Incorporation, in the simplest of terms, is the forming of a corporation, wherein the formed corporation is recognized as an individual or single entity by law. Even though you may have started out in your line of work as a proprietor or with a partner, you may have thoughts about incorporation as your business grows in size.
Understanding the implications of incorporation is important if you wish to consider it as a viable option in case you feel able to cope with the process without external aid. The following information will explain the process of incorporation and the considerations to take into account before you begin.
How to Incorporate Your Business
Typically, there are three ways of incorporating a business, namely by hiring an incorporation service company, by hiring a lawyer to incorporate you, or learning how to incorporate yourself. Different states in the United States have different laws pertaining to incorporation. Two illustrative examples are listed here.
- To begin with, visit the Department of State website for the state of Florida. Here you will find a list of the forms you need to incorporate―download these.
- Once you have decided the name of your corporation, you need to submit a Name Registration Form to the office of the Secretary of State. If it is available for use, this form will reserve that name and prevent others from using it. This can be done online, or filled out by hand and submitted in person. You will have to pay a fee for registering this form.
- Next, you have to fill out the Articles of Incorporation as listed on the website. These will need you to restate the name of your corporation, and enlist the people who will be acting as managers of the company if any, among others. You will again have to pay a fee to get the Articles of Incorporation registered with the office of the Secretary of State.
- Corporations in Florida have the option of electing to file a sub-chapter S with the IRS. Should you choose to do this, you will have the ability to pass a share of the profits or losses of your business to your individual tax return.
- To become an S Corporation, you need to fill out Form 2553 and file it with the IRS, within 2 months and 15 days of filing the aforementioned Articles of Incorporation.
- Once your documents have been accepted, you should expect a 4 to 6 week gap before you receive your Employer Identification Number (EIN) and confirmation that your incorporation has been registered.
In New York
- Once again, make sure the name you wish to register is available.
- Fill out and submit the Certificate of Incorporation on the Department of State for New York website. You should receive an email that will instruct you on how to check your application status; once you receive an approval, you can file for an EIN (you can do this fastest by phone).
- If you wish to register as an S Corporation, you will need to fill out Form 2553.
- Next you need to fill out and mail the CT- 6 Form (Election by a Federal S-Corporation to be Treated as a New York S-Corporation).
- Fill out and mail the NYS-100 (New York State Employer Registration for Unemployment Insurance, Withholding, and Wage Reporting).
Advantages of Incorporation
It's important to understand that there are benefits of incorporation, but remember to asses whether these benefits apply to you. Incorporation can help if you run a business, or are self employed―but if you work as an employee, incorporation will not be of much help―no matter what tax benefits people may hint at. Here are some benefits of incorporation:
Safeguarding Personal Assets
Possibly the most important point to consider, incorporation protects your personal assets from claims and lawsuit settlements, which means that in case of bankruptcy or liquidation of the corporation, personal assets cannot be seized to settle debts.
In the United States, tax deductions are lower for corporations than individuals.
Corporations acquire their own credit rating, independent of their owners or shareholders, so even if you have poor credit history, it does not need to affect your business dealings.
Transfer of Ownership
Transferring ownership in a corporation is relatively easy.
If you feel confident enough, taking the initiative can save you a lot of money in legal fees. Weigh your options carefully and remember that you can always ask the people at the State Department Office for help in case you require clarifications.
If you're uncomfortable with doing all this online, you have the option of getting the forms printed and filling them out by hand. Knowing how to incorporate your business, whether you choose to do it yourself or with legal aid, is always a benefit.