When entrepreneurs launch or expand a business, they face the question of whether to incorporate. Incorporating a business ensures that the company is correctly established in the eyes of the law, allowing it to take advantage of the numerous benefits associated with that status, including taxation and protection of personal assets. Questions about the process of incorporating a business are common and understandable. The answers to the following frequently asked questions about incorporating can help provide the information you need to make the right choices for your business.

Q1: What Is Incorporation?

Incorporation is the legal process of establishing a business as a separate legal entity according to the laws of the state in which you do business. When you incorporate, you create a business structure with certain characteristics, such as a distinct legal identity, the ability to sue and be sued, the ability to transact business in its own name, and the right to select and retain directors and officers. Incorporation also provides some important advantages in the form of legal and financial protection to your business and its owners.

Q2: What Are the Benefits of Incorporation?

There are many benefits that come from incorporating a business, including:

Financial protection for owners: Incorporating shields business owners from individual liability by legally distinguishing them from the company. This means that individuals and companies cannot access their personal assets to pay a company’s debts or liabilities.

Increased credibility: Incorporating a business indicates a level of commitment to the venture that can improve your standing with vendors, employees, partners, and lenders. Incorporation also sets you apart from individual business owners.

Continuity: Many small businesses have a fear of what will happen if the founder or partner becomes incapacitated or dies. Incorporating offers protection and certainty in that area. The company will continue to exist and, if necessary, can be transferred to a new owner.

Taxation: Incorporating a business can offer taxation advantages, such as greater flexibility for business deductions and possible tax savings.

Lower Costs: With the right structure, certain businesses can save money through increased tax deductions available to corporations.

Trademark Protection: Incorporating offers trademark protection. As long as the company is registered in the state, the business will have exclusive ownerhip of the trademark.

Funding: Many investors prefer to collaborate with corporations, rather than individual business owners, since they often have stronger credit and more control and flexibility than an individual.

Q3: What Types of Incorporations Are Available?

The type of incorporation you choose depends on your business goals. There are two basic types of incorporation:

C Corporations: A C Corporation is the most common type of incorporation for larger businesses, including those seeking the potential for large investment funds. C Corporations can have an unlimited number of shareholders, and are taxed separately from their owners. This requires the filing of business and personal income tax returns.

S Corporations: An S Corporation is best for businesses with no more than 100 shareholders and for business owners who'd like to save on taxes that come with a C Corporation. S Corporations are not taxed at the corporate level, but are instead subject to "pass-through" taxation, which means that the business's income, losses, deductions, and credits are passed directly through to the shareholders.

Q4: Where Should I Incorporate My Business?

Many businesses opt to incorporate in the state in which they are located, but that isn’t always the best choice. Depending on your industry and the particular advantages offered by a different state, you may be able to save money or take advantage of other benefits by incorporating in a different state. If you’re looking to incorporate in Los Angeles and need counsel familiar with the local regulations, head to UpCounsel – a network of experienced lawyers that provide high quality, cost-effective legal services.

Q5: What Steps Do I Need to Complete in the Incorporation Process?

Choosing a business name: You’ll need to choose a name for the business and make sure it does not conflict with the name of another previously registered company in your state, as well as ensuring it meets the local requirements.

Filing articles of incorporation: This document provides essential information about your business, such as your company name, address, services offered, business purpose, and the number and types of shares your company can issue.

Creating a corporate BY-Laws: This is a set of rules and regulations that your company will follow to ensure that it is managed properly and efficiently.

Obtaining an EIN: An employer identification number (EIN) is the Overarching identification number for a business, used to report taxes to the IRS, track business activity, and manage employee payroll.

Filing a DBA: Depending on your business, you may need to file a "Doing Business As (DBA)" form, which allows you to operate under a different name than the legal name of your business.

Q6: What Else Should I Know About Incorporating My Business?

In addition to the information discussed above, there are some other important tips to keep in mind when incorporating your business:

Know your legal requirements: It is essential to check in with your local, state, and federal government to ensure that you are in compliance with all applicable laws and regulations when forming your business.

Understand your business structure: Different business structures have different tax requirements, and there may be additional requirements for certain types of businesses. Make sure you understand the different obligations associated with your particular business structure.

Ensure proper paperwork: When incorporating, make sure that all of the processes discussed above, such as filing articles of incorporation, obtaining a corporate EIN, and filing a DBA form, are completed correctly to avoid any legal or financial issues later on.

Seek legal advice: It’s important to keep in mind that incorporating comes with certain legal obligations, so it’s always best to seek legal advice and assistance when incorporating.

Incorporating your business can protect your personal assets and help ensure the financial and legal well-being of your business in the long-term. By understanding the process and benefits associated with incorporating, you can make the right decisions for your business.

Topics:

Incorporation,

Business Incorporation,

Incorporating a Business