Incorporation Filing 101

Incorporation filing has never been more popular with businesses as a way to protect owners from personal liability. We hear two questions related to incorporation filings that should be addressed. First, if I complete an incorporation filing, what advantages does it offer me over forming an LLC or remaining a sole proprietor? And second, if I decide to go that route, what are my options?

Incorporation filing does have some distinct advantages over forming an LLC or remaining a sole proprietor, but it’s not for everyone. So, how do you know if it is right for your needs? Let’s examine the differences between an incorporation filing, an LLC filing and simply being a sole proprietor.

1. Both a corporation and a limited liability company provide the owners with protections from liabilities, while a sole proprietorship leaves the liability squarely with the owner.
2. Your business name is protected by both an incorporation filing and an LLC filing, but you have no business name protection as a sole proprietor. Anyone can steal your name and begin using it.
3. With a corporation and a LLC the business can be perpetual, meaning it can outlive you.
4. There is no limit to the number of owners a corporation or LLC may have, while a sole proprietorship is limited to one.
5. All three business types can have owners who live outside the U.S. and they are not required to be U.S. citizens.
6. A sole proprietorship cannot be owned by another business, however, when completing an incorporation filing or an LLC filing you can list the owner as another company.
7. Of these three business types, only a corporation may issue shares of stock.
8. When completing an incorporation filing, it is important to note that you will not be able to pass profit and losses through to your personal returns like the other two business entities. This results in ‘double taxation’, which is a complicated tax strategy that may or may not be good for you.
9. Unlike the other two, a corporation is required to hold annual meetings and is also required to keep formal minutes of meetings.

To see this same information in a visual format, we have a chart located in our Learning Center under 'Help Me Decide'.

 Obviously, it can be difficult to determine which strategy is the best for your business. We always suggest working closely with and accountant and an attorney if the answer isn’t obvious. They can help you make a well informed decision. Also, ask yourself if the difference between a LLC filing and an incorporation filing is worth it for you. Will you need to sell stock to raise capital? This is one of the biggest reasons to have a corporation. If not, you can form an LLC and still have liability protection, without the added complexity associated with a corporation.

Now for question number two. If you decide an incorporation filing is the way to go, what are your options? This one is much easier to explain sine there are three basic choices to complete the incorporation filing. You can go the traditional route and hire an attorney to file the company for you, you can attempt to file the company yourself, or you can hire an incorporation service, like us, to complete the process for you. I’m not going to oversell you on using an incorporation service, because there are advantages and disadvantages to each choice and we want you to do what is best for you.

Obviously, with an attorney you have a well informed professional who can advise you on legal matters. Only an attorney can do this. However, they are considerably more expensive than either of the other two choices. Typically, an attorney will charge anywhere from a few hundred dollars to as much as a few thousand dollars to complete the process for you.

Completing an incorporation filing yourself is by far the cheapest route to take. If you understand what you are doing and feel confident that you can create the articles of incorporation yourself, this may be the correct choice for you. If you are not 100% certain, however, you may want to consider one of the other two selections. Incorporation filings completed by individuals are the most likely to contain mistakes and correcting mistakes can be very expensive.

Finally, we have our last incorporation filing option, which is using an incorporation service. While this may not be right for everyone, it is often a perfect blend of the first two options. With an incorporation service, you get professional, well trained help that get the incorporation filing done correctly for you at an extremely low cost.

Hopefully, the information we’ve given you on incorporation filing, LLC filing and the major differences between them is helpful. Certainly, there is more information available throughout our site, or you are welcome to call us for more personal service.

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