When you start a small business, you need to decide how to structure it. Each structure has pros and cons, and the best format will depend on your business, location and specific needs.
If you're unsure what structure is best, review the advantages and disadvantages on the U.S. Small Business Administration website.
If you have determined that a corporation is the right structure for your business -- and here is a review of some of the benefits of forming a corporation -- follow these seven steps to become incorporated. You should always consult an accountant and/or attorney if you have questions about the process.
Step 1: Choose Your Business Name
The first step is choosing a name for your business. An effective business name should fit what you do, how you do it and the audience you are trying to reach. It should be something people will understand and remember.
Once you create a business name, you should check with your state's corporate filing office as well as federal and state trademark registrars to see if it's available. It's also a good idea to come up with an alternate name in case your first choice is not available.
Step 2: Identify Your Location
Next, you need to select a state as your headquarters' location. This doesn't necessarily need to be where you live or even where you expect to do the majority of your business, although sticking with your home state may be an easier process.
Some factors to consider when choosing a state for incorporation include the cost to incorporate, taxation and corporate laws.
Step 3: Select the Type of Corporation
Now, it's time to decide what type of corporation you will form. You can incorporate your business as a C Corporation, an S Corporation or an LLC. Each of these types has their own advantages and disadvantages, so you should explore the explanations of each corporation type and consult a tax accountant for advice.
Step 4: Name the Company Directors
The next step involves selecting the directors. A corporation is required to have a board of directors who are effectively responsible for running the corporation. The selection of directors is a very important decision and can impact your business in many ways.
Step 5: Determine the Type of Shares
Next, you will select the type of shares your corporation will sell to stockholders. In many cases, corporations are private, limiting the availability of the shares to only a few individuals (your directors).
Step 6: Obtain a Certificate of Incorporation
You will then obtain and complete a Certificate of Incorporation, available from your state's corporate filing office. It will include your company name, purpose of the business, location and other information gathered in the previous steps.
Step 7: Process and File the Paperwork
The final step of incorporation involves submitting the articles of incorporation you prepared in the last step to the state, along with the required registration fee.
You have the option of filing the paperwork yourself, through your attorney or by using a third-party service. You should choose the option that you are most comfortable with and the one that works within your budget.
Choosing the structure of your business is not an easy or small decision to make. Take the time necessary to gather all of the information you need to make an informed decision.