Basic questions a small business owner or entrepreneur will have when they decide to incorporate

Posted on Tuesday 24 March 2009

Why Incorporate?

Why to incorporate is always the biggest question for a new business owner. The reasons are simple. If one incorporates a new business, personal assets will be separated and not affected by the business. Liability is also limited to the business owner, meaning creditors of your corporation must satisfy their claims by seizing the assets of the corporation rather than your personal assets. Other benefits of incorporation can include tax deductions for health insurance or medical expenses, and a savings on social security tax and Medicare tax.

How do I form a corporation or LLC?

Forming a corporation or LLC is not a difficult process. It can be accomplished quickly and efficiently by a professional incorporating service and even done online. The incorporation service will investigate the availability of your proposed corporate name, reserve it for you and handle all paperwork needed.

What is a Certificate of Incorporation?

A certificate of incorporation is what some states issue to your company as evidence youâ€™re your business is a valid corporation and meets state incorporation requirements. Some states call the certificate of incorporation, articles of incorporation, but that is also the document that you file to incorporate your business.

Do I need an attorney to form a corporation or LLC?

You do not need an attorney for incorporation. Most services are knowledgeable in the legal aspects of incorporation and limited liability company (LLC). Although, should you choose to have an attorney, one can provide you with advice as your business grows, so a legal advisor is always recommended.

Does it matter which state I incorporate?

It is recommended that you incorporate in the state where your office is physically located. If you incorporate in another, you may need to submit an application to qualify as a foreign corporation. This is often more of a hassle then it is worth and is not suggested.

What is an Assumed Name?

An assumed name is also called a fictitious name and is a characteristic of some state corporation laws in which a corporation can operate under more than one name. This is a convenient tool for a small business owner who sells different products but does not wish to have several corporations.

What Is a C Corporation?

The IRS classifies corporations according to how they want to be taxed. There are two types of corporations according to the IRS: “C” corporations, named after Subchapter C of the tax code, or “S” corporations, named after Subchapter S of the tax code. C corporations have their own tax identification number and pay their own taxes.

What Is an S Corporation?

S corporations are the opposite of C corporations. S corporations are sometimes called small business corporations and are taxed like a partnership, as if they were not a corporation. An S corporation passes through its losses to the shareholder’s personal tax return, and is not liable for Federal income taxes itself. The shareholders of an S corporation will pay personal income taxes based on the income of the S corporation. The S corporation shareholders will be able to personally enjoy any losses the corporation may have.

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