How to Incorporate a Small Business

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How to Incorporate a Small Business

Incorporating your small or home business is a matter of choosing the form of incorporation that best suits your business circumstances.

Two of the most popular forms of incorporation for small businesses are the LLC (Limited Liability Company) and the S Corporation. There are some differences between the two depending on your location and the construct of your business. For this discussion, we will look at the steps to forming a LLC – a common choice for home businesses.

Choose a Name For Your Business

Your name must be registered with the state and have “LLC” or some form thereof in the name of the business, e.g. XYZ Company, LLC. Some states restrict the use of certain words in a business name, so make sure you are in compliance with this restriction. Additionally, your name cannot already be in use by another company in your state.

File Your Paperwork

Your state will need the proper paperwork filled out that identifies the name of the business, the owner(s), and address. This is called the Article of Organization. Contact your state government to find the office that handles this filing. Here is a list of links to state agencies with online presences to guide you through the entire process of filing and timeline to receiving your incorporation status.

Get Necessary Business Licenses

Take care of all the legal aspects of licensing your business with local and state authorities. Licensing, permits, and zoning requirements vary between states and local governments. Many cities require a general business license to operate with city limits. Start by calling your local city clerk, then your county clerk if necessary, then your state office.

Operating Agreements

Depending on your state, you may need to file operating agreements which specify certain rules and conditions under which the business functions both legally and financially. It’s a good idea to file an agreement if there is more the one owner of the business, regardless of your state’s requirements.

Taxes

The federal government does not recognize a LLC as a taxable entity. Tax liability is passed on to the business owner as a sole proprietor and payable on your personal income tax return. For more on tax obligations pertaining to your state, visit the SBA and click on the applicable link for your state.

These are the fundamental steps to incorporating your company. The next step in your journey as a growing business may be to hire employees. Click here to get familiar with your reporting, tax, and insurance obligations.

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