There comes a point with every entrepreneur where your idea needs to come to life, and there are big challenges when you don’t separate your personal affairs from your business affairs. There are legalities, financial confusion, branding, and overall professionalism that can be at risk if you don’t learn how to incorporate your business. This article will explain how and why you should incorporate your business.
Aside from the person who chooses to remain as a sole proprietor, when you incorporate, from a legal standpoint, you create an invisible “body” who can carry out affairs separate from you. As soon as your Articles of Incorporation are approved by your Secretary of State, the business is considered a separate “person” from you.
- 1 Why is it a Benefit that the Business is a Separate Entity from Me?
- 2 As an LLC or Corporation, the owner is not held entirely liable for the affairs of the business.
- 3 Benefits of Incorporating Other Than Limited Liability
- 4 “How do I Incorporate my business?”
- 5 Step One: Choose a Business Name
- 6 Step Two: Choose a Location
- 7 Step Three: Choose the Business Structure
- 8 Step Four: Name the Company Directors and Registered Agent
- 9 Step Five: Determine the Types of Shares
- 10 Step Six: Decide if You Will DIY, Hybrid DIY, or Hire Someone Else to File Your Paperwork
- 11 Step Seven: File The Paperwork
- 12 Final Comments answering “How Do I Incorporate My Business?”
- 13 Now, it’s Your Turn…
Why is it a Benefit that the Business is a Separate Entity from Me?
When the business is a separate entity from you, then you can create separate banking accounts, you can buy and sell property in the name of the business, you can have credit, and you are not held legally liable for the affairs of the business. The business can be sued, can go bankrupt, can be taxed, and can accumulate property without affecting the owner–this is why they call it “limited liability”.
As an LLC or Corporation, the owner is not held entirely liable for the affairs of the business.
In the case of a Sole Proprietor, if they make products or services, and a customer accuses their product or service of causing damage, the person could be sued and their personal belongings can be taken as collateral for the damages. Legal uprisings of this sort may seem rare, however, they do happen, and they can be even more life altering if the business is not incorporated.
Benefits of Incorporating Other Than Limited Liability
There are other issues entrepreneurs who are not incorporated may find themselves in like high taxation, lesser employee benefit offerings, lesser credibility, temporal existence (connected with the owner’s lifespan), limiting transferability options, and more.
When a business is incorporated, they can offer their employees the ability to buy shares of stock in the company, which can largely improve employee retention and increase performance. Stock incentives can be a great way to add value to a benefits package without directly increasing the pay.
How Incorporation Impacts Credibility
Incorporation also allows the business to use the letters “LLC”, “LLP” or “Inc” behind their name. While those letters may not seem like a big deal to you, they are a big deal to many consumers. It’s like the credential “MD” behind a doctor’s name or “J.D” snd “ESQ” for a lawyer. A person who doesn’t have those letters behind their name, but attempts to practice medicine or law will have challenges overcoming skepticism and other stigmas. When you wear the right letters behind your name, it establishes a level of professionalism and credibility. It tells your customers “I have done what is legally required to provide services to you in an ethical way”.
Incorporation, Temporal Existence, and Succession Planning
As an incorporated business, the business can outlive the owner. Even after the owner has decided to retire or passes away, the business can still operate with newly appointed leaders. The ease of being able to pass a business on to a successor is a major benefit of incorporating a business.
“How do I Incorporate my business?”
Step One: Choose a Business Name
The last thing you want is a business name that doesn’t stick with your customers, one that you get in legal trouble later for using, or a name that is difficult to market because you can’t get the correlating web address. You also don’t want to get to the point you file your paperwork, then get it rejected because the name is already in use. Take this step seriously.
When choosing your business name, think about something that represents the products and services you’ll be selling. You want your business name to “click” with your customers, so they can remember it, tell their friends, and increase your business success. Names like “Pooky’s sister’s daddy’s best friend’s mom’s hairdresser” may not be fitting because it can be easily distorted, very easy to confuse, difficult to fit on a business card, hard to get a correlating website, and the list goes on and on.
When you’re choosing a business name, make sure to do a name search with your Secretary of State. If you’re unsure who your Secretary of State is, or how to contact them, this “Listing of all US Secretaries of State Offices” (with phone numbers) will help.
After you’ve verified the name is available with your Secretary of State, you want to do a trademark search on the USPTO website. I’ve seen a business who started, bought branded vehicles, purchased buildings, had lots of marketing materials created, then later, was taken to court for using someone else’s trademarked name. They were required to remove the trademarked name from all of their vehicles, get rid of all marketing materials, place signage on their property, and more because of trademark complications! Don’t let this be you. Take your time now to search at the USPTO website to see if your business name is already trademarked. This is important! If you need help, let us know, we’d be glad to help you.
As an Internet Marketing Consultant, I’d also recommend before choosing a business name that you check to see whether you can leverage internet traffic by choosing a name with high amounts of online searches, but few competitors for the keywords. I was able to leverage How To Entrepreneur as a commonly searched keyword to advance my new, small following with search engine traffic. Search engine traffic can be a huge plus for gaining leads to your business.
