Business owners need to know about their options in terms of the ownership form of their business. You may want to have an LLC (Limited Liability Company); you may want to form a Corporation. In fact, it is even possible for you to have a "do-it-yourself" Incorporation.
There is even incorporation software available that includes the forms for your state, a space for the minutes of your first corporate meeting, your initial stock shares and how to take advantage of corporate tax breaks. It is also possible to get forms, which have to be specific to your state at various chain stores that help laymen with legal matters, and sell packages of forms, for your state, to file for incorporation. One online program estimated that the cost of Incorporation in the State of New York, deluxe style, including 12 months of registered agent fees was less than $500. This compares to fees of over $1,000, if done totally by an attorney. Prices are even lower in some states.
Even if you use one of these do-it-yourself kits, it is best to check with a lawyer and an accountant about which form of ownership is best for you: a corporation, an S- corporation, or an LLC. If you do it yourself, you still need professional advice. One strong caution; if you are doing business, say in New York, it does not pay to register as a corporation in Arizona, just because it is cheaper to do so. Registering yourself as a corporation in Arizona will at least in many cases not protect you from the laws in New York.
There are other things that can get complicated about being incorporated. If you are a retail store, or are selling things, you have to register to pay sales tax. On the federal level you have to register with the IRS and get a tax ID number. You may have to pay registered agent fees. Also, remember a corporation is an independent legal entity and must pay its own taxes.
According to the IRS, an S-Corporation is exempt from Federal Income tax except for taxes on certain capital gains and passive income. On their tax returns, the shareholders (a small number of people) include their portion of the corporation's income, loss, etc. See irs.gov, and
legal information for small businesses.
A regular corporation, a C-Corporation, which is incorporated in your state, can be changed into an S-Corporation, by having the shareholders sign and submit a form 2553 to the IRS, to request that status. That can be done some point of time later than the actual formation of the corporation. Benefits of having a corporation include being able to purchase tax deductible benefits such as health care, childcare etc. for the shareholders and employees.
For example, you have started a desk-top publishing business from your home. You begin as a sole proprietorship. Business expands, and you bring in your wife and your brother-in-law into the business. You rent an office and hire four employees. This is when you may want to form a corporation. An S Corporation can have up to 65 stockholders. You may want to have employee benefits, plus your wife and employees need child care. Having such expenses tax deductible can reduce your taxes substantially.
Howard Giske is a legal consultant for Inc. Paradise, where you can get
Incorporation services.
