If you are a small business owner, you may be considering incorporation for your business. First off, congratulations! That means business is doing well and you are ready to take the next step. However, that also means a whole lot of uncertainty for the present moment and what your next step should be. Relax, you have already done well thus far. Now, lets walk through incorporation and what exactly it entails for your business. That way, you can make the best possible decision for the future success of your business.
What Is Incorporation?
Simply put, incorporation will separate you from your business, legally speaking. Incorporating your business will set your business apart as a legal entity with its own laws and regulations. This has its benefits. Primarily, you will only responsible for the money you have sunk into the business. If, somewhere down the road, your business is no longer doing well, your personal assets will be considered separate from the business. They cannot be considered for repossession or otherwise. Therefore, they will be completely safe. Of course, you hope that this advantage will never be necessary. But nevertheless, it is still an incredibly important benefit. This benefit is true of both types of incorporation, S corp and C corp. Now, let’s have a look at the specifics of each.
S corp is a type of incorporation that follow a specific set of tax guidelines. Most beneficially, S corps are only taxed once, unlike C corps. This type of incorporation is like the small business equivalent of a C corp. Your business will be considered a separate entity, but you will only have the ability to account for 100 shareholders. These shareholders must also be US citizens, which is not true of C corps. S corps are a bit more rigid than c corps, so if you want a bit more flexibility, you should learn up on this next type of incorporation.
When researching incorporation for your small business, you will likely come across information for both S and C corps. However, you will determine which one is better for your business. C corps are very similar to S corps, but they do have the disadvantage of being “double taxed.” Any revenue from your business will be taxed as both revenue and shareholder dividends. It is also pretty expensive to incorporate. However, this is true of both sub classes of incorporation. Unlike the more restrictive S corp, C corps have no limits on the amount of shareholders allowed or their citizenship status. Thus, you will have maximum opportunities for growth if you choose to make your business a C corp. If you foresee your company growing beyond 100 shareholders, or if any of your partners are not US citizens, your best bet for incorporation is a C corp.
How To Incorporate
Finally, now that you understand the different types of incorporation, you will want to know how to go about doing it. First things first, contact the Secretary of State for the state in which your business is headquartered. You can find out all the information you will need from this office. Remember to inquire about specific paperwork and deadlines so that you can be sure to get everything done in a timely manner. Once you have done this, you may decide that it is best to get a lawyer for the rest of the process. Obviously, it will cost you a bit more money. However, the cost be worth the piece of mind it provides. You can, of course, navigate the incorporation process yourself, it will just take a little extra time and research. Whether you decide to go at it alone or higher a lawyer, make sure you are ready to take the next step with your business.
Incorporation has its benefits. However, in order to incorporate your business you will need to decide whether an S or C corp is the right choice for your needs. Then, once you have decided, you will need to contact your Secretary of State or a lawyer to get your business through the incorporation process. Once you have finally incorporated, make sure to learn up on all the new regulations for your business so that you will not run into trouble down the road. If you have incorporated your business, let us know how it has changed your day-to-day operations in the comments below.
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