Starting your own business is an exciting event. At this point, you can decide to start a home-based business, a franchise, an online business, or be an independent contractor. Whether you’re an entrepreneur or a start-up, incorporating your business is the best way to establish a professional identity. Moreover, you will provide credibility to your customers and clients and also have financial benefits by separating your personal taxes and assets.
What are we talking about?
Incorporation is a legal process that can either be done by yourself or with the help of a lawyer or professional company with incorporation expertise. Take into consideration that there multiple types of incorporation options and also the process and fees differ from state to state.
There are multiple options for business incorporation, and each one has its advantages and disadvantages based on your business. There is:
• Sole Proprietorship: A Sole Proprietorship does not require any incorporation filing, as you are the sole owner of the business. You may still need a business license or permit, depending on the industry and the location. Your business and personal taxed would be one in the same, but you can also be held liable in the event of legal action.
• Limited Liability Company: A Limited Liability Company (LLC) is a popular business structure because of the limited personal liability and there’s less paperwork involved. You can be the owner and only person working for the business, or you can hire employees. LLC rules vary from state to state, so you’ll need to check with your local government.
• Cooperative: A cooperative business structure is most common in industries like healthcare, retail, and restaurants. Profits and earnings are distributed to user-owners, and you can receive funding from government grant programs. However, it requires all members to be active in order to be successful.
• Corporation: A corporation, or C Corporation, is owned by shareholders. They are privately owned companies, but they have the option to “go public” with an initial public offering (IPO) in order to sell ownership shares in the stock market. While there are great benefits to a C Corporation, it is also time consuming and expensive to structure.
• S Corporation: An S Corporation is similar to a C Corporation, but it’s taxed differently by the IRS. There are shareholders and possible tax savings, but shareholders must be compensated and their operational guidelines are strict.
Dont forget that each structure has different legal and tax obligations based on where you incorporate and how many people will be in charge of running your business.
The first thing that you will need in order to incorporate will be a business name. Your business name must be registered with the state and/or local government. If you have trouble deciding upon a strong name, check this article out also. Your business may also need federal and state licenses and permits in order to operate legally depending on what state you’re in.
Keep in mind that you are not a legal corporation until you have filed a certificate of incorporation. Every incorporated business also needs an Employer Identification Number (EIN), which is like your business’ social security number. In order to get one, you must apply with the Internal Revenue Service (IRS).
We can admit that owning a company means great responsibility but incorporating offshore means even greater responsibility. Many entrepreneurs are driven by the thought of expanding on the US market and choose incorporation as a way to do that. Either, you go for a C Corporation or LLC, you must be informed of all there is to know about incorporation and avoid the biggest myths about it.
Myth #1. Incorporation can wait until the product is launched on the market
Did you know that many entrepreneurs believe that it is better to incorporate the moment the product is launched on the market? Mostly, because they try to avoid legal paperwork as much as they can. In fact, incorporating in the company’s early stages can help better protect personal liabilities. Legal issues may appear before the product enters the market and an initial incorporation allows gaining long-term capital if the owner plans to sell the company fast.
Myth #2. It is better I take care of all the incorporation steps and procedures myself
Actually, business owners that think they can save money and time by doing the incorporation process themselves could not be more wrong. They only deny themselves proper advice in dealing with legal procedures. Moreover, they don’t benefit from a customized guidance meant to reveal incorporation opportunities for their business’ activity.
Myth #3. By incorporating I can avoid state taxes and benefit from extra deductions
Some entrepreneurs are misled into thinking that by incorporating they will not pay state taxes and also, that they will have more deductions on business expenses. Law taxes allow companies to deduct any necessary and ordinary expenses no matter if it is incorporated or not. Additionally, each state applies corporate taxes that must be paid. Nevertheless, incorporations are not exempt from taxes.
Make sure you avoid any incorporation myth by choosing Inc. Plan (USA) as your professional guide in the incorporation process and keep yourself informed by checking out our other blog posts.
Filing for incorporation is not a difficult process, but it can be a lengthy one. You have paperwork to fill out and submit, and you have to wait to hear back from the government. Some business structures are a little more complicated based on where you choose to incorporate, but there is plenty of help available. Drop us a message on Facebook or Instagram. We are always here for you!