When Is the Best Time of Year to Incorporate?

Many small business owners first launch their businesses as sole proprietorships. It happens naturally – you just start selling a product or offering a service and that’s the legal default. But your business structure can have significant implications, and continuing as a sole proprietorship comes with some very serious risks. Once you have your EIN and a chosen name, you can file the paperwork with your state to make it all official. If you’re filing a corporation, you’ll need to include articles of incorporation with this application.

Specific words are off-limits if you don’t offer the service directly. For instance, you cannot include a professional designation, such as “Engineering” or “Attorney,” unless you have licensed members delivering those services. When naming your business, you will want to choose a name that reflects your brand’s unique identity. You want to think about a few things when coming up with your business name, some of which are legally required, depending on your business location and structure. Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help. You might come to a point in your business where you need funding for product development, store expansion, inventory investments, or other necessary expenses.

S Corporation​

You must meet your own state’s requirements.Even though youincorporatein Delaware, you still need to meet your state’s filing and licensing requirements for conducting business there. You will pay a franchise tax.Although your company won’t pay income tax in Delaware, it will have to pay the Delaware franchise tax based on the shares’ value. This is generally minimal for small businesses, but it will increase as the number of shares increases, and as your share value goes up.

It can continue indefinitely until it accomplishes its objective, merges with another business, or goes bankrupt. Find out with this comprehensive article on the ins and outs of forming a corporation. Some states allow a business to have a “B Corp” legal status, which is designed to facilitate for-profit companies that operate with the same basic purpose and function of non-for-profit company. B Corp businesses have to regularly demonstrate that they contribute in some significant way to the public good. During that crucial time after you open, your company may be barely making ends meet to keep your doors open, and those first few months and the first year are extremely stressful and unpredictable. The first thing that every home business should understand is that incorporating is not something you need to be afraid of. Incorporation is widely misunderstood as exclusive of average small businesses, when it is actually far more routine and advantageous for small businesses than most of them realize.

Are you ready to incorporate?

The most common reason toincorporate a businessis to limit your personal liability for business obligations. This can be a good idea if you have lots of outside contracts. Here are some pros and cons of forming a corporation, and a list of the most important information you’ll need to get started. Proprietary Information and Inventions Agreement — This document confirms the corporate ownership of founders’ and employee’s intellectual property. Reserving a business name is a decent option for these circumstances. Reserving the name allows you to protect it for a certain period of time — usually 120 days, although the exact time period does vary a bit depending on your state. During that period, no one else can incorporate under the name you’ve chosen.

These corporate statuses obviously make it possible for the government to tax businesses. But in doing so, they also incentivize incorporation to encourage owners to do it, which is why there are different types of corporation designations, so that you can choose the one that suits you best. As soon as you understand exactly what type of corporation fits your company best, and it is financially stable, it’s probably time to incorporate.

When (and why) should you incorporate your business?

Express and 24 hour rush filing services available upon request. This lets you effectively choose the date of incorporation and your application will be fast tracked to the front of the line in January. Different states have different rules as to how far in advance they will receive a delayed filing. Usually, the requirement is to file between 30 to 90 days before the desired effective date. So, for business owners wanting an effective date of January 1, 2022, now is an excellent time to check out the rules that apply to them as we’re in that 30- to 90-day window now. Check with the state for details, or contact my team at CorpNet to find out how far in advance you can file.

For one thing, a name reservation is not a fool-proof plan, as the reservation does expire eventually, at which time another entrepreneur could swoop in and take your name as their own. We have helped many clients successfully incorporate their businesses. Corporations require annual meetings and require owners and directors to observe certain formalities. Unlike proprietorships and partnerships, the life of the corporation is not dependent on the life of a particular individual or individuals.

• A foreign entity is one that already exists outside of the State of Georgia – whether that is another country or simply another U.S. state.
• If this happens and your company is incorporated, you will only lose the amount you have invested in the business.
• As you grow and earn more money, incorporating as an S corporation may help you save some money in self-employment taxes.
• Most startups incorporate as a C-Corp, the same structure used by Apple, Google and pretty much every large company in the United States.
• To avoid double taxation, almost every small business that incorporates does so as a subchapter corporation, or S corp.

There are quite a few options out there when it comes to hiring a service to reserve your business name, which is why we made a brief list of our two favorite options. Once you’ve filled out the form, you’ll just need to submit it to your Secretary of State and pay your filing fee. At that point, your new business name will be ready and waiting for you when it’s time to form your business.

C Corporation​

Even though not legally required in every state, they are very beneficial to companies. They are beneficial because they set the guidelines and processes that the owners and board will use to run the business. Some states require you to designate the type of corporation (e.g., C corp, S corp). The document asks for basic business information and is used to establish your corporation legally. Once you’ve decided on a business name, you will need to appoint a board of directors. The board of directors is a group of elected individuals in your company. They essentially establish corporate governance and oversee organizational strategies, investments, profits, and more.

