How and When to Incorporate Your Business

Posted On:

By Roberto Neuberger

Nearly all businesses start off as sole proprietorships and most people don’t really give a thought to how and when to incorporate their business.

In fact, many small business owners, especially those who are making money in their spare time on the internet, don’t even really think of themselves as business owners. But they are, and they should at least consider incorporating for their own protection.

When you incorporate, you are making the company liable, not you personally, should something go wrong. The plain truth is that many small business owners don’t recognize the advantages of incorporating and simply don’t know what to do to incorporate.

When you are operating a small business, the thought of incorporating may not seem realistic or even necessary. Some might even think it’s silly. Does Joe’s Landscaping Business really need an “Inc.” at the end of its name?

It does, especially if Joe has any employees. Here’s why. If an employee should damage property in the course of a job, unless you are incorporated, not only can your employee get sued, so can you. If you are incorporated, you have a certain amount of protection and your employees, typically, cannot be held liable for accidents that happen on the job.

Some business owners, even one-person companies, incorporate simply because it makes them appear to be a larger, well-established company. That “Inc.” after the company names gives the perception to consumers that they are dealing with a solid company.

So if you have a business, even if that business in only you, incorporating it could be seen as a key marketing tool.

Incorporating can be expensive, and that is something you should consider before filing any paperwork. If you’ve made the decision to incorporate, the next step is to file the proper paperwork with your state. Most states have this information available on their websites. With that being said, it can be time consuming and expensive to do this process yourself.

The days of hiring an expensive attorney to handle all the paperwork and filing is over because today you can incorporate online. Prices range from about $200 to more than $1,000 depending on the complexity of the corporation, the state, type of entity, the paperwork involved, the services rendered, and the company you hire.

The most basic corporation has three officers, a president, secretary and treasurer, and often times these are more paper titles than positions with actual duties, especially in very small businesses. An attorney, or a firm you hire to make the filings, completes the proper paperwork and files it with you states Secretary of State. If you have a corporation, you also going to have to apply to the Internal Revenue Service for a Federal Employer Identification Number.

If you do hire a firm (there are several online) be certain to check with the Better Business Bureau. And make sure to get a receipt for the state fees you pay, because some companies will overcharge their clients in this area after giving a supposed low quote for their services.

If this all seems like too much for your little business, it’s important to note that even small businesses can create huge problems when they are sued. In this litigious environment, it’s best to have the most protection you can get.