What does it mean to incorporate a business?
To incorporate a business, you form a legal corporate entity. Several steps go into this process, and it can vary from state to state. Typically, a business owner files articles of incorporation and registers their business with federal, state and local agencies.
Many businesses start as an LLC, partnership or sole proprietorship, then convert to a corporation. Though your business may pay more taxes as a corporation, it is often a natural progression to increase ownership shares and access more funding for continued growth.
When you incorporate a business, the most common types of corporations are C-corporations and S-corporations. The two differ when it comes to taxation.
- C-corporations: The more popular of the two, C-corps are taxed at the corporate level. The dividends that shareholders receive (share of profits) are taxed on shareholders’ personal tax returns.
- S-corporation: Similar to LLCs, S-corps are pass-through entities. This means that the business income is passed through to shareholders, and they claim this income entirely on their personal tax returns.
What are articles of incorporation?
Also known as a certificate of incorporation, articles of incorporation are a document that outlines your business, and these are what’s required to incorporate a business. State laws usually require that you file for incorporation with a state agency (usually the secretary of state office).
Articles of incorporation usually include:
- Company name
- Number and value of shares
- Key company executives, such as directors and officers
How long does it take to incorporate a business?
In most states, setting up a business structure for your small business takes one to six weeks, depending on who is incorporating the company.
How much does it cost to incorporate a business?
Cost can vary from $100 to thousands. State fees vary widely. And if you use a lawyer or a CPA to file with the state on your behalf, then you’re also paying for that.
Typically, more hours will go into incorporating a business than an LLC. So, professional help for incorporating can be more expensive than the cost of setting up an LLC.
How to incorporate a business in 8 steps
Many of these actions occur concurrently, but we’ve broken down the steps of business incorporation to help explain the process.
1. Choose a business name
Before you start branding and marketing your company, make sure the name you want isn’t already in use or trademarked. Consult the U.S. trademark office to check.
If the business name you want is available, trademark it. Secure the name in a website URL and company social handles as well.
2. Register the business
Register your business with the correct state agency. In most states, that’s the office of the secretary of state. You should also register your business in any state where you do a lot of business, where your employees work, or states where your business earns significant revenue.
In addition, you may need to file for licenses and permits with local governments (usually at the county or city level).
Many of these offices will ask to see proof of insurance when you register.
3. Get business insurance
In many cases, you may need to show proof of insurance to register your business and obtain licenses. Business insurance is a vital part of protecting your assets and investments.
Every business has unique insurance needs, and NEXT equips small businesses with the right coverage. Check out our insurance resources to help incorporate your business.
4. Choose a location for incorporation
For many small business owners, incorporating in your home state is ideal. It’s the least complicated, and you don’t have to deal with extra taxes like franchise taxes.
As your business grows, consider incorporating in a state with more advantageous tax codes for corporations. This could help to minimize state corporation taxes and employment taxes.
5. Name a registered agent
A registered agent represents your corporation on incorporation documents. You will see their signature on the documents. They can manage tasks like handling court documents if your business gets summoned and more.
As the business owner, you can be this person. Some business owners opt for a designated person (such as an attorney) to be this person to protect privacy.
6. File articles of incorporation
The articles of incorporation give the state general information about your business. State agencies usually charge around $100 to file, but the cost will be higher if you work with a financial service provider or attorney. Some small business owners can simply use generic articles of incorporation forms online.
Your articles of incorporation should include:
- Business name
- Purpose of business
- Registered agent name
- Number and value of shares
7. Write corporate bylaws
Some states want you to submit corporate bylaws and create a board of directors. Doublecheck your state’s requirements as you incorporate your business.
Corporate bylaws are internal documents that explain how you will govern your business. It usually includes:
- The number of shares
- Voting rights
- When the board meets
- How the corporation will approve funding
- Dates for your company’s fiscal year
- Procedure for amendments
You can find corporate bylaws templates online, or you can hire an attorney to create them on your company’s behalf.
8. Establish a board of directors
Some states require an incorporating business to establish a board of directors. Shareholders vote for who sits on your board, and your corporate board should meet at least yearly or whenever specified in your corporate bylaws.
It is usually required for minutes from these meetings to be kept and filed.
How NEXT helps small businesses grow
Businesses incorporate to manage risk. Business insurance helps you manage other types of risk.
NEXT helps self-employed and small businesses get coverage for general liability insurance, workers’ compensation insurance, professional liability insurance, commercial property insurance and more.
Our online application makes it simple. Get a free quote, see coverage options and buy insurance in under 10 minutes. You’ll get instant access to your proof of insurance, saving you time as you incorporate your business.
Start a free online quote with NEXT today.