When Is The Best Time To Incorporate Your Small Business?
One of the most important things to consider when you are planning on incorporating your business is which state will be best for you. You should know what particular state will offer the most tax incentives, where to find the best resources, and where your potential customers may be. While many factors come into play for those deciding where to incorporate their small business, one of the biggest questions is when is a good time?
The answer will depend on what type of small business you want to start as well as how long it takes to raise startup capital and attract steady customers.
For many years, people thought that incorporating your business as soon as possible was the best time to start a corporation. In fact, people still think this way. If you are in a hurry to get organized and incorporated, you may end up not taking all the necessary measures that will make your small business thrive and grow.
The reason why you should wait until later is because it takes longer to get your business ready for the real world once you've raised seed capital and worked out the details of your business plan. Incorporating your small business can be done relatively soon, but there are some things that shouldn't be rushed such as drafting up articles of incorporation or selling shares in your company as well as negotiating terms with potential investors.
Before you choose a time to incorporate your small business, you should think about which type of corporation will work best for your business goals.
LONG-TERM CONSULTANTS AND INVESTMENT FIRMS MAY RICHER
Many people assume that incorporating their small business is the best way to get big profits in the near future and make big decisions. However, if you are planning to do this in the near future and have a lot of money saved, then you may want to consider incorporating your business under the LLC or S Corp structure. Both of these types of corporations allow owners to be taxed as individuals and also pay themselves in passive income rather than receiving salaries every month like most corporations allow their employees.
If you do decide to incorporate your small business but are not ready to focus on profits just yet, consulting or investment firms may be the best type of corporation to choose. As a consulting firm or investment firm, you can run your business based on fees and profit sharing at any time. You will have more flexibility as well as a high net worth since some investments require much more money than a regular small business does.
BONDED AND UNBONDED GENERAL PARTNERSHIPS
Incorporating your small business under an LLC or S Corp is one way that many general partners choose to take control of their company's profits and losses. While income and losses are taxed as individual income, the general partners may be able to write off more under an LLC than a corporation.
Another way bonded general partners receive payment from their small business is through profits as well as a percentage of the firm's profits. General partners should consider all factors before deciding whether to incorporate their small business or become a general partner. They may look at how much money they want out of the business and how much time they want to spend managing the company. They can also look at how attractive non-profit status is for their small business such as qualified non-profit status or Sec. 501(c)(3) status.
UNBONDED GENERAL PARTNERSHIPS AND LIMITED PURPOSE BUSINESSES
One of the biggest differences between an LLC and a corporation is that a general partner can only lose his or her investment. A general partner of an S Corp can suffer heavy losses since they will have a risk of loss provision. An LLC can be treated like a general partnership or corporation depending on whether the LLC decides to pass through income or profits to its owners.
If you decide to incorporate your small business and want more options, then you may want to consider forming a Limited Purpose Business. This may be the best way for you to incorporate in some states without having to get non-profit status. If you do have a lot of capital and are ready to invest, then an Limited Purpose Business may not be right for you.
INCORPORATING YOUR SMALL BUSINESS: CONCLUSION
If you plan on incorporating your small business, you need to keep in mind that the process can take some time since you will want to get the finances in order carefully. You should also think about how much time you want to spend running your new corporation or LLC. If most of the profit will be distributed throughout the company and no extra stock is being issued, then it is probably better to incorporate under an LLC or S Corp structure.
If you are a general partner and want to take control of your company's profits, then it is better to incorporate under an LLC or S Corp. Otherwise you can choose a Limited Purpose Business and just incorporate in some states.
You can find more information at http://inc-asec.com . The staff at Inc A Sec also help small business owners find the best state to incorporate their business. They also help these businesses become recognized by the IRS as a Sec. 501(c)(3) tax-exempt organization and obtain qualified non-profit status as well as get approval from the IRS for other non-profit designations if applicable. The entire staff at Inc A Sec is Certified Public Accountants offering a full range of accounting, consulting and services to help your company grow. They also offer small business bookkeeping services as well as software development to save you time and money.
For more information visit http://www.incasec.com/ or call 866-342-2429 today!
If you want additional information or speak with a CPA, visit http://www.lookingforsmallbusiness.com for more information on accounting and bookkeeping services!
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Conclusion
Incorporating your small business is one of the most important things any business owner can do. This process can make or break your company so knowing what you need to do to protect your interests is vital. There are four different types of corporations and LLCs you can choose from depending on your needs. No matter which kind of corporation you choose, Incasec will help guide you every step in the right direction.