To protect your personal assets, raise business funding, change ownership percentages or lower your personal tax return, you need to know how to incorporate a business.
There are many reasons to incorporate a business. We’ll walk you through the basics so you know where to start.
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To incorporate a business, you form a legal corporate entity. Several steps go into this process, and it can vary from state to state. Typically, a business owner files articles of incorporation and registers their business with federal, state and local agencies.
Many businesses start as an LLC, partnership or sole proprietorship, then convert to a corporation. Though your business may pay more taxes as a corporation, it is often a natural progression to increase ownership shares and access more funding for continued growth.
When you incorporate a business, the most common types of corporations are C-corporations and S-corporations. The two differ when it comes to taxation.
Also known as a certificate of incorporation, articles of incorporation are a document that outlines your business, and these are what’s required to incorporate a business. State laws usually require that you file for incorporation with a state agency (usually the secretary of state office).
Articles of incorporation usually include:
In most states, setting up a business structure for your small business takes one to six weeks, depending on who is incorporating the company.
Cost can vary from $100 to thousands. State fees vary widely. And if you use a lawyer or a CPA to file with the state on your behalf, then you’re also paying for that.
Typically, more hours will go into incorporating a business than an LLC. So, professional help for incorporating can be more expensive than the cost of setting up an LLC.
Many of these actions occur concurrently, but we’ve broken down the steps of business incorporation to help explain the process.
Before you start branding and marketing your company, make sure the name you want isn’t already in use or trademarked. Consult the U.S. trademark office to check.
If the business name you want is available, trademark it. Secure the name in a website URL and company social handles as well.
Register your business with the correct state agency. In most states, that’s the office of the secretary of state. You should also register your business in any state where you do a lot of business, where your employees work, or states where your business earns significant revenue.
In addition, you may need to file for licenses and permits with local governments (usually at the county or city level).
Many of these offices will ask to see proof of insurance when you register.
In many cases, you may need to show proof of insurance to register your business and obtain licenses. Business insurance is a vital part of protecting your assets and investments.
Every business has unique insurance needs, and NEXT equips small businesses with the right coverage. Check out our insurance resources to help incorporate your business.
For many small business owners, incorporating in your home state is ideal. It’s the least complicated, and you don’t have to deal with extra taxes like franchise taxes.
As your business grows, consider incorporating in a state with more advantageous tax codes for corporations. This could help to minimize state corporation taxes and employment taxes.
A registered agent represents your corporation on incorporation documents. You will see their signature on the documents. They can manage tasks like handling court documents if your business gets summoned and more.
As the business owner, you can be this person. Some business owners opt for a designated person (such as an attorney) to be this person to protect privacy.
The articles of incorporation give the state general information about your business. State agencies usually charge around $100 to file, but the cost will be higher if you work with a financial service provider or attorney. Some small business owners can simply use generic articles of incorporation forms online.
Your articles of incorporation should include:
Some states want you to submit corporate bylaws and create a board of directors. Doublecheck your state’s requirements as you incorporate your business.
Corporate bylaws are internal documents that explain how you will govern your business. It usually includes:
You can find corporate bylaws templates online, or you can hire an attorney to create them on your company’s behalf.
Some states require an incorporating business to establish a board of directors. Shareholders vote for who sits on your board, and your corporate board should meet at least yearly or whenever specified in your corporate bylaws.
It is usually required for minutes from these meetings to be kept and filed.
Businesses incorporate to manage risk. Business insurance helps you manage other types of risk.
NEXT helps self-employed and small businesses get coverage for general liability insurance, workers’ compensation insurance, professional liability insurance, commercial property insurance and more.
Our online application makes it simple. Get a free quote, see coverage options and buy insurance in under 10 minutes. You’ll get instant access to your proof of insurance, saving you time as you incorporate your business.
Jessica spent over a decade working in education before moving into content marketing. She has worked on content marketing campaigns in the edtech, real estate, and personal finance sectors. She has a passion for working with companies that take the time to educate their customers. When she’s not working, she’s probably outside with her two kids.
