is the registered agent?
•What are the articles of incorporation?
Which State Will You Incorporate In?
Most single-person corporations choose to incorporate in the state where the owner lives and works, and that’s what I recommend except in a few rare cases.
One reason some people choose incorporation in a state other than the one they live in is because tax rates vary from state to state. Some states, like California and Hawaii, have tax rates around 10 percent. States like Florida, Nevada, and Washington currently have no state income tax, and that can be advantageous in certain situations, especially if you plan to sell your company at some point.
However, if you’re operating your business in a different state, incorporating in a tax-free state won’t excuse you from paying business taxes in your home state. Every state requires businesses operating within its borders to pay tax on sales or revenue that originates within the state.
Some large companies incorporate in other states that are particularly pro-business, like Delaware. The Delaware General Corporation Law is considered one of the most advanced and flexible corporation statutes in the United States, and for that reason, over a million companies, including half of Fortune 500 firms, choose Delaware. However, if you are still at the stage of simply incorporating an idea, I recommend just using your home state.
What Is Your Company Name?
This is probably the hardest question to answer, since many people drive themselves crazy trying to come up with a catchy name for their company. Choosing your business name is obviously important, but it’s less important than people think. In short, my advice is to spend no more than a few hours considering possible names, and do not pay good money to hire anyone to do this for you.
During the online incorporation process, the service will run a company name search to ensure that your choice is unique in your selected state, and then you register the name.
Here are my tips for naming your company:
•The more the name reflects your product or service, the easier it is for the customer to remember.
•Trust your instincts. If it feels right to you, go with it.
•If you’re unsure, take a plain piece of paper and scrawl out a series of words and names, playing an association game. Keep going till certain words and ideas stand out. Go with it.
Don’t stress about or get stuck trying to come up with a memorable company name. Remember: A successful product or service is what turns a company into a household name, and a great name can’t hide a lousy product or poor service. Your winning idea is going to make or break your company, not what you call it. That said, if your business provides a service, the name should reflect that service, so it’s easy for customers to remember when they need you.
For instance, who can deny that the name PayPal describes its service well? You might be surprised to learn, however, that the company was founded in 1998 as Field Link, and it was soon renamed Confinity. Only when Confinity was acquired by X.com and went public was the firm renamed PayPal. What about eBay, the company that acquired PayPal for $1.5 billion in stock in 2002? eBay was originally called AuctionWeb. Obviously, weak original names did not stop either company from succeeding.
Companies with great names like Circuit City fail as much as ones with nonsense names like Flooz.com, and yet nonsense names don’t stand in the way of success, either. I have heard management consultants wax lyrical about the brilliance of the Amazon name, but founder Jeff Bezos actually came up with it on the fly. He wanted a name that was at the head of the alphabet, so it would show up first on list services when he started as an internet book retailer.
Many successful companies change their names over time as their businesses evolve. For instance, Google was originally called BackRub. Then a year later, after a simple brainstorming exercise between the two founders, they changed the name to Google. Even Microsoft started out as two words, Micro and Soft.
In the end, choose a name that works right now. If you decide to change the name, it’s easy to do and does not cost anything. You do not have to go through another incorporation process. You simply update the information online through the state website where you are registered.
What Type of Corporation Is It?
Like choosing a company name, choosing a corporate structure can seem daunting and intimidating. Every type carries different tax implications, has different rules, and can be preferred depending on your situation. However, for individuals who intend to own and run their own business, with no or few other employees, there is really only one structure I recommend: a limited liability company (LLC).
In the United States, LLC registrations outpace other corporate structures. For their simplicity alone, they suit most entrepreneurs’ startup needs. In 2017, according to the National Small Business Association, the majority of small businesses it surveyed are LLCs (35 percent), followed by S corporations (33 percent), corporations (19 percent), sole proprietorships (12 percent registered, most unregistered), and partnerships (2 percent).
In addition, just like your company name, you can alter your company structure at a later date if it makes sense as your company expands.
If you’re unsure what’s best or how incorporation will affect your taxes, consult with an accountant or other financial professional. And remember: Whatever decision you make doesn’t have to be permanent. You can switch from one business structure to another (though it does require more paperwork and more fees). Here is a quick overview of US corporate structures:
General Corporation
Also known as a “C” corporation, this structure allows as many shareholders as you want and is more typical of large public companies. If your company is in an industry that typically needs a lot of startup capital, like tech firms often do, or if you have aspirations of eventually holding an IPO, then a C corporation might be a better choice.
The problem with the C corporation is double taxation, since it is taxed at both the federal and state levels. Profit distributions are also taxed at the federal and state levels. If you are planning a small business with at most one or two other partners or investors, then avoid this structure.
Close Corporation
Shareholders are limited in number to thirty. Not all states recognize close corporations, so most small businesses choose an alternative structure.
Subchapter S Corporation
An “S” corporation is a type of general corporation that has a special tax status with the IRS that permits business owners and entrepreneurs to be taxed as if they were sole proprietors. S corporations avoid the double taxation of a general corporation, but there are some restrictions to ownership. Only citizens or permanent residents of the United States can be involved, and the shareholder limit is set at seventy-five. For single-person and small businesses, other restrictions make it a complicated structure that can be distracting when someone is starting as a sole owner.
Limited Liability Company
This structure provides the limited liability protection of a corporation with the “pass through” taxation of a sole proprietorship (all revenue and expenses pass through the business
