Last month I incorporated my business. I worked with lawyer Neil Jacobs from N.I. Jacobs and Associates. With 30 years of experience under his belt, Neil’s focus is on corporate structuring, finance, operation and governance issues, strategic alliances and joint ventures, and mergers and acquisitions.
The entire process took me about a week while incorporating took about a day. Here are the steps I took:
1. Deciding if incorporating was right for me
Neil had been stressing the importance of incorporating for a while before I actually did it; the reason being that I had to wait until the time was right for me. As I began forming deeper relationships with accredited investors and selling more garments to customers — I needed to protect myself from any personal liability while expressing to investors I had a reputable business ready to form investment relationships.
Jacobs suggests, “Its about the optics of ‘professionalism’ — having the ability to separate your business from your personal life.” Incorporating also provided the ability to deduct my business expenses for tax purposes, while protecting my brand and its intellectual property.
2. I worked with a lawyer
I previously worked with a popular online incorporation service but unfortunately, I wasn’t properly guided by them. While I’m sure they had the best intentions, the fact remains that they were not specialized corporate lawyers. The result was that I formed my company under the improper entity: I formed an S-Corporation when I should have formed a C-Corporation.
This time I worked with a lawyer who helped navigate the legal terminology and incorporation procedures that I could not do myself. Jacobs adds, “DIY law can be a recipe for disaster for first-time entrepreneurs because they don’t know what they don’t know. You may think that you are picking between flavors of ice cream (Corporation vs. LLC, etc.) but you are taking formidable steps, which need to be taken with guidance.”
3. Conducting pre-filing research
First Neil and I did a search to see if my chosen company name was available, and it was. You can search your state’s Division of Corporations and do a name search online.
Then we discussed what kind of organization I wanted to form, the options being an LLC, C-Corp, S-Corp, or Partnership. According to Jacobs, “This is a very complicated choice. It brings to bear tax issues, asset protection issues and also ‘optics’ issues. Some people love to see ‘LLC’ at the end of their business name, but if they pick the wrong jurisdiction in which to form it may be costly down the road.” In the end, I decided a C-Corp was the right fit for me due to this category’s many advantages. In the near future, because I have a social enterprise, we will apply to become a B-Corporation or Benefit Corporation — a “profit corporate entity, that includes positive impact on society, workers, the community and the environment in addition to profit as its legally defined goals.”
I also had to decide what state to form my company in, or which one has the laws that will best benefit my company’s needs. We decided on Delaware because of certain stipulations the state offers that my home state of New York does not. For example, in New York, the 6 largest shareholders are personally liable for a company’s unpaid wages. This is not the case in Delaware. Other research I did before incorporating was: knowing the incorporation costs (about $400) and naming my company’s key executives.
Now that we had done the preparation, Neil was ready to file. He sent in my incorporation fees and filing documents. The process was fairly quick, taking about one day. He also found and hired a registered agent in Delaware. Since I do not have an office in Delaware where my company was formed, it is required by law that I hire a registered agent to accept official documents on my company’s behalf. If you have an address in the same state your corporation is registered in, then you can be your own registered agent.
5. Obtain an EIN and DBA
Next, I filed for an EIN number with the IRS. This process was free and very easy, done online at IRS.gov. According to the IRS, “An employer identification number (EIN) is a nine-digit number assigned by the IRS. It is used to identify the tax accounts of employers and certain others who have no employees. The IRS uses the number to identify taxpayers who are required to file various business tax returns.”
You may or may not need to file a DBA or ‘Doing Business As’ name for your corporation. A DBA is needed if your company’s registered name is different than the name you conduct business as. According to Legal Zoom, filing a DBA allows your company to open bank accounts, write checks, and enter contracts. “If you don’t file a DBA and just start doing business under a different name you could face penalties, fines, and the possible lawsuits.”
6. Complete yearly due diligence
Now that I have successfully incorporated my business, I‘ll be sure to file and pay annual company taxes, pay my registered agent their annual fee, and adhere to any additional compliance required by the government. According to Jacobs, “This is another reason why a well-informed lawyer can be helpful – navigating you through capital structure, franchise taxes, etc.”
I must admit – it feels great to be official and to have done it the right way.