Incorporating your Business on the Cheap
Thinking about the incorporation process on the cheap is something a lot of business owners consider doing themselves. The reason they want to incorporate on the cheap is that they understand that there is financial risk by owning a business. Anyone can file a lawsuit these days, and you can only afford so much insurance. While we love doing taxes and other types of returns, helping our clients stay in business is important too. That is why we wrote this article.
There are quite a few businesses to assist you in the process of incorporating your business, some as low as $99.But the question you should be asking is what the best way is to protect you. You can get started with a LLC for cheap too
A few points
First, let us talk about why incorporating a small business in the United States on the cheap is a great idea, especially for smaller businesses that will likely not expand significantly. The primary benefit to business incorporation is limited liability protection. When you incorporate your sole proprietorship or limited liability company (LLC), or a C or S Corporation, you turn it into an incorporated business that is formally recognized by your state of incorporation. Most people incorporate to reduce potential future legal liability and protect their personal assets, such as their home, from business debts, like a business loan, as well as enjoy the tax benefits.
Owners want to protect themselves, their family, and their personal wealth from catastrophic events that they may not have any control over. Additionally, incorporating a business also offers the advantage of being regarded as a separate legal entity from its owners. Providing additional legal protection and ensuring the perpetual existence of the company. Incorporating a business means turning your sole proprietorship or general partnership into a company formally recognized by your state of incorporation. Becoming its own legal business structure set apart from the individuals who founded the business. By incorporating, your business gains the ability to open up a bank account and start building a line of credit, which, for a small business owner, is a necessity. This makes it easier for your business to raise capital or apply for a loan, giving a sense of legitimacy to your business.
Good reasons…
Additionally, the process of incorporation is a good choice if you’re planning to sell the business or attract outside investors. Incorporation is the legal process used to form a corporate entity or company. And it allows for the separation of the firm’s assets and income from its owners and investors. The profits and losses of the business pass through to its owners, who report them on their personal tax returns. The S corporation business entity type is a popular choice for small businesses.Because it provides limited liability protection without the double taxation of corporate income tax passed through to the shareholders.
Real or imagined protection?
Let us talk about a business whose owner filed their own corporation documents for their new business. Maybe they used a web search to find a service who would file the corporate documents for $49 plus the state filing fees. The owner incorporated because they knew that they did not want the personal liability. They got the state corporation certificate, got the Federal ID number, and continued on with the business.
What a deal! Determine which business licenses are required for your business, depending on your type of business. To ensure that your new business complies with your state’s legal requirements at every stage in the corporate formation process. You may wish to consult an experienced business lawyer.
Costs and paperwork
It is important to consider the ongoing fees and paperwork associated with incorporation and ongoing compliance. Make sure you can handle these costs. Local governments play a crucial role in determining registration, licensing, and permitting requirements for businesses, such as local business licensing. Additionally, the first step after you have selected a unique name for your corporation is to conduct a business name search through the secretary of state, department of state. Or division of corporations—or other comparable governmental agency that performs business name searches in your state.
Research your business name before settling on a name for your corporation. Be sure to check the official trademark database within the U.S. Patent and Trademark Office to avoid a costly trademark infringement lawsuit. You could also trademark your own business name to prevent other businesses in your industry from using it.
Then
Six years later, the owner received a Filed lawsuit in the mail for his business. The Filed lawsuit was for $ 500,000. The owner had incorporated their business. So the thought process was that the owner did not have to worry about losing their home and future income.
The owner went to the first court hearing and the other attorney filed at home a motion to pierce the corporate veil. What does that mean, you ask? It means that if their attorney can prove that your corporation was incomplete. That you did not create or Filed the proper paperwork or you failed to operate your corporation in a proper manner. Then the wall between you and the corporation can be broken and you could become personally responsible. If you think dealing with the IRS and Tax Preparation is costly…you have not seen anything until you start dealing with Attorneys.
The long term cost
Now the owner will have to hire an attorney to protect the corporate veil. The cost is $8000-$10,000 or more. If the attorney does not protect the veil and loses the lawsuit. Everything you own and your future earnings until they are paid can be taken from you. This estimated cost is only to protect the corporate veil, not to defend you in the lawsuit. That will cost extra.
If you hire an attorney to set up your corporation ($1,000 to $1500), the attorney must protect the veil at his own cost. He does not have to defend the lawsuit, without getting paid, but he must protect the veil for free. If the attorney fails to defend the veil their errors and omission insurance should cover the cost of your lawsuit.
Our Opinion
I am going to tell you that Incorporating your Business on the Cheap is a huge mistake. I know, we do Taxes and should stay in our lane. Do not get me wrong. I am all for saving money, but there is a line when Cheap becomes irrational.
So, I ask you, is getting your corporation started for $49 a deal or a ticking time bomb? Let us say it is $1400 more to do it right. Where else can you spend $1400 and get a lifetime of insurance protecting you from a potential lawsuit? What good is Incorporating your Business on the Cheap for $49 if you are not protected?
Incorporating a business is a complex process that involves a lot of legalities, including the drafting of articles of incorporation. To ensure that everything is done correctly, it’s best to consult with a business attorney. Who can guide you through the process and help you make informed decisions.
Attorneys Can…
They can also provide valuable advice on business structure options and assist in preparing and filing incorporation documents. Such as the Articles of Organization for an LLC or C Corp or S Corp. Additionally, attorneys can help draft important governing documents such as bylaws. Which are essential for the smooth running of your corporation. While it’s possible to incorporate without an attorney, seeking their assistance. Especially when it comes to drafting articles of incorporation or articles of organization, selecting a registered agent, and ensuring proper service of process, is highly advisable.
Disclaimer
This information is provided for you for educational purposes only. As well as to give you general information and a general understanding of the law, not to provide specific legal advice. The information about Incorporating your Business on the Cheap. Should not be used as a substitute for competent legal advice from a licensed Professional attorney in your state.
The use of our information should be based on your own due diligence in starting your own business. And you agree that we are not liable for your use of this information. After all, we do Income Taxes, we are the Tax Preparation people and we are not attorneys. Think hard about creating your S Corp or C Corporation by yourself. Hopefully this Ultimate Guide will help you.
FAQs
What are the benefits of incorporating your business?
Incorporating your business offers several benefits. Including limited liability protection, tax advantages, enhanced credibility, and the ability to raise capital through the sale of shares. It also provides a clear structure for your business and can help separate your personal and business finances. Including a separate employer identification number.
How do you choose between different types of incorporation (LLC, S-Corp, C Corp)?
Choosing between different types of incorporation depends on your business goals. The level of personal liability protection you need, and your tax preferences. Consulting with a business attorney and/or tax professional can help you assess your specific needs and make an informed decision.
Can you incorporate your business on your own or do you need a lawyer?
In most cases, you can incorporate your business on your own without the need for a lawyer. We wouldn’t recommend it. However, it’s always recommended to consult with a legal professional to ensure. That you understand the process fully and comply with all legal requirements in your jurisdiction.
Is it worth incorporating a small business or is it better to wait until the business grows larger?
Incorporating your business can provide many benefits, such as limited liability protection and potential tax advantages. It’s generally recommended to incorporate your business. Early on, regardless of its size, as it sets a solid foundation for growth and protects your personal assets.
At what point did you incorporate your business?
I incorporated my business (C Corporation) when it reached a point. Where I wanted to separate my personal assets from the business. Establish credibility with clients and partners, and take advantage of potential tax benefits and liability protection that come with incorporating.
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