DIY Guide to Incorporating Your Business in 4 Simple Steps
I knew I was going to start my company Feisworld Inc. in January 2016, so I began Googling legal advice and talking to friends, such as the one and only, Van Le, who was so kind to offer his time. As it turned out, the process is easy when you have an expert on your side. Why would I keep these 4 simple steps to myself? Here, I wrote this article so you can incorporate your company, too, in just a few days.
Try these steps first and then seek help if you get stuck. Going through these steps is a good learning opportunity for anyone, especially business owners. (Please note: I do not claim expertise in law or accounting.)
Step 1: C-Corp, S-Corp, LLC, etc. etc. Determine your "business type"
There are infinite articles you can read about business types. In fact, I spent hours learning about the differences between C-Corp, S-Corp, LLC.
C-Corp is eliminated quickly because it is generally for very large and high revenue companies. But comparison between S-Corp and LLC, for example, can be subtle and challenging for a newbie.
I loved using this interactive wizard that asks me simple survey questions to determine the right business type. Better yet, there's a meter-like widget that provides real-time updates which business type outweighs the others based on your answers. How clever!
Step 2: Filing for Business "Entity" with your Secretary of State
This is an easy step. Simply by Googling "Secretary of State for [your_state_here]" will return you the information and website. For example, for Massachusetts, you are looking at a website like this.
Only your name and your contact information are needed to fill out the online form. It took me a few minutes to complete the entire process. If there are any issues with your application / responses, a paralegal from the Secretary of State will contact you (usually via email) to request corrections.
"Feisworld Inc." was born after just a few days. You do not typically get a confirmation via email or mail. Therefore to confirm that the business entity has been entered to the State's database, you can go to a look-up page also under Secretary of State's website such as this one for MA.
Note: This step is only for your business entity and not your EIN (Employer Identification Number). A very important next step to file with IRS after your business entity has been approved.
Also Note: You can actually incorporate your business in another state based on incentives and benefits. I don't know enough and will not discuss details via this post. You should consult with a professional.
Step 3: Apply for EIN (Employer Identification Number)
This step is very important as it relates to tax return for your new company. Follow steps on the IRS website. It takes just a few minutes to complete and you will get an EIN instantly!
The IRS website is a little wonky at times and it has "business hours" (therefore not available 24/7).
Step 4: Form 2553 "Election by a Small Business Corporation"
This is the actual incorporation process - Fill out This Form, submit to IRS. It took me 5-10 mins to complete the form while following a pretty extensive Instructions Manual. 90% is trivial and 10% is a bit tricky.
Overall, this process was not bad at all. I recommend all new business owners go through these steps themselves because they will learn a ton along the way. Make sure to read the fine print and don't skip over content.
Last but not least, paying taxes for your businesses not only depends on your incorporation type but also the nature of your business (retail, transportation, consulting, etc.) and the State you are in. I'm currently learning about Corporate Excise Tax for Massachusetts.
That's all for now, hope it helps!
Update as of December 2016
After consulting with an accountant referred by a close family friend, I decided to change Feisworld from Inc. (S Corp) to LLC. While the benefits and functions of the two (S Corp, LLC) appear similar, LLC incurs much less paperwork for tax purposes, especially if you are a single-member LLC. Instead of submitting two tax returns (one for the company, one for personal), I will need to submit one combined tax return - filed and managed by my account going forward for tax year 2017 and on.
Disclaimer: Author of this article is not experienced in business law or accounting. please consult with a professional when these questions arise.