How to Set Up Trading As a Business
Incorporating your day trading operation as a small business has numerous advantages if you are trading at a high enough volume. According to Traders Accounting, incorporating a trading business as a limited-liability corporation (LLC) will grant you greater stability with clear rules for taxation and other governmental affairs. Business status will also grant you greater accounting flexibility. The website Day Trader Tax also recommends incorporating your trading operation if you're investing others' money for them. Whether you choose to incorporate as an LLC or another type of business, you should follow certain guidelines to ensure your company is legally and financially sound.
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Things You'll Need
- Capital
- Telephone
- Tax forms
- Articles of Incorporation
- Bylaws
- Incorporation forms
- Computer
Instructions
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Filing Your Paperwork Correctly
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Contact your Secretary of State's office and ask for instructions, forms and a fee schedule regarding business incorporation. Entrepreneur magazine recommends filling out the paperwork yourself because it will save you money you would otherwise spend on attorneys or accountants.
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Review your trading history and any sources of income other than your own. A firm grasp on the amount of capital and other resources tied to your investing operation will help you to decide what form of corporation best suits your business activities. Knowing where your funds come from and who benefits from them will also assist you in forming the appropriate corporation.
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Decide which form of corporation you want to form and then file the necessary documents. Most commonly, day traders choose to form limited-liability corporations (LLC), s-Corporations or c-Corporations. According to the Internal Revenue Service, owners of an LLC are called members and form their corporation with Form 8832. S-corporations have several IRS forms to complete, though the primary IRS documentation is Form 2553. Individual shareholders typically are responsible for the company's credits, profits and debts. The IRS has several restrictions for forming an S-corporation. The IRS categorizes a C-corporation as a firm which conducts business, creates income or loss, pays taxes and distributes profits to shareholders. C-corporations, according to the IRS, are eligible for special filing statuses and deductions.
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Prepare your articles of incorporation, which will vary depending on the type of corporation you plan to create. According to Entrepreneur magazine, you can get these articles from your Secretary of State's office. You'll need to know a tentative name for your corporation, its purpose, the names and addresses of any partners you may have, as well as the principal office.
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Formulate bylaws that will guide your company. Entrepreneur magazine recommends the bylaws detail how the corporation will run, including the responsibilities of the shareholders, directors and officers. They should also include the dates of stockholder meetings and any other managerial details. Once your paperwork is finished, submit it to the Secretary of State's office, which will send you a certificate of incorporation when your paperwork is approved. A business plan is also a good idea because it will keep you focused and prepared as you work to solidify your new trading company. However, it is not necessary to have a business plan to start a trading corporation.
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Tips & Warnings
Though not necessary, and though it may seem to be an added cost, having an accountant or attorney look over your incorporation paperwork may save time and keep you from making costly mistakes.
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Resources
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