How to Incorporate a Business in 6 Simple Steps

Starting a business and embarking on your entrepreneurial journey is an exciting milestone. As you craft your business plan, strategize marketing efforts, and assemble your dream team, it's important not to forget the vital task of incorporating your business. It may sound complicated, but in reality, you’re simply creating a legal entity that is separate from yourself. 

By incorporating your business, you unlock numerous benefits, including: 

• Liability protection

• Tax advantages

• Enhanced credibility with clients

• Increased potential for raising capital

The incorporation process may vary slightly from state to state, but state-level resources are typically available. Follow these key requirements and universal steps to successfully establish your business as a legally recognized entity in your state.

Key Highlights 

• Practical business incorporation guidance

• Critical cost breakdowns

• Common mistakes small businesses should avoid

• Estimated incorporation timelines

• Post-incorporation steps

Entity formation services, like those offered by 1-800Accountant starting at $0 + state filing fees, can simplify the incorporation process, offering expert guidance and hands-on support at every step.

Understanding Business Structures

Overview of business entities

Entity structures your business may be able to form as include: 

• Limited Liability Company (LLC)

• C Corporation

• S Corporation

• Sole Proprietorship

• Partnership

• B Corp

• Non-Profit

• Cooperative

Factors you should consider when choosing the optimal entity structure include personal liability, tax implications, ongoing compliance, and future investment potential. Use our blog for insights into picking the optimal entity for your business. 

Step-by-Step Guide to Incorporating Your Business

Step 1: Choose a business name

Picking a legally compliant name is an exciting first step to incorporating your small business. You'll want to select a business name that customers can easily:

• Remember

• Spell

• Pronounce

The main legal requirement to keep in mind when choosing a business name is that you cannot incorporate your business with a name that is already taken. Check with your state’s corporation service for rules and to review availability for prospective business names. 

Additionally, in the era of SEO, you should also consider the availability of an online domain that relates to your business name. The GoDaddy Domain Search is a great way to see what’s available.

1-800Accountant’s entity formation experts can help verify the availability of your chosen business name and ensure it meets all state naming requirements, streamlining the first step of incorporation.

Step 2: Register your business

If you plan on registering your business as a corporation, keep in mind that you’ll need to register with any state where your business has a physical presence. This could include:

• Where employees work

• Where you have in-person client meetings

• Wherever a significant portion of your revenue comes from

Online registration, required documents, and processing times vary by state. Check with the Secretary of State’s office to learn more about your obligations related to the registration process.

1-800Accountant’s entity formation service can handle the entire business registration process for you, including multistate registrations and other formation support.

Step 3: Choose a business location

Whether you plan to open a brick-and-mortar location or will primarily operate online, your business needs an address for incorporation purposes. The state you operate in will significantly affect: 

• Taxes

• Regulations 

• Ongoing compliance requirements  

Every state levies property tax and employment insurance tax. However, not all states impose corporate income tax, sales tax, and personal income tax. For example, Delaware, Nevada, and Wyoming feature business-friendly incorporation laws. 

Consult with 1-800Accountant’s tax advisors to gain insight into the tax and regulatory implications of incorporating in different states. This will help you make a sound strategic decision for your business.

Step 4: Select a corporate entity

Next, you need to decide what business entity is correct for you. Like your state location, the entity you choose affects:

• How you pay taxes 

• How various levels of government will interact with your business

Business entities are formed at the state level, usually by filing documents with a state agency, such as the Secretary of State. You’ll also need to designate a registered agent to handle official communications with the state. Selecting the wrong type of business entity or failing to designate a registered agent are common mistakes that can easily be remedied with expert insight. 

Schedule a consultation with 1-800Accountant to determine the optimal business entity for your specific needs, with personalized guidance on tax implications, selecting a registered agent,  and compliance for each option.

Step 5: Obtain an employer identification number (EIN)

Just as the IRS uses a Social Security number to track individuals, it tracks businesses with an EIN. It’s fast and easy to apply for an EIN via the IRS portal. Simply gather materials, such as your selected business entity, answer a couple of questions in the portal, and you should receive an EIN in minutes. Avoid common pitfalls of applying too early or with missing information. 

Securing an EIN while you're busy addressing other aspects of your business can be challenging without experts on your side. 1-800Accountant offers a full-service EIN filing solution, making it hassle-free to secure your EIN.

Step 6: File articles of incorporation

The Articles of Incorporation are a document that includes essential information about your business, including:

• Business name

• Address

• Purpose

• Registered agent

• Number of shares the corporation will issue 

This process varies by state and can take several weeks for standard processing and a couple of days if expedited processing is available. It's important to have already obtained a corporate name and designated a registered agent. You will also outline your business's purpose and pay a filing fee, but you don't have to file alone. 

