Incorporating a small business is one of the most intelligent steps a new business owner can take because it can completely safeguard and protect him against any personal financial liability in case he’s sued by either a customer, an employee or an individual who hurts himself on the business owner’s property.
There are three main types of incorporation for a small business. They are the C-corporation, the S-corporation, and the non-profit corporation. Sole proprietorships and partnerships are not legally considered as corporations although they are two other types of business structures that many small businesses do use. Moreover, a limited liability corporation(LLC)is also sometimes used to set up or structure an upcoming small business but it’s not that common because it doesn’t offer most of the tax advantages of the aforementioned three types of corporations since when taxed it’s treated in only a limited tax deductible capacity as either a sole proprietorship, a C-corporation or an S-corporation.
The C-corporation has liability protection on a limited financial basis. It can control its total profits in terms of this corporation being able to share profits with stockholders or else keep part or all for itself as it sees fit in each fiscal business year. C-corporations can add additional sales revenue to their products or services they’re selling to customers by setting up one or more merchant accounts from the same bank that they have their business checking accounts at. With such merchant accounts, they can perform credit card processing of customer sales transactions.
The S-corporation is also protected by limited liability. It has full profit control decision making. The S-corporation is different than the C-corporation in that it’s not allowed to have more than 100 shareholders. And its net income is considered as income to the shareholder(s), not to itself. This corporation can also set up merchant accounts and accept credit card processing to facilitate customer sales volume.
Nonprofits are set up mostly for charitable intentions. They’re usually exempt from both federal and state taxes each year. They must document their assets and income and business activities to federal and state legal government compliance entities.
Any one of these three forms of incorporation for a small business can be done either online, in person at local county and state tax offices or at an attorney’s office. The first steps are filing Articles of Incorporation, getting an employer identification number (EIN)from the IRS, and opening business checking accounts, as well as registering a doing business as (DBA) or fictitious business name.