Friday, November 3, 2023 – Here at Opem Tax Advocates, Inc. we help lots of business owners transition their sole proprietorship into real corporations. The dream of guiding your own company toward success begins with a solid foundation, which is rooted in the systematic process of incorporation. In this column, we’ll review the 8 steps of incorporating a business.
- Pick a Name: Your Business Identity
Your business name is more than just a label; it’s an essential aspect of your brand identity. When selecting a name, consider its relevance to your business, ease of recall for potential customers, and its marketing potential. Ensure it’s unique, and not overly similar to existing business names, to carve out your own niche in the market.
- Search State Database: Verifying Name Availability
Once you’ve chosen a prospective business name, the next step involves verifying its availability. Most states provide an online database where you can conduct a name search to ensure no other entity is operating under the same or a highly similar name. The aim is to avoid legal disputes and ensure that your business name is distinctly your own.
- Complete Articles of Incorporation: Establishing the Legal Framework
Drafting and filing the Articles of Incorporation with the relevant state authority solidifies your business’s legal foundation. This document generally encompasses essential information like your business name, purpose, duration, stock details, and information about the incorporators and registered office. Ensure accuracy and thoroughness to prevent potential legal complications down the road.
- Name a Registered Agent: Your Legal Liaison
A registered agent acts as your corporation’s official point of contact, receiving legal papers and government notifications on your behalf. Choose a reliable individual or service with a physical address in the state of incorporation and who is available during standard business hours to manage such important documents.
- Pay the Fee: Investing in Your Entity
There’s a requisite fee associated with filing your Articles of Incorporation, which varies by state. Make certain to review your state’s specific fee structure and ensure timely payment to avoid any unnecessary delays or complications in the incorporation process. Remember, filing fees are required yearly. In Illinois, the filing fee is $75.00 minimum.
- Obtain an Employer Identification Number (EIN): Your Tax ID
Securing an EIN from the Internal Revenue Service (IRS) is crucial for tax purposes and is typically required to open a bank account under your business name. This unique number identifies your business in the federal tax system and can typically be obtained swiftly online. It acts much like your social security number.
- Elect Subchapter S Designation: Navigating Tax Implications
If you choose to opt for Subchapter S designation (S-Corp), ensure to file Form 2553 with the IRS. This election allows corporations to bypass federal income tax, with profits and losses directly passed through to the shareholders. Ensure compliance with all requirements, and consider seeking advice from a legal professional to navigate the complex tax implications.
- Open a Business Bank Account: Securing Your Financial Foundation
With your Employer Identification Number (EIN) in hand, the next pivotal step is to establish a business bank account. This is not merely a step towards financial organization but also a crucial move to ensure the separation of your personal and business finances – a distinction that is vital for legal and tax purposes.
Continuing your business by incorporating need not be overwhelming. By systematically navigating through these steps, you fortify your business’s legal and operational foundation, paving the way for a stable and successful future. Good Luck!