You should consult your own tax, legal and accounting advisors before engaging in any transaction. Again, this can have an impact on tax filings and reporting requirements. Enabling tax and accounting professionals and businesses of all sizes drive productivity, navigate change, and deliver better outcomes. With workflows optimized by technology and guided by deep domain expertise, we help organizations grow, manage, and protect their businesses and their client’s businesses.

LEGAL RESEARCH

If your business incurs debts (if you can’t pay your suppliers or commercial lease, for example) or an accident occurs, then you are personally liable for them. If a corporation or LLC owns the business, that corporation or LLC is liable for its debts, not its shareholders or members. A third primary reason that small business owners incorporate is because of the tax benefits of incorporation. The legal structure of your business will impact the amount of taxes you pay; for better or for worse. To clarify how a different business structure will impact your tax liability, check with your tax professionals because this area is always evolving. This entity may be ideal for incorporating a business that has plans to create a global presence or offer an IPO.

If the registered agent is not around when they should be, the corporation will run the risk of a lawsuit. To avoid this, a company would need all-day, year-round availability, which is why many corporations choose a registered agent service. Filing as a C corporation is a legal procedure that allows corporations to profit and be taxed accordingly. Although C corporations protect their owners from personal liability, they need extensive record-keeping, reporting, and operational processes.

The reason is a new buyer may not be personally liable for any wrongdoings on the part of the previous owners. Also, ownership of the business may be transferred without disrupting operations through the sale of stock. One of the first steps you must take in the incorporation process is to prepare a certificate or articles of incorporation. Some states will provide you with a printed form for this, which either you or your attorney can complete. It is always nice to know that the ownership interest you have in a business can be readily sold, transferred, or given away to another family member.

Different states offer different incentives for LLCs filing in those states. For some startups, it might be useful to shop around before filing.

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Learn how to get hundreds of Google reviews and beat the competition in our latest guide. Practical business and financial insights, lessons, perspectives, and know-how brought right to your inbox. It’s always best to speak with a tax professional as your business grows. If you sell products on Etsy under a name other When Is The Best Time To Incorporate Your Business? than your own, you may need to register a Doing Business As . Find expert insights on third-party logistics providers business licensing requirements. Enabling organizations to ensure adherence with ever-changing regulatory obligations, manage risk, increase efficiency, and produce better business outcomes.

All shareholders will have a vote when electing the board of directors who will run the corporation. Before we jump into how incorporated businesses are taxed, it’s important to understand how you’ll be taxed if you don’t incorporate. As a sole proprietor, the Internal Revenue Service requires you to report all your business income on Schedule C of your personal tax returns.

The fees charged for incorporating a business, either federally or locally, can be as high as several hundred dollars. When setting up a corporation, you will need to file paperwork with your state’s office that charters corporations, which is time-consuming https://quickbooks-payroll.org/ as well. An LLC is a popular entity formation to incorporate your business. LLCs have a flexible management structure, allowing more than one owner to run the company. Limited liability protection is one of an LLC’s primary benefits.

• In a sole proprietorship, by way of example, any personal debt or liability of an owner will allow the creditors to pursue the business, even if there are no ties between the owner and the business itself.
• Depending on the state in which a business is located, there may be two options that allow for an effective date of filing in early 2022.
• If you plan to seek investment, the preferred entity of most investors and VCs is the C corporation, which is the standard corporation formed by incorporating.
• Other than the state of Alabama, which requires a business name reservation for any incorporation , there is usually not a great reason to reserve a name without actually forming your business entity.
• This entity may be ideal for incorporating a business that has plans to create a global presence or offer an IPO.
• When you start a corporation, you’re creating a business that is its own legal entity.

When you incorporate your business, you receive limited liability protection. Tax responsibilities are lessened when electing a pass-through entity. It is easier to build business credit and to establish credibility with consumers. The credibility your business has, from industries ranging to medical to retail, allows the company to develop a strong brand reputation. Often, entrepreneurs who start as sole proprietorships find out that operating as such won’t serve their needs for the long term. As they grow their businesses, they decide they want to have personal liability protection, more growth potential, more credibility, and tax flexibility.

If you don’t, a court can pierce the corporate veil and hold you and the other owners personally liable for the business’s debts. If you do file for incorporation yourself, you’ll save the expense of using a lawyer, which can cost from $500 to $1,000. The disadvantage of going this route is that the process may take you some time to accomplish. There’s also a chance you could miss some small but important detail in your state’s law. You may also choose to use an incorporation service company to prepare and file the documents with the state. It is usually much easier to attract new investors into a corporate entity because of limited liability and the easy transferability of shares. Shares of stock can be transferred directly to new investors, or when larger offerings to the public are involved, the services of brokerage firms and stock exchanges are called upon.