Consider 1-800Accountant’s support for preparing and filing your Articles of Incorporation, ensuring all legal requirements are met efficiently and accurately.

Estimated Timeline for Incorporation

Numerous factors can accelerate or delay the incorporation process, such as:

• State processing times

• Name availability

• Document completeness

Some small business owners can complete the process in as little as a week or two, while others may take up to six weeks on average. While obtaining an EIN can take a couple of minutes to receive, other steps will vary. For example, it may take an extended period to identify a suitable business name or to select a qualified registered agent. State processing times also vary, with many offering expedited options for an additional fee. 

Costs and Financial Considerations

Cost of incorporation

Incorporation costs and annual fees will vary depending on state, entity type, and other factors. Review costs per entity type: 

LLC

• State filing fees: $35 - $500 

• Legal fees: $0 - $2,000+

• Registered agent fees: $0 - $300 annually 

• Ongoing compliance costs 

  • Annual/Biennial report fees: $0 - $500 annually

  • Franchise tax fees: $0 - $800 annually 

• Hidden costs

  • Foreign LLC registration: $50 - $500

  • Licenses and permits: $20 - $500 annually

Texas charges $300 in LLC state filing fees while New York charges $200 to file. 

C Corp

• State filing fees: $50 - $500 

• Legal fees: $500 - $5,000+

• Registered agent fees: $100 - $300 annually 

• Ongoing compliance costs 

  • Annual report fees: $20 - $500

  • Franchise tax fees: $100 - $1,000+ annually

• Hidden costs 

  • SEC filing fees: $50 - $500 

  • Bylaw drafting fees: $500 - $2000

California charges $100 in state filing fees for C corps, while Texas charges $300. 

S Corp

• State filing fees: $50 - $500 

• Legal fees: $500 - $3000

• Registered agent fees: $100 - $300

• Ongoing compliance costs

  • Annual report fees: $20 - $500

  • Franchise tax fees: $0 - $800+

• Hidden costs

  • Licenses and permit fees: $20 - $500 annually 

  • Foreign qualification: $100 - $300 

Delaware charges $300 for franchise tax fees, while California charges a $800 minimum. 

Partnership 

• State filing fees: $0 - $200

• Legal fees: $0 - $2000

• Registered agent fees (limited partnership): $100 - $300

• Ongoing compliance costs 

  • Annual report fees: $20 - $500

  • Franchise tax fees: $0 - $800+

• Hidden costs

  • Partnership agreement revisions: $500 - $1000

  • Foreign registration fees: $50 - $300

Colorado partnership state filing fees can be as low as $10 and as high as $50. 

Tax obligations and benefits

Incorporated businesses might be obligated to pay federal income tax, like in the case of C corps, employment taxes for entities with W-2 employees, various state and local taxes, property taxes, and taxes for specific industries. These taxes, along with ongoing filing requirements and deadlines, require careful planning and management to avoid common mistakes. 

Missing deadlines, miscalculating payments, and misunderstanding pass-through taxation are just some of the common mistakes incorporated business owners make, which can lead to costly penalties, but it's not all downside. There are many tax benefits associated with operating an incorporated business.

C corps, for example, can retain up to $250,000 marked for business growth without triggering scrutiny, while S corps can minimize the self-employment tax by distributing profits to owners. Common write-offs across entity types include: 

• Business expenses (rent, utilities, advertising)

• Home office 

• Vehicle-related expenses 

• Professional fees, including virtual accounting 

• Retirement contributions 

Consulting Legal and Tax Experts for Professional Guidance and Support

While it's possible to incorporate your business yourself, common mistakes and noncompliance can be costly without professional advice. When seeking professional legal advice or accounting advice, consider recommendations and browsing reviews to ensure you're on the right track. 

For example, 1-800Accountant, America's leading virtual accounting firm, has an "Excellent" rating in Trustpilot based on over 9,000 reviews. Our suite of affordable, tax-deductible accounting and financial services, including tax advisory and entity formation, is handled on your behalf so that you can focus on your next business milestone with confidence. 

Schedule a free 30-minute consultation to see how we can support your business incorporation needs. 

Additional Considerations When Incorporating

Electing a board of directors and issuing shares

C corps and S corps must elect a board of directors and issue shares, which are key processes associated with good corporate governance. 

The board of directors oversees the management and overall strategic direction of a business. To elect a new member to the board, candidates are nominated by: 

• Existing board members

• Senior management 

• Shareholders 

Established bylaws will outline this process along with eligibility criteria. 

