How to Incorporate a Sole Proprietorship
If you have a sole proprietorship, chances are your business is fairly small, so it is a relatively simple task to incorporate it. Reasons for doing this include trying to protect your personal assets in the event of a lawsuit against the business and being able to distribute some income as dividends and pay yourself a salary. In some cases, this can give you significant tax benefits. It's best to talk to a lawyer or accountant before you incorporate to see if it makes sense for your situation.
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Things You'll Need
- Statement of purpose
- Articles of incorporation
- Money for registration fee
Instructions
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Instructions
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Decide on a name for your business. Then contact the office of the Secretary of State for the state where you wish to incorporate. (See the Resources section to find yours.) Check to make sure the name is not already registered. You cannot use a business name that is already trademarked to someone else. Change the name as needed.
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Put together a statement of purpose. It says what the goal of your business is and how you will attempt to accomplish it. It can be as short as one sentence or as long as several pages. There are no brownie points for making it longer, so try to be informative but brief. You do not need to go into heavy detail.
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3
Go to the Secretary of State's office or obtain articles of incorporation for your state of choice online. Fill out the forms as requested. In most cases you will need the name of your business, the address, the statement of purpose and information on stock. When you're first starting out, you do have to distribute stock, but you can keep it between family and friends or even "purchase" it yourself. You do not need to worry about distributing certificates or going public at this point.
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Return the completed articles of incorporation and the appropriate filing fee to the Secretary of State's office either in person or by mail.
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5
Write a set of corporate bylaws stating how you will run your business. These will be important at the end of the tax year. Most bylaws have details on the role of shareholders and when you will have meetings. If you, or you and your mom and uncle Joe, are the shareholders, go ahead and keep it simple. Note that you will have to file an annual report at the end of each tax year.
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Tips & Warnings
You do not need to incorporate your business in the state where you live. Many people choose Nevada or Delaware for their status as being business friendly. However, it is easier to register in a state where you at least conduct business on a semi-regular basis.
This article is not a substitute for professional legal or tax advice. Always consult a lawyer or CPA before incorporating your business. You may notice there are third-party vendors that offer to let you file your articles of incorporation online. Working with one of these companies will cost you far more than filing directly.