Lastly, check to see if you can purchase the domain (website URL) that correlates with your business name. I personally use Jaaxy for my keyword research and to identify whether domain names are available. You can try Jaaxy out using this tool:
If it’s available, go ahead and purchase the domain thru Wealthy Affiliate! They will show you how to set up your website and how to get massive traffic to it, and you can test drive everything for FREE. I personally host my website thru them and I haven’t had better customer service, training on how to get tons of web traffic, or better site speed anywhere. Check it out!
Or, if you’d like to set up a free website in 30 seconds or less, you can do there here:
Step Two: Choose a Location
Each state has it’s quirks and benefits. For example, as a military veteran, I was able to file my articles of incorporation for free (with some additional paperwork). In other states, that benefit would not have been available to me.
For you, maybe you’ve done public service or otherwise. You don’t have to incorporate your business in the state where you live. The incorporation will simply be your “Headquarters” location. You should choose your “headquarters” location based on the tax benefits, corporate laws, benefits to you, and cost to incorporate. You can always choose to incorporate the closest to you, but I’m trying to give you advice to help you achieve massive success.
I’ve told you before here, but if you new…
At How To Entrepreneur, our goal is to tell you our best business advice so you can achieve massive success.
Step Three: Choose the Business Structure
LLC, C Corporation, S Corporation, Sole Proprietorship, DBA, or others? It can be very confusing to choose the appropriate business structure. You can check the SBA website for a clear measure of the differences between the legal entities. You can also contact a lawyer or an accountant to sort thru their thoughts on which legal structure is best (tax-wise and legally). Try the FREE TRIAL to Rocket Lawyer for legal advice on matters such as choosing a business structure for your needs. Let them help sort thru the confusion!
Want to know more about Rocket Lawyer? Check out my full Rocket Lawyer review HERE.
Step Four: Name the Company Directors and Registered Agent
Do you want to do equity funding, bootstrapping, finance with loans? Do you want to have a virtual business model or operate live? There are so many various ways you can operate the business, and you want to leverage your skills along with the skills of others to make the business succeed. Choosing the board of directors can be one of the most pertinent decisions because in addition to money and time, connections are also a very valuable resource.
When choosing your board of directors, you don’t want to ask any and everybody. The people must be very invested in the success of the business, and you want to make sure there’s alot in it for them. Before asking anyone, decide:
- What’s in it for them?
- Will you want to submit to the person’s input on very serious business matters?
- Does the person have an expertise you are missing in the company?
- What are your expectations from each company director?
You do not have to appoint several company directors. You can be the only one, then maybe restructure later. I’ve seen company directors who are a major plus to a company and I’ve also seen startup entrepreneurs who are WAAAYYY too loose with appointing company directors.
Let me give you a short story…
I posted an ad on Craigslist for business planning service. I received a client as a result of the ad. The client (a startup entrepreneur who I met less than 20 minutes ago) was impressed with my knowledge, and asked me to be on his board of directors.
Don’t do that! Asking someone to be on the Board of Directors is a long term commitment. Treat it like marriage. Don’t ask someone within the first 20 minutes of meeting! My opinion. Moving on…
Finding a Registered Agent
The registered agent is a person who must be in the same state as the business incorporation. They are appointed to receive coordination from the Secretary of State, legal coordination, tax coordinations, and otherwise.
Many companies charge a nominal fee for this service, and simply forward coordinations to you in an agreed format. We recommend checking out sasquatch mail for this service. They offer mail forwarding, mail scanning, and a physical office address with their virtual office service. Check out the virtual office service if you need a registered agent.
Will you sell the shares privately or publicly? As a startup, you may start small, but you still will want to decide your growth and scale plans. On the articles of incorporation paperwork, it will ask you “how many shares will be issued” or something of that sort, so you will want to have a decision about the possibilities of your business growth. This article by Investopedia on Different Types of Stocks can be helpful with understanding various situations and helping you make the share type decision. Check it out!
Step Six: Decide if You Will DIY, Hybrid DIY, or Hire Someone Else to File Your Paperwork
Now, the preliminaries are all out of the way. Next, you’ll need to decide whether you will print out the paperwork and coordinate with the Secretary of State, if you will get some assistance so you can do it yourself, or whether you will completely hire it out.
If you will do it yourself, the next step is to print out the Articles of Incorporation, and begin filling them out. There are usually three different ways to submit the paperwork: by fax, online, or via mail. Processing times vary, and you have to follow directions carefully because otherwise the process can be elongated.
If you’d like to ask all of your legal questions to an attorney as you incorporate your business, you can fill out the online application with Rocket Lawyer. Rocket Lawyer could be a great DIY alternative for you. Check them out!
Step Seven: File The Paperwork
Now, you’ve decided on all the necessities, and its simply time to get the job done! If you’re a DIYer, fill out the paperwork and turn it in. If you’re a Rocket Lawyer proponent, go to their website, and ask all of your legal questions to get the help and peace of mind while incorporating your business.
Final Comments answering “How Do I Incorporate My Business?”
Hopefully, this article has given you all the ammo you need to decide whether you will complete articles of incorporation and instructions for how to go about it. If you have any additional questions, I’d be glad to help you out, leave your questions or comments below.
Now, it’s Your Turn…
Have you completed the articles of incorporation before? Do you remember what it was like? How did you feel about it? What made you do it? What process did you use? Did I leave anything out? Please share below.