Starting a business is the fun part. Incorporating it is the unglamorous paperwork that keeps the fun part from ending in a lawsuit that takes your house with it.
In my experience as a small business owner, this is the step people either skip too long or overthink for weeks. Neither is necessary. Here’s what happens when you incorporate, and how to do it without losing a weekend to it.
Why Bother Incorporating?
A sole proprietorship is easy because it’s not really a separate thing from you. That’s also the problem. If your business gets sued or can’t pay a debt, your personal savings, your car, and your house are all fair game.
Forming an LLC or corporation builds a wall between “you” and “the business.” It generally limits your personal liability to what you’ve put into the company, not everything you own. It also makes you look like a real operation to banks, investors, and the vendor who’s deciding whether to extend you net-30 terms or ask for cash up front.
The Basic Steps
The process looks similar in every state, even though the fees, forms, and processing times vary.
1. Choose and check your name. Search your secretary of state’s business database to make sure your name isn’t already taken. Most states also want the name to include an identifier like “LLC” or “Inc.”
2. Pick your entity type. Most small businesses start as an LLC because it’s simple and flexible. If you’re planning to raise venture money or want the option to grant stock options, a C-corp fits that path better. An S-corp is a tax election, not its own entity type, and it comes with payroll and shareholder rules worth understanding before you elect it.
3. File your formation documents. For an LLC, that’s Articles of Organization. For a corporation, it’s Articles of Incorporation. You’ll file online or by mail with your secretary of state, and you’ll need to name a registered agent, a person or service authorized to receive legal papers on the business’s behalf.
4. Pay the fee and wait. State filing fees run anywhere from about $35 to $500, depending on where you file. Montana and Kentucky are on the cheap end; Massachusetts and Nevada are on the expensive one. Processing typically takes anywhere from a few days to a few weeks, faster if you pay for expedited service.
5. Get your EIN. Once your entity is approved, apply for a free Employer Identification Number directly through the IRS at irs.gov. It takes about five minutes and costs nothing, so ignore any site that tries to charge you for it.
6. Create your internal rules. Draft an operating agreement for an LLC or bylaws for a corporation. Most states don’t require you to file these but skip them and you’re one disagreement with a co-owner away from a mess with no rulebook to settle it.
After you’re formed, staying formed means filing annual reports and paying whatever ongoing fees your state charges. Miss that and the state can administratively dissolve your entity, which quietly undoes the liability protection you incorporated to get in the first place.
Quick Tips
- Use your state’s official business portal first. Third-party filing services can be worth it if you want handholding, but you’re paying a markup for something you can usually do yourself in under half an hour.
- Talk to a local attorney or accountant if you have co-founders, complicated ownership, or specific tax goals. This is the one place where a couple hundred dollars of advice up front is a lot cheaper than fixing it later.
- Keep personal and business finances separate from day one. Open the business bank account before you take your first dollar of revenue, not after.
Incorporating isn’t complicated, but it’s a real commitment, not a checkbox. Do it right once and it becomes the foundation everything else gets built on instead of the thing you must go back and fix during due diligence.
Check your secretary of state’s website today and get it done.