How an Incorporation Service Can Help Your Small Business
If you’re thinking about starting a company, there are many benefits to incorporation. Incorporation (also known as “incorporating” or “forming a corporation”) provides small business owners with personal liability protection, builds business credibility, offers tax advantages and makes it easier to raise money through the sale of company stock. For these reasons and others, the corporation is one of the oldest and most prestigious entities of choice for anyone who wants to start a company.
Incorporation makes it possible to purchase real estate, enter into contracts and shield individual assets and equity from business-related debt collection and any potential legal disputes, because a corporation is its own entity separate from its owner(s). Essentially, incorporation creates a legitimate legal entity separate from its owner(s); similar to a new “person” with its own name and identification number. A company’s identification number is known as a Federal Tax I.D. Number or FEIN or EIN. An online incorporation service can assist you in obtaining your company’s FEIN at the time of your company formation or you can obtain one yourself from the IRS.
A corporation is structured with Shareholders who own the stock of the corporation. A corporation’s Shareholders then elect Directors, known as a corporation’s “Board of Directors,” who make many of the major decisions affecting the corporation and usually with the Shareholders’ best interests in mind. The Directors then appoint the corporation’s Officers (President, Secretary, Treasurer, etc.) and the Officers operate the company on a day-to-day basis. In many cases, a corporation’s Shareholders will also serve as its Directors and Officers and it is common for the owner of a small business to be its only Shareholder, its sole Director and hold all Officer positions.
The rules for operating your corporation are set forth in the Corporate Bylaws. The Corporate Bylaws are established during the incorporation process and can be modified as the business evolves from the start-up phase. Operating your corporation requires, at the minimum, holding an annual Shareholders and Directors meeting, keeping written minutes of major company decisions and following general corporate rules as dictated in your Corporate Bylaws.
Incorporation provides additional benefits in that a corporation’s Shareholder(s) can deduct business expenses such as employee healthcare programs and annual meeting costs, and income is reported on the corporation’s own tax return. However, new small corporations will often choose to elect “S-Corporation Status” after formation to avoid “double taxation.” An s-corporation is taxed with the corporation’s profits and losses added to the personal tax returns of its Shareholders to avoid having to pay taxes on profits once, then again when the profits are given back to the Shareholders as dividends. Electing “S-Corporation Status” requires only (besides US Citizenship and fewer than 100 shareholders) that the appropriate resolution be adopted and Form 2553 be submitted to the Internal Revenue Service with some states requiring their own version. New business owners should know that while there are benefits to electing “S-Corporation Status,” the s-corporation has more restrictions than a regular corporation and does not allow for the deduction of certain business expenses such as healthcare.
Incorporation requires that you choose a state in which to form your corporation, which will usually be your home state to avoid paying additional fees. Your corporation might benefit from the friendly business laws of Delaware, Nevada or Wyoming, but virtually every state requires a corporation to “re-register” as a “foreign corporation” if formed in a state other than its physical location. For instance, a corporation that is formed in Nevada, but is physically located and operated in the state of Texas, will have to register in Texas as a foreign corporation in addition to original formation in the state of Nevada.
If you would like to start a business but aren’t sure how to incorporate, an online incorporation service can assist you with all the necessary paperwork you will need to file with your company’s state to become incorporated. Additionally, an online incorporation service should be able to guide you through the process and provide other services that may be of help to you such as obtaining your FEIN and obtaining your Corporate Bylaws.
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