Starting a small business involves a number of steps. One of those is determining the legal structure of your business. Even if you have been operating your business for a while as a sole proprietorship, you may decide you want a different structure as your operations grow. As you consider your options, it’s important to understand what a corporation is as well as how to incorporate a small business.

Corporation Types

What is a corporation? The term describes several different types of business structure, each of which affects your taxation and liability differently. It can be helpful to consult first with your accountant or tax professional, to determine which makes the most sense for your small business.

C corp: This type of corporate entity is completely separate from its owners, offering the strongest protection from personal liability. The corporation can make a profit, be taxed, and be held legally liable. However, the cost to form a C corp is higher than with other business structures and the corporation requires more extensive recordkeeping and reporting. The C corp pays income tax on its profits and, in some cases, may be taxed twice. The company itself can be taxed as well as any shareholders who receive dividends.

S corp: When you form an S corp, you avoid that double taxation. The S corp allows profits to be passed directly to the owners’ personal income so that they are not subject to corporate tax rates. You must file with the Internal Revenue Service (IRS) to secure an S corp status and then you will have to follow the filing and operational process of a C corp.

B corp: A relatively new business structure, the benefit corporation, is referred to as a B corp. Taxed the same as a C corp, the B corp is different in accountability, purpose, and transparency, as the B corp is driven by both mission and profit. The company is held accountable to produce public benefit as well as financial profit.

Steps to Incorporate a Small Business

When you decide to incorporate a small business, you will need to follow a series of steps to ensure that your paperwork is in place and your business is legally organized. The first step is to ensure your business name is available. You can search the online database to determine if the business name is already in use.

The paperwork will come next, as you will need to develop your corporate bylaws. These are not filed with the state but are formal guidelines for how your company will operate, as it handles disputes, establishes ownership percentages, plans for dissolution, and accounts for profits and losses. For a corporation with more than one owner, the bylaws will become invaluable.

You will file certain paperwork with the state of Arizona, including your articles of incorporation. You can do this online by setting up an account on the Arizona Corporation Commission site. When the state has received and approved your filing, you will receive a certificate of receipt that confirms your business’s legal existence as a corporation.

You will then hold your first official meeting to document the funding of the corporation. Record the names of individuals who exchanged money or intangibles (such as services) for partial ownership. Also record the percentage of the business that each person owns. Once the meeting is done, have all the participants sign the bylaws or operating agreement as well as any initial resolutions necessary to launch your business.

It will then be necessary to obtain an Employer Identification Number (EIN) for your corporation. You can do that online through the IRS site and you will generally be assigned a number almost immediately once you complete the required information.

Incorporating in Arizona

The state of Arizona has listed some Frequently Asked Questions (FAQs) that can be helpful to you as you incorporate a small business. There is also a handy checklist that will guide you through what you will need in terms of business forms and will provide you information for relevant licensing agencies for your specific type of business.

CLEAR VIEW BUSINESS SOLUTIONS IS HERE TO HELP

The financial experts at Clear View Business Solutions work with small business owners like you to help you understand how to operate more efficiently and to be more profitable. We can help you research the best business structure for you, develop your financial analysis, develop loan proposals, and write your business plan, all focused on making your business more successful. We work closely with you so you can be better prepared to make sound financial decisions and to plan for your success.

The past year, in particular, has been a challenge for many small business owners and solo-preneurs and we are here to guide you with professional business advisory services, tax planning and preparation, accounting, and bookkeeping. Learn more about how we can help you and your business by contacting Clear View Business Solutions to speak to our team about our services. Give us a call at (520) 544-0177.