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Which Type of Company Incorporation is Right for You?

Saturday, June 19th

Which Type of Company Incorporation is Right for You?

Maybe when you first started out, a partnership or sole proprietorship was ideal. Your business was small, your exposure to legal liability may have been low because most of your clients or customers came to you via referrals from friends and family. But an organization's growth can mean both opportunity --- and potential headaches.

Your firm having survived its infancy, it might now be time to branch out to doing business in other states. You might have more employees and wish to offer them benefits while taking advantage of a tax deduction. Offering benefits might even result in attracting better quality employees. You might even want to raise capital by means other than personal assets or business loans. For these and other reasons, incorporating your business can be a good choice.

Once you've decided that you want to incorporate, you still have at least one more question to answer: "Which type of company incorporation is right for you?"

As an owner, you have two types of corporate structure to choose from. The C-corporation is what most folks think of when they think of incorporating. A C-corporation must accomplish a list of administrative steps to establish and maintain its status, among them the filing of a number of IRS tax documents throughout the calendar year. An S-corporation must take the same set of administrative steps but does not have to file a corporate tax return. Instead, S-corp owners report any profits or losses on their personal tax returns.

With both C-corp and S-corp structures, you establish your company as a tax and legal entity separate from you and any other owners. Creating this entity acts to protect you from liability in the event that you are sued or your company goes into debt.

Whether you select S-corp or C-corp status, incorporating your business requires the completion of a good deal of documentation that must be filed according to somewhat strict procedures. To make things even more complicated, each state sets its own rules relative to incorporation procedures. Hiring a lawyer who is familiar with your state's rules, as well as with federal statutes and provisions, is advisable. Consulting with a business tax professional before starting the process is also a good idea.

To begin the incorporation process, you must file articles of incorporation with your state's Secretary of State. In addition, you have to craft and record a set of company by-laws. By-laws do not need to be filed with any official body, but must be kept with company files. Next, you have to schedule -- at least once per year -- shareholder and board of directors meetings. When meetings are held, minutes must be recorded and kept on file. Establishing a business name with state and/or local authorities, complying with licensing regulations and obtaining a federal tax ID number are also part of the process.

If you choose the S-Corp route, you need to be sure your company meets IRS requirements for "Subchapter S" status. These requirements are routinely updated, so checking in with a tax professional is encouraged. If you do indeed qualify, you must have your shareholders vote to approve S-corp status. Once you have established S-corp status, you'll be able to sidestep the liability concerns of a sole proprietorship or partnership, as well as the cumbersome tax filing requirements of a C-corporation.

Each incorporation choice boasts its own positives and negatives. When it comes to choosing between the two, your business objectives -- tempered with sound legal and tax advice -- should inform the process.

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Company Incorporation Service FAQ

Incorporation is the process used to legally create a company or corporate entity. This is usually done when a business wants greater protection and status than when under operation as a sole proprietorship.
When you incorporate, it separates your company's income and assets from your personal holdings - and from those of your investors and owners. In the event of a lawsuit against your business, your personal savings, property, vehicles, and other assets wouldn't be threatened.
Operating as either a corporation or an LLC offers significant legal protection and benefits. You'll want to incorporate, however, if you plan to do business internationally or go public.
Depending on how much help you need and which provider you select, incorporation service fees range from $49 to $899. That's in addition to any mandatory filing fees in your state.
Your paperwork can be completed and filed in one business day. Each state differs with respect to turnaround times once your application has been filed with the appropriate office.
Yes! Most company incorporation services make it hassle-free to submit all of the required documentation online, and they often file your application on your behalf. Some providers give you the documentation to fill out, but you'll have to file the paperwork on your own.
There are plenty of reputable services on the market, with thousands of satisfied customers who have used them successfully to incorporate their businesses. If you need extra reassurance that the provider you're considering is a reliable choice, be sure to check out their listing with the Better Business Bureau.
Most company incorporation services offer some form of satisfaction policy or error-free guarantee. However, if your paperwork has already been filed, any fees paid to the state probably won't be refunded.

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  • Rocket Lawyer
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  • Incorporate
  • Corporate Creations
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