If you are a sole proprietor, you might be considering incorporating your small business. There are many reasons why small businesses turn to incorporation. It is more difficult for a sole proprietor to raise capital because they have no shares of their company to sell. It is also harder to get banks to finance your business venture. Taxes are a huge concern for small business owners, because it is possible to be required to pay the federal tax rate and a self-employment tax, meaning you are being taxed twice. The biggest risk for small business sole proprietors is the unlimited liability they face if their business is sued. This can put your personal assets at risk. It is for these reasons that small business owners need to learn how to incorporate their small businesses.
When you are looking to incorporate, small business solutions can include online incorporation. There are several online services available that provide all of the forms and information needed so that you get the type of incorporation that is appropriate for your business needs.
When you think about how to incorporate, business owners have several options available. You might choose the LLC, or limited liability company structure, an S-Corporation or C-Corporation format, or a non-profit incorporation model. With all of these business structures, there are forms to fill out and fees to pay in each state in which you will do business.
An LLC combines the advantages of being a sole proprietor with the tax and liability protection advantages that come with incorporation. An LLC can be made up of only one person--other structures require a board of directors. In this format you will usually pay self-employment tax on profits you take out of the business. No shareholder meetings are required, and the recordkeeping is easier than in other incorporated business structures.
When you are incorporating, business owners often choose the C-Corporation model. In this format, you will need to elect a board of directors, and a group of shareholders must take major business decisions under consideration. The board of directors handles the daily management of the company. You may sell stock in your company to shareholders, which is a great way to raise money for business purposes, and you can deduct the cost of employee benefits from your business tax obligation. C-Corps are required to hold annual meetings and keep minutes of them. This format often works best for larger businesses.
An S-Corporation is named after the Subchapter S code of the Internal Revenue Service's tax laws. The shareholder/owner can pass corporate earnings and profits straight onto his or her personal tax return, and all workers at an S-Corp must receive "reasonable compensation standards," according to the IRS. S-Corp dividends are required to be distributed to shareholders based the number of shares they own.
Wayne Hemrick specializes in online incorporation. If you are asking how can I incorporate my business, Wayne can provide you with the answers. Wayne's advice on incorporating business has proven successful for many small businesses.