Incorporation 101: How to Incorporate a Small Business

Incorporation 101 - small business owner

The term "incorporating" is defined as the act of creating a new corporation under the laws of a particular state. The term can also refer to the formation of a Limited Liability Company (LLC). The act of incorporating, no matter which version you choose, allows you to protect your personal assets–the biggest reason that business owners incorporate. Learn more about different types of business structures and get a sense of which one is right for you.

If you are unsure about how to incorporate your small business, we can help. We make the process of forming your new corporation or LLC fast and easy. Form your new business online, or call a Business Specialist at 800.818.6082 (toll-free) or 302-636-5440.

Advantages of Incorporating

Whether you've got two people on your team or ten, all businesses can benefit from incorporating. Advantages of forming a corporation or Limited Liability Company (LLC) include:

  • Personal asset protection. Both corporations and LLCs allow owners to separate and protect their personal assets. In a properly structured and managed company, owners should have limited liability for business debts and obligations.
  • Additional credibility. Adding "Inc." or "LLC" after your business name can add instant authority. Consumers, vendors, and partners may prefer to do business with an incorporated company.
  • Nationwide availability. All 50 states and the District of Columbia now recognize both corporations and LLCs.
  • Name protection. In most states, other businesses may not file your exact corporate or LLC name in the same state.
  • Perpetual existence. Corporations and LLCs exist perpetually, even if their ownership or management changes. Sole proprietorships and partnerships end if an owner dies or leaves the business.
  • Tax flexibility. Though profit and loss typically pass through an LLC and get reported on the personal income tax returns of owners, an LLC can also elect to be taxed as a corporation. Likewise, a corporation can avoid double taxation of corporate profits and dividends by electing Subchapter S tax status.
  • Deductible expenses. Both corporations and LLCs may deduct normal business expenses, like salaries, before they allocate income to owners.
Incorporating to Protect Your Assets

Corporations and LLCs offer greater asset protection than sole proprietorships and general partnerships. A sole proprietor or general partner has unlimited personal liability for the debts and obligations of the business. In other words, their personal assets (like their home, car, and personal savings) remain at risk in a judgement against the business.

In contrast, corporations and LLCs allow owners to separate and protect their personal assets from the debts and obligations of the business. In a properly formed and structured corporation or LLC, a judgement against the business should not affect an owner's home, car, savings, or other personal assets.

Where to Incorporate

Most businesses incorporate or form an LLC in the state in which they primarily operate. Advantages of choosing your home state include:

  • Typically the least complicated option
  • Usually costs less than incorporating in a different state and registering with your home state
  • Avoids paying franchise taxes and filing annual reports in more than one state

Many companies conduct business throughout the U.S. and abroad. A corporation or LLC with business locations in multiple states may incorporate in a single state and then register to do business in the additional states. This means that companies must formally register, file annual reports, and pay annual fees to conduct business in multiple states.

Contact one of our Business Specialists who can help you better understand how to incorporate a company in your home state or a state that offers the best benefits suited to your type of business.

If you are outside the U.S. and unfamiliar with the various options afforded by several key states, our team of specialists can also help you learn more about how to incorporate a business in the United States and choose the right state.

Should You Incorporate or Form an LLC?

Typically, most people incorporate or form a Limited Liability Company (LLC) to safeguard their home, car, and personal savings. Incorporating helps you conduct business free from worry that you might lose personal possessions because of a business liability. Both a corporation and an LLC allow owners to separate and protect their personal assets from business debts and obligations. However, these two legal business structures have a number of differences.

LLCs are popular with small business owners because they combine the simplicity of a corporation with the tax advantages and flexibility of a partnership. Owners compute their share of business taxes on their personal tax returns. Both businesses and individuals can own an LLC. LLCs draft an internal operating agreement to govern ownerships.

Unlike LLCs, corporations issue shares of stock. The IRS taxes most corporations at a lower tax rate than individuals. Corporations use bylaws to set forth the management rules with their shareholders, directors, and officers.

Still can't choose the right structure for your business? Use our Business Startup Wizard to learn what other business owners in your state and industry have done and gain a better scope of not only when, where, and how to incorporate a company?but what works best for your particular industry and business model to ensure your venture succeeds.

Incorporating with

"How do I incorporate a business?" You've got questions. We've got answers. Consider your trusted partner in the path to forming a new business. When you have questions about how to incorporate your business, we offer a variety of incorporation and other business services to help you succeed:

  • Expedited service in all 50 states and the District of Columbia
  • Formations of business types including C Corporations, subchapter S Corporations, Limited Liability Companies (LLCs), Professional Corporations and LLCs, Nonprofit Corporations, Series LLCs, and Limited Partnerships
  • Additional services like Registered Agent, Employer Identification Number (EIN), Doing Business As (DBA), business license application materials, and more
  • An exclusive $50,000 Corporate Veil Guarantee
  • Personal attention to your needs by friendly, expert consultants who can answer all of your questions regarding each step of the process of how to incorporate a company
How to Incorporate

To get started and learn how to incorporate a small business, follow these simple steps:

  • Decide to incorporate.
  • Select Learn why we think you will benefit from our services.
  • Choose a type of business. Need more information about business structures?
  • Choose a state. Get more information about choosing a state.
  • Choose a package. Read more about our package options.

You can incorporate or form an LLC online or by phone with a Business Specialist at 800.818.6082 (toll-free) or 302-636-5440.

Incorporating and Taxes

When you incorporate a company, tax regulations depend on the type of business you select. Contact your tax professional for more information about the business type you choose:

  • C Corporations file IRS form 1120 to report corporate income to the Internal Revenue Service. The IRS taxes company profits at corporate tax rates and dividends paid to shareholders at individual tax rates. For this reason, you may hear tax professionals refer to "double taxation" of a C Corporation.
  • Corporations can elect "pass-through" taxation by applying to the IRS for status as a Subchapter S Corporation. The S Corporation provides the same protection from personal liability. However, owners can report their share of profit and loss in the company on their individual tax returns. The S Corporation may not have more than 100 shareholders.
  • Like a sole proprietorship or partnership, an LLC enjoys pass-through taxation. This means that owners (also known as "members") report their share of profits or losses in the company on their individual tax returns. The Internal Revenue Service (IRS) does not assess taxes on the company itself. This avoids the "double taxation" that general, or "C," corporations experience. In a C Corporation, the IRS taxes profits at the corporate level and dividends at the shareholder level.
Next Steps After Incorporating

Business owners should consider a number of next steps after incorporating. For example, many businesses:

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