Starting a business is both exciting and scary. You get to be your own boss, make your own decisions, and, if you play your cards right, get financial independence. But it's also a lot of work and can be expensive, especially if you plan on registering your business in another state.
Take time to do your research — find out everything from the best time to incorporate a new business to how to go about it.
We can help with the latter! Here, we provide a step-by-step on how to incorporate your business and look at when and why a virtual business address may be what you need to get things moving.
Unfortunately, you can't just put up a sign on your door and get down to business when you get a great startup idea. There's a process to follow to keep you in good standing with the law.
To save you some time and make your work a bit easier, we've done the research for you. Here's a guide on how to incorporate your startup or business:
This is a key step, arguably the most important one, as it determines everything from the kind of paperwork you need to fill out to your tax obligations. Assess your options to ensure you choose the right one from the beginning. While you can always change your structure in the future, it can be a hassle and result in dissolution.
There are various structures, including:
Sole proprietorship
This type of business has a single owner who has complete control over operations. Under this type of structure, your personal and business assets and liabilities are considered one, meaning you can be held liable for business debts, and personal creditors can go after your business if you have personal debt. In terms of taxation, you need to report business profits on your personal tax returns.
This option may be suitable if your business is low-risk and you want total control over it.
Partnership
There are two forms of partnerships: limited partnerships (LPs) and limited liability partnerships (LLPs). Both types have two or more partners, but they offer varying liability protection.
An LP has a general partner with unlimited liability and other partners with limited liability. Typically, the general partner pays self-employment taxes, and the limited liability partners pay personal income tax from their LP income.
An LLP is a lot like an LP, the only difference being that all partners have limited liability protection. This means that personal and business assets are considered separate for every owner.
Generally, LPs and LLPs are suitable in situations that involve multiple entrepreneurs.
Corporation
This type of business is completely separate from its owners — it can't be held liable for owners' liabilities (and vice versa), and it continues to operate even after a member leaves or another joins.
As with partnerships, there are two types of corporations — C Corps and S Corps. Their main difference is their tax obligations.
Typically, C Corp owners pay taxes on business profits and again on their dividends. On the other hand, the Internal Revenue Service (IRS) regards S Corps as pass-through entities, and as such, owners only need to file personal tax returns from their dividends. Essentially, the business entity passes the tax obligation on to shareholders.
An S Corp may be suitable if you want to avoid double taxation. However, you must meet S corporation requirements, such as having less than 100 shareholders who are all U.S. citizens or residents. If you have more members or have some who may be non-residents, you need to incorporate your business as a C Corp.
Limited liability company (LLC)
An LLC also offers liability protection and is considered a pass-through entity (unless owners elect to file their taxes as a C Corp). It's easier and cheaper to form than a corporation but has a limited life — when an owner leaves, or another joins, you must reincorporate your business.
This structure may be suitable if you want a business that offers liability protection without going through the extensive process of forming a corporation.
If you haven't already done so, the next step is to come up with a business name. While you can always change it at a later date, the process can be complex (depending on your state) and impact customer relationships. So, aim to get it right the first time. Some best practices to keep in mind are:
When you come up with a unique name, run it by your friends or family to get feedback on whether it's catchy and memorable enough.
States and banks require a local mailing address to register your business and open bank accounts. There are various business address choices, such as:
Virtual mailboxes/addresses and coworking spaces are often top choices for small businesses. However, virtual mailbox services take the crown because they offer comprehensive mail management services like mail forwarding and scanning. This allows business owners to operate from anywhere while still keeping track of vital business correspondence.
An Employer Identification Number (EIN) is required by the IRS for tax purposes, states for licensing purposes, and banks for account opening. Without it, separate business entities like corporations can't pay taxes, run payroll, or open bank accounts.
If you're a sole proprietor, you can forgo getting the EIN. However, this isn't a good idea, as it would force you to use your Social Security number for business purposes, limiting your privacy.
The EIN application process is pretty straightforward. You can apply online, fill out Form SS-4 and fax/mail it to the IRS, or call 267-941-1099 during regular business hours. Some of the details required to issue an EIN include:
A business license lends you credibility and facilitates legal compliance. Without it, you may open your business up to lawsuits and jeopardize your likelihood of success — some customers and potential partners may be unwilling to work with you.
Visit your state's Department of Revenue, Secretary of State office, or any other body responsible for permits to determine which type of license you need. Some offerings, like alcohol, require federal and state permits. Others, like accounting services, require professional and occupational licenses. So, always consult to make sure you apply for the right ones.
There are numerous business-friendly states in the US. While they typically follow the same business incorporation process, there are some variations in aspects like filing fees and incorporation requirements. For example:
Review your chosen state's unique requirements for a smooth incorporation process. If you can, seek advice from legal professionals in the state to ensure compliance.
A business-specific bank account is necessary, even if you're a sole proprietor. Separating personal and business accounts can simplify tax returns, make it easier to track business spending, and safeguard your business and personal credit scores. It also makes you appear more professional and allows you to open a line of credit for your business.
Opening a bank account is simple when you have everything you need — you simply submit pertinent information and documents, and your chosen bank opens an account for you. Some of the most common things banks ask for include business formation documents, licenses and permits, EINs, business addresses, and members' personal information, like names, phone numbers, and addresses.
It's crucial to stay up-to-date with compliance requirements after incorporation to remain in good standing with the federal and state governments. Non-compliance could invite trouble in the form of lawsuits and fines, impacting your reputation and financial stability.
To stay up-to-date with industry regulations and state/federal tax requirements, join industry-specific local and state associations. Also, regularly attend compliance-related conferences and consult professionals like accountants and lawyers.
A virtual business address can be beneficial to your business for several reasons, such as:
A virtual office address may be what you need if:
However, it may not be necessary if you already have a physical space with a professional address and don't typically receive or send a lot of mail.
Incorporating a business is relatively easy — choose a business structure and name, find a local address, apply for an EIN and business license, and open a bank account. While this process may vary by state, the differences are typically minimal. Still, you need to conduct state-specific research to understand incorporation requirements.
Stable is a leading virtual mail service provider that can streamline business incorporation by providing a professional virtual address and registered agent services. We not only offer a secure and user-friendly platform but also comprehensive guidance on things like how to change your business address to facilitate a smooth business registration process.
Ready to incorporate your business? Create a Stable account today for a permanent business address and reliable registered agent services!
