shareholders and class of stock that can be issued.

An S corporation is essentially a C corporation that qualifies for pass-through taxation. After incorporating, a business is automatically a C corporation. To become an S corporation, the business must apply for S corporation status. The requirements to qualify as an S corporation include the following:

• The business must be based in the U.S. and filed as a U.S. corporation.
• The number of shareholders is limited to 100.
• Shareholders must be U.S. citizens or residents.
• Only one class of stock can be issued.

Most U.S. states require businesses to appoint a registered agent. A registered agent is a corporation's official contact for communicating with the state. Corporations can appoint an individual or another company to act as their registered agent.

The articles of incorporation refer to the legal document businesses are required to complete and file with their secretary of state office to create a corporation. Filing fees vary by state.

Articles of incorporation typically include the following:

• Name of the corporation.
• Purpose of the corporation.
• Name and address of the appointed registered agent.
• Type of corporation.
• Duration of the corporation.
• Names and addresses of the initial board of directors.
• Name and signature of the incorporator.

Corporate bylaws are the rules that outline how business operations are to be run and what procedures must be followed. It usually contains provisions regarding the way the corporation is to conduct business and defines the powers, duties, and responsibilities of the board of directors, officers, and employees.

Corporations are required to draw up a set of bylaws to guide operations and ensure that all business activities and decisions are recorded for future reference.

Corporate bylaws are the rules of a corporation and generally include the following:

• The corporation's identifying information.
• Stock classes and type of shares the corporation issues.
• The composition, powers, and duties of the board of directors, corporate officers, and committees.
• Procedures and intervals for holding various types of meetings.
• Shareholder voting rights.
• Procedure for making amendments to the corporation's bylaws and Articles of Incorporation.
• Corporate record-keeping procedures.
• A Conflict of Interest Policy.

Corporations are required to maintain a corporate records book. This is where the corporation's essential documents and records that track operations and major decisions are kept.

A corporate records book contains an organization's essential documents and records such as:

• Articles of Corporation.
• Corporate bylaws.
• Meeting minutes.
• Stock certificates.

The incorporator is responsible for organizing the very first board meeting of a new corporation in which the initial board of directors officially adopts the corporate bylaws, elects a permanent board of directors, issues stocks, and makes other pertinent resolutions.

Navigate to your secretary of state website to find out if there are state-specific permits and licenses that you need to apply for.

Businesses need an EIN for tax purposes if they plan to hire employees.

File a DBA if you intend on using a variation of the official business name.