Self-Incorporation: Is it Right For Me?
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Many businesses can benefit from incorporation. The main benefit of incorporation for most businesses is that it shields the business owner from lawsuits and protects their assets in the event that the company is the target of a lawsuit. Because the company is established as a separate entity from the partners, the assets of the partners are not affected by a judgment against the company. While the risk of a lawsuit may seem remote, it is actually a major concern for small businesses.
Small businesses encounter many challenges; however, other options do exist in place of self-incorporation. Many self-employed or independent consultant or contractors utilize a portable employer of record. Working with this kind of company allows workers to remain independent but enjoy the benefits of W-2 employment. Most portable employers of record offer everything from access to group health insurance to coverage with general liability insurance, and may have tax savings programs similar to the advantages of being self-incorporated, such as the ability to get reimbursed pre-tax for allowable business expenses.
Ultimately, a business owner must do what is best for his or her company, whether that includes utilizing a portable employer of record or self-incorporating. There are benefits to incorporating a business, including tax advantages and structuring the business in a way that makes it easier to sell later, when you are ready to retire or move onto something new.
Many small business owners know that it is a good idea to incorporate their business, but are put off by the expense. While it is true that you can pay an attorney to handle the incorporation process for you, you can save a great deal of money by self-incorporating. While you can complete the process for any type of incorporation yourself, a limited liability company is the least complicated corporation to establish. The LLC works well for sole proprietorships or simple partnerships. You are able to maintain control of your business, without handing it over to a board of directors, and, in most states you are not required to have bylaws.
Can I Complete the Incorporation Process by Myself?
If the expense of hiring a lawyer to complete the incorporation process is been what was stopping you from forming a legal corporation, you should investigate the necessary steps for self-incorporation. Particularly if you are under no time frame, the incorporation process is straightforward enough that you should be able to complete the process on your own.
Each state has its own requirements on establishing a corporation, and it is important to visit your state's Secretary of State website to determine what the process is in your jurisdiction. Generally, you will be required to complete the paperwork and pay a fee to become incorporated. Often, either through the Secretary of State's office or a local small business group, you can attend a workshop on incorporation, and perhaps even receive free help with your paperwork.
What Type of Paperwork is Involved?
To become incorporated, you must choose and register a name for your business, as well as a business address. Next, you will decide what type of structure to give your corporation. You can choose between a limited liability company, an S-corporation or a C-corporation. There are benefits and drawbacks to each type of corporation, and you should read the requirements for each carefully to be sure that your company qualifies under the structure that you want it placed.
One of the most time consuming aspects of establishing a corporation is drawing up the by-laws. While you may have a set of by-laws already established that set in place the structure of your business, they will probably need to be rewritten. They must adhere to the standards required by your state before incorporating, and the information they must contain is very specific.
The next step, naming a board of directors, can be sensitive. It is at this point that many people realize the control that they are giving up. If your company already has a group of leaders, setting up the board of directors can be relatively simple. If you are a sole proprietorship, handing over control of your business to a group of people can be very difficult. If this is a problem, check your state regulations, you may not be required to have a board of directors if you form an LLC.
After you complete the paperwork, you are ready to pay the incorporation fee and become a corporation. If, after you begin the process, you find it too complicated or time consuming, you can always hire a professional for part or all of the remainder. Hiring someone to write by-laws or research prospective board of directors may be worth the expense to have the job complete. Since you will be reviewing the work yourself, it will not be necessary to hire an attorney to complete these tasks, and the money saved will be substantial.
Note that maintaining your corporation on an ongoing basis also requires more work than operating either without a corporation or working through an umbrella company that provides a business infrastructure for you. Taxes and reporting requirements vary, so before deciding to proceed, check what is required to maintain compliance as a legal corporation.
About the Author
Stephanie Larkin is a freelance writer who writes about topics pertaining to employment opportunities and employment options for workers such as an Independent Consultant
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