Corporations may issue shares to: 

• Raise capital 

• Allocate ownership

• Incentivize employees and investors 

There are several issuance methods: an initial public offering (IPO), private placement, employee stock plans, and secondary offerings. Incomplete share issuance documentation or failing to hold an initial board meeting are common mistakes you must avoid. 

Creating corporate bylaws

Corporate bylaws are internal rules you should create that govern your corporation's operations, outlining the following for management and shareholders: 

• Structure

• Responsibilities 

• Procedures

Establishing your corporate bylaws ensures smooth operations, but there are pitfalls. Neglecting to adopt bylaws or failing to update them as your business evolves are common issues that you can avoid with strategic planning and support. 

State-specific tax laws

While federal tax laws are consistent across state lines, state-specific tax laws will impact your operations. How you comply in Kentucky will differ from Vermont, as each state has its own guidelines and regulations for different business entities.

• Some states are notable for not imposing specific taxes, such as no state income or sales tax, which can influence business financial planning. 

• Certain states impose stricter or unique regulations on business entities, typically to protect consumers, ensure compliance, or fund state programs. New York has a costly and unique requirement that LLCs must publish notice in two newspapers. 

• Liability standards, particularly LLCs and corporations, vary by state due to differences in legal protections and statutory requirements. Delaware, for example, offers strong liability protection. 

After Incorporation—Next Steps

Setting up a business bank account

It is a best practice to open a bank account solely for your business. Once you've gathered your legal documents and materials, including your EIN, business formation materials, and business licenses, and met any bank-related criteria, apply for an account. You can typically apply in person at your bank or online. 

Obtaining necessary licenses and permits

Licenses and permits vary across each state. While it's common for specific fields to require a license regardless of location, including healthcare, law, and engineering, check with your Secretary of State, Department of Revenue, or local officials to determine the licenses and permits your business needs to operate legally. 

Establishing accounting and recordkeeping practices

Maintain compliance for your business by establishing accounting and bookkeeping practices. 

• Accounting systems help you monitor your business’s financial health and analyze trends, and also support accurate financial reporting and tax compliance. 

• Bookkeeping supports your accounting processes and helps with smooth financial reporting. 

There are guides available to help set your business up while you learn accounting protocols while browsing accounting software candidates.

Maintaining ongoing compliance

It's essential to file by each deadline, renew licenses and permits, and attend any required meetings to maintain compliance for your business. Set reminders, mark a calendar, and address any issues that might disrupt compliance to ensure your operations continue running smoothly without interruption.  

Incorporation Made Easy with 1-800Accountant’s Expertise

This article outlines the significant steps, key considerations, and benefits of incorporating your business. Use checklists, timelines, and resources to avoid common mistakes while ensuring compliance, particularly if you are handling the process on your own. 

Ensure the smoothest incorporation process when you consult with the tax professionals at 1-800Accountant, America's leading virtual accounting firm. Our team can advise you throughout the incorporation process and the year, or completely handle the process on your behalf with affordable, tax-deductible services. 

Schedule a free call with 1-800Accountant today to learn how your small business can benefit from professional accounting and incorporation services.

Incorporating a Business FAQs

How much does it cost to incorporate in my state?

Business incorporation expenses depend on what entity you choose and where you decide to incorporate. Hiring an entity formation service can save you time and money. 

1-800Accountant offers LLC formation services starting at no charge beyond state fees, providing a cost-effective way to incorporate your business.

How long does the incorporation process take?

The incorporation process varies depending on numerous factors, including state processing time and the time it takes to select a business name. You may be able to incorporate your business in as little as a week or as much as two months. 

What are the ongoing compliance requirements for incorporating a business?

Maintaining compliance ensures your business maintains good standing with state and federal authorities. To maintain compliance for your business, you may have to submit annual reports, renew licenses and permits, prepare and submit taxes throughout the year, and regularly update your books, among other compliance-related requirements. 

What liability protection should I get?

Determining the right liability protection depends on your business structure, size, industry, and associated risks. Our CPAs typically recommend forming an LLC due to its numerous advantages for small business entrepreneurs. LLC owners enjoy simplicity and flexibility in their tax filing, along with the protection of their personal assets, shielding them from business liabilities.

What are common mistakes to avoid when incorporating?

Choosing the wrong structure, ignoring any state-specific requirements, and not appointing a registered agent are common mistakes to avoid. 1-800Accountant provides comprehensive tax advisory services to help you maximize deductions and fully understand the advantages of incorporation.