DIY Incorporation: Everything You Need to Know
With proper planning and research, small business owners have the option of incorporating when their business is ready to expand and gain additional benefits.4 min read
2. Can Business Owners Choose How to Incorporate Their Companies?
3. Tips for Incorporating a Business
4. What Is the Articles of Incorporation?
5. When Does a Company Become a Legal Entity?
With proper planning and research, small business owners have the option of incorporating when their business is ready to expand and gain additional benefits. The process can be time-consuming, but with effort and additional resources, incorporating can provide business owners personal asset protection and the ability to raise capital.
Conversely, when business owners move from a sole proprietorship or partnership to an incorporated entity, there are disadvantages as well. You will be required to pay fees in the initial process as well as maintenance expenses. Where your business is located will play the biggest impact on the cost of incorporating as each state has their own set of rules and fees.
Types of Incorporation to Choose From
- Limited liability company
- General partnership
There are multiple forms of incorporation to choose from. Each form has advantages as well as disadvantages. The biggest differences in the business structure you choose to operate under will lie in tax treatment and the regulation of stock offerings.
C-corporations are what the majority of large corporations in the United States operate as. While limited liability companies, LLC, and S-corporations are popular as well, it is important to research and choose the structure that best suits your business.
Can Business Owners Choose How to Incorporate Their Companies?
Ranking 7th in the nation among corporate tax-friendly states, Texas has tax rates that ranked 43rd compared to rates in other states. Fortunately, business owners have the option of choosing where they want to incorporate. It does not matter where your facility is located or where you are offering your product or services, you may choose to incorporate in any state. Keep in mind that each state will vary in how corporations are treated in terms of taxes and regulations.
Tips for Incorporating a Business
When incorporating, you must check with the state's registrar office to ensure the name you wish to operate under is available. This rule is applicable to both new businesses and for existing proprietorships and partnerships before incorporating can take place.
Next, you must decide if you want to sell shares of stock in your business. If interested, there are several decisions to be made in regards to stock, such as how many you want to offer initially at your public offering, also known as IPO. You will need to decide exactly the amount of shares that will be granted to management and how many will be available in the future.
While selling shares is not required for incorporation, many new corporations take advantage of stock offerings to promote short-term growth with a large inflow of capital.
Even if you are handling the incorporation process by yourself, it is a good idea to seek the assistance of an investment bank when selling your first stocks. While this may not be necessary if you are only offering shares to board members and employees, if you are selling shares of stock to the public, it is certainly something you should consider.
What Is the Articles of Incorporation?
Creating your articles of incorporation and your corporate charter and bylaws should take a considerable amount of time. These will serve as a blueprint for how you plan to conduct business and how your corporation is organized. While the articles of incorporation are required, the charter and bylaws are not.
The articles of incorporation will include your business name and address, along with the contact information for your registered agent who is authorized to act on the company's behalf. Also included is your plans of future stock offerings and a detailed description of the company's purpose.
The articles of incorporation must be filed with the secretary of the chosen state, and you must include the required fees. Texas is among a few states that offer ready-made articles of incorporation templates for entrepreneurs. This can be accessed, completed and submitted online or through the mail.
When Does a Company Become a Legal Entity?
Your business will become its own legal entity once it becomes incorporated. You will need to ensure you have all the necessary licenses and permits to operate in the state you have chosen to incorporate in. Since the business is now a separate entity, all previous licenses and permits are not applicable. In the future, if you want to expand your reach, you may need to obtain other licenses from other authorities as well.
Lastly, but very important, you will need to apply for an Employer Identification Number (EIN). This relates to tax return information and is a fairly simple and quick process.
If you need help with DIY incorporation, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.