Incorporating your business may require a little work and necessary filings with local, state or federal authorities, but the effort can pay off in the long run: Firstly, incorporated businesses can protect their owners from personal loss if the business fails, as the owners and directors may not be liable for an incorporated company’s debts. Secondly, you may also find it easier to raise investment funds when your business is incorporated. Lastly, it’s a necessary step if you’re thinking of taking your company public in the future.
So how do you incorporate a US business? Here’s a rundown of the process:
Incorporation describes the act of registering a business to make it a legal corporate entity. Depending on the industry you operate in, incorporating your business may require you to register the business with local, state or federal authorities. This means you will need to file certain documents such as your articles of incorporation with these agencies. You will usually have to pay an annual fee to maintain your business registration – this is known as keeping your company in ‘good standing’. Your business may also appear on a publicly accessible database.
You can convert an existing business – such as an LLC, partnership or sole proprietorship – into an incorporated company by following the same steps as if you were registering a brand-new business. However, if you’re converting an existing LLC, you may be liable for extra taxes depending on the LLC’s assets and liabilities.
There are several types of incorporation, and you can choose which route to take depending on your intentions for your business. Although the registration process is the same for each type of incorporation, the details of the registered entity will differ.
A C-corporation, also known as a C-corp, is a separate legal entity and is independent from the business owners. You can register and issue as many shares in a C-corp as you like and there is no limit to the number of shareholders that the company can have. Owners are not responsible for the company’s debts.
C-corporations must pay federal corporate taxes on their profits. This can present a case of double taxation, as the business owners will also pay tax on the dividends and any personal income (such as a salary) that they glean from the business.
An S-corporation, or S-corp, is considered to be a ‘pass-through’ entity. Instead of paying taxes at the federal corporate rate, (as with a C-corporation), S-corp profits are passed through to the company’s shareholders who then pay personal taxes on their income. Federal tax law allows pass-through businesses to deduct up to 20% of their qualified income.
A benefit corporation, known as a B-corp, is a mission-based, for-profit company. This means the business also operates to serve the public good, not just make money. B-corps must pay corporate taxes and may have to file annual reports that reveal their community contributions – rather like a charity. B-corp shareholders are responsible for ensuring the business remains profitable and provides wider benefits to the community.
Incorporating a business is a straightforward process:
You need to make sure your chosen business name is not taken by another business. Infringing on someone else’s brand name and copyright could end up in a costly lawsuit. Check the official trademark database with the US Patent and Trademark Office to make sure your business name is available.
Top tip: You will almost certainly want a website and branded email addresses for your incorporated business. Check to see if your preferred company name is also available as a domain name– such as: www.mynewbusiness.com. You can do this at the global domain name database – WhatsmyDNS.net. If your domain name is available, you should be able to buy it via any of the advertised web hosting services.
Most corporations must register with state agencies, and you will need to do this in any state where you have a physical presence, where your employees work, where you frequently have in-person meetings with customers and where you gain a significant portion of your business income. You will usually need to register with the secretary of state’s office and may also need to file papers with your local business bureau. Depending on the type of business you operate, you may also need to file for permits, licenses and other credentials that prove your business is safe and legal to work in your chosen business sector.
If your business only works in one state, you will need to incorporate in that state. However, if your company intends to do business in multiple states, you can choose where to incorporate, selecting the state that is friendliest to corporations. Investigate each state’s business tax laws as well as any restrictions on the type of business you run. Be aware that although every state levies property and employment taxes, some states have other taxes, such as corporate income tax, sales tax, city tax and personal income tax.
If you have the option to shop around for the best state to incorporate in, you should also consider their legal climate. Some states, such as Delaware, may have more corporate-friendly business laws where you can better manage corporate legal issues.
A registered agent is someone designated to represent your corporation. They will sign your incorporation documents and accept service of process if your business ever gets sued. You can act as your own registered agent, or you can appoint someone else – either within your company or a third party such as your accountant or attorney. You can also find commercial registered agent services online. By appointing a registered agent you can protect your privacy as the business owner.
Articles of incorporation are a single document that lists the general details of your business. This includes:
Submit your articles of incorporation to the secretary of state’s office in the state where you intend to register. You can do this in-person, online, or by mail. You will have to pay a registration fee at the time of filing – typically $100.
Corporate byelaws are for internal use only and they form the governing documents of your company – a form of corporate constitution. Byelaws set out the main operating principles of the business and can be a key reference point if legal issues should arise. You can find templates for writing company byelaws readily available online, but if you’re still not sure how to do this, it may be worth hiring an attorney to guide you through the process.
All corporations are required to have a board of directors, with shareholders electing members to fill these positions. Depending on the state where you incorporate, the board of directors may be as small as only one individual, but a chairperson and separate treasurer are usually the required minimum. The board must meet at least once a year with the minutes of this meeting kept on file and made available if requested by state or local agencies.
Incorporating your business can turbocharge your company’s growth, giving you greater operational freedom and protections as well as increasing your access to more financial opportunities. Funding is where Swoop can really help. No matter if your corporation is brand-new or you’ve been incorporated for many years, working with finance experts can make all the difference when applying for business finance. Contact us to discuss your borrowing needs, get help with loan applications and to compare high-quality business loans from a choice of lenders. Give your corporation the financial boost it deserves. Register with Swoop today.
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Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
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