Many businesses start as a sole proprietorship. When you file taxes all you have to do is file a Schedule C form, along with your 1040 form. Forming a corporation of an LLC requires expenses and the filing of paperwork. An advantage of forming a corporation or an LLC is that you are no longer totally legally responsible, the company functions in legal respects an independent entity. If the business doesn’t do well, you are not responsible for debts that you did not personally sign for. Shareholders of a corporation, even if there is only one shareholder are not automatically responsible for corporate debts. Of course, for many bank loans, you have to personally sign, whatever your company’s legal form.

     A corporation is an independent legal entity that among other things has to pay taxes. A corporation also has an indefinite lifespan that can continue far beyond the owner’s lifespan. One major advantage is that you can invest profits of the corporation directly back into the corporation, without paying higher personal taxes on these profits. However, in the beginning, your profits will likely be below $100,000. Then, it is best to file as an S Corporation, which makes the corporation for tax purposes, a pass-through entity which provides income to you. This, for tax purposes, is the equivalent of a sole proprietorship or the equivalent for multiple owners of a partnership or LLC.

     When you file for incorporation, this can be done in the state that you live or operate. Other companies will incorporate in a totally different state, such as Nevada, because of lower costs and the lack of state corporation taxes. In any case, you need to file your Articles of Incorporation in a state and pay the filing fee.   If you file in another state, you will need a registered agent to accept communications from that state.  Filing fees vary widely state by state, from $100 to $500 or so. Incorporation Services companies file incorporations and usually deal with registered agents and other services. 

When you incorporate, you issue stock certificates. Such filing is regulated by your state of filing and federal law. If you issue stock for stock market circulation or “go public” you also have to file detailed documents with the Securities and Exchange Commission (SEC). General Corporations can be owned by a small or a much larger number of people who own stock. Corporations that are held close, have a small number of stockholders, with most actively managing and working for the company. “S” Corporations are limited to 75 stockholders and are used as pass-through entities to the owners, for tax purposes. An LLC is taxed like a partnership for multiple members, and provide limited liability protection, and avoids double taxation, also acting as a pass-through entity for tax purposes .

The State of Delaware has long been a favorite place for incorporations due to its lower fees, friendly legal environment toward corporations and flexibility. It is a favorite site for incorporation for Fortune 500 companies. Nevada is a state with low incorporation fees, a heavy legal veil over corporate activity and also one with no state corporation taxes. It is also a favorite state for incorporations. For many incorporation details, it is best to consult an attorney. You can get incorporated through the services of a lawyer who is experienced in handling incorporations. This is often the best, though most expensive option. Others use an attorney only in an advisory capacity and handle most of the incorporation details themselves. Online services do thousands of incorporation filings. This can be an easy solution to the problem. Consulting with an attorney is a good safeguard in this case as well.