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Incorporating Your Small Business

For the owner of a small business, two key decisions are whether and how to incorporate. Even if you are a "one man show," incorporating is often worthwhile, and therefore, many business do file for some form of incorporating.

The chief reason for incorporating is to limit your personal liability. Incorporating your business separates its assets and liabilities from your own, so if your business cannot repay its debts, creditors normally cannot seek repayment out of your personal savings. Similarly, lawsuits stemming from your business normally cannot go after your personal assets. But the protection is not bulletproof: grossly negligent or fraudulent acts, such as reducing your business's assets by paying yourself an excessive salary or dividends, may void some of these protections.

Incorporating is a significant, legal step, and although many states make it easy to file for incorporation on your own, you may find it helpful to rely on an expert. For them, the process is routine and they can help you avoid a costly mistake in your filing. Their fees vary by state and type of incorporation, and reflect the varying charges assessed by different states.

Even if you decide to file on your own, peruse the websites of companies offering the service. You can learn a lot about the process of incorporating that can help you decide if you need their help with issues such as:

  • Type of incorporating, such as an "S" corporation or LLC. An LLC (Limited Liability Company) is a popular form of incorporation for individuals, who want many of the benefits of a corporation without the need to file separately at tax time.
  • Choosing the state to incorporate in. If you live, work, and do business in just one state, the simplest solution normally is to incorporate in the same state. If you have residences, work, or do business in multiple states, the decision is more complex. .
  • Whether incorporating will let you obtain certain employee benefits, such as health insurance.
  • The tax and reporting requirements to which your corporation will be subject .

Finally, if you choose to have a company file your incorporation for you, shop around. Fees very widely, and because the filing process is mostly routine, you can save a significant amount.

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