How to incorporate a small business

How to incorporate a small business

Incorporating your business is a strategic move for taxation and liability purposes. It also opens the door for others to share the expense of the company by contributing as shareholders, therefore taking on some of the liabilities as well. Your employees become responsible for their own actions and your personal assets are the last to be attacked in any litigation circumstances that may occur.

Checking with your state and government laws on what is best suited for you can be done free of charge with a simple phone call or a letter to your Small Business Development Center. Be assured that all of your licenses are in order as well as your EIN (Employer Identification Number) that acts the same as a social security number does for yourself. It is a way of the government to keep track of your company when tax season arrives.

Before incorporating your business it is always a good idea to check with your lawyer or accountant to see what bests fit the needs of your small business. To file for a corporation type license or to register as one please contact your state Department of Commerce. Another option is to call your states Small Business Development Center and they will guide you down the right path.

Types of Corporations you can consider and the definitions:

Limited Liability Company

This is a corporation status that combines the rights and responsibilities of a partnership and corporation together. With the protection of a corporation, but taxed as a partnership. Company interests are sold as shares, the people who want to buy into the interests are called members. All members (shareholders) manage the business, persons owning more shares have more say and are usually delegated as the head of the corporation.

The liability with this type of corporation is that the members (shareholders) are responsible for their own actions and actions of the business, but not responsible for any employee’s action. Personal assets can be taken in litigation circumstances but the business assets are taken first. Each member reports their share of business income and pays taxes on it; the business does not pay taxes for itself.


One or more persons can organize this type of corporation. Shareholders appoint one person as head or director and develop policies that the officers, they pick, carry out. They are responsible for their own actions and actions of the business, but not the actions of the employees. Personal assets can be attacked during litigation but the business assets are taken first. Shareholders pay taxes on their earnings, and the Corporation also pays its own taxes.


Same liability as a C- Corporation and must be registered as a C- Corporation first. The only difference is that the Corporation does not pay Federal taxes. They cannot have more than 35 shareholders. Each state has a fee schedule for each type of corporation. You need to determine what best fits your business.

As stated before, it is best to consult with an attorney or accountant before determining what best fits your business. The process is easy. Contact your state’s Department of Commerce Division of Securities. Most states have this information readily available online.

As stated before

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