Incorporating a Small Business: 3 Basic Questions - Free Enterprise
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Incorporating a Small Business: 3 Basic Questions

If you're interested in incorporating your small business, you're likely wondering how to get started. Our Starting Your Own Business series is here to help.

A number of factors go into the incorporation process, but there are a few issues in particular that you should initially think about.

Here are three basic questions to ask yourself before you incorporate your business:

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  1. How? An initial step in the incorporation process is selecting a name for the corporation. You need to make sure it follows your state's corporation rules and identifies the type of corporation you have (like an LLC). You will also need to do the following: appoint directors, file the articles of incorporation, and draft corporate bylaws. Depending on your business, you may also need to draft shareholder's agreements, arrange the first meeting of the board of directors, issue stock, possibly register all stock offerings with the SEC (depending on the size of your business), and issue shares.
  2. Where? Another major consideration is deciding where to incorporate. Delaware is known as a magical place in the realm of business. But in reality, incorporating in Delaware may not make a whole lot of sense unless you're running a large, publicly-traded company. For small, privately held companies -- especially those that mainly do business in one state -- incorporating in your home state may be best. Small businesses won't save much on taxes by incorporating in Delaware as they still must pay taxes on operations in their home state. Also, incorporation costs may be lower in Delaware, but the process of getting incorporated in Delaware can end up being just as, if not more, expensive as incorporating in one's home state.
  3. Do you need a lawyer or can you do it on your own? One way to wade through the options and figure out what's best for you is to use online forms. If your incorporation process is very simple (which is tough to predict), a boilerplate form may be fitting. However, keep in mind the potential pitfalls with boilerplate forms -- they will not be tailored to your exact situation. If things get complex, calling an experienced business organization attorney may be your best bet.

This is just the start of what you'll need to do to incorporate your business, but these questions should help to get things going. Tomorrow in our Starting Your Own Business series, we'll go over the legal ins and outs of getting the proper business licenses.

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