"This may not be the most exciting information, but trust that it is extremely important!"

       A fellow Entrepreneur and close friend once reflected on corporations perfectly. “A corporation was something I really didn’t think concerned me. I was under the misunderstanding that only accomplished companies set up corporations after years of work experience.” Do not fall victim to this unfortunate, yet all too common, theme among entrepreneurs; “by the time a problem is recognized, it is already too late to fix it.” These words directly reflect my friend's situation.  He was sued as a result of questionable content displayed on one of his sites. Out of respect for him, I will not divulge information about his case. The lawsuit addressed him at fault, thus making him completely liable for the charges filed. Had he incorporated, the lawsuit would address his corporation instead of him personally. Having a degree of separation between you and your business directs any lawsuit towards the business. Additionally, if you are dependent on your parents while attending college, the lawsuit will carry over to them unless a degree of separation exists. Simply put, there is no compromise to paying the small incorporation fee.

       In order for people to take your business seriously you need to incorporate. Whether the inquiring party is a prospective customer, other business owner, or banker, they will require the proof of necessary business forms. All successful entrepreneurs are registered under some form of business entity. After speaking with a lawyer, we arrived at the conclusion that a traditional C corporation was the best fit for our enterprise.

       A standard corporation is called a “C corporation” and it is the most common corporate structure. A corporation is a separate legal entity owned by the shareholder(s). In the beginning you are the only shareholder. Because it is a separate entity, the shareholders cannot be held personally responsible for the debts of the corporation. Your liability is normally limited only to the amount you initially invested in the company.

       Taxation is usually a significant consideration when deciding which corporate structure to choose.  With a C corporation you may experience double taxation, which simply means that corporate profits are taxed initially as well as when they are dispersed to individuals.  An S corporation avoids double taxation and only taxes the individual.  Even though you escape initial taxes, they will be reflected on your personal taxes.  I recommend filing a C corporation. Under a C corporation your personal taxes are not tied directly to your business.  The profits for a C corporation are reported and taxed at the entity level first. Then, if the corporation distributes any portion of the remaining profits to the shareholders, through dividends, the shareholders must report the dividend as personal income. They will then pay subsequent taxes on the dividend.  I know that this does not sound easy, but you can do it yourself! Down the road, after you have money to reinvest, you may want to consult a lawyer to ensure your filing paperwork is 100% error free. I incorporated myself and you can do it too. Pay a visit to your state’s Division of Corporations website. For example, Sunbiz.org is the Division of Corporations website for the state of Florida. The ability to incorporate online truly makes the process incredibly simple!  Your state's Division of Corporation's website is very user friendly. It walks you through a step by step process that takes little time to complete!

Advantages of a C corporation:

• Shareholders of a C corporation are typically not personally responsible for the debts and liabilities of the business
• C corporations can have an unlimited number of shareholders
• Ownership of a C corporation is easily transferable through the sale of stock
• Additional capital can be raised by selling shares of the C corporation's stock
• Potential customers may perceive a C corporation as a more professional entity than a sole proprietorship or partnership
• C corporations are generally audited less frequently than sole proprietorships
• Certain C corporation business expenses may be tax-deductible
• Forming a C corporation can result in self-employment tax savings
• C corporations may provide a number of income and tax savings

       To create a C corporation you need to file the proper state forms. You will be filing an “articles of incorporation.” This describes who owns the company, where it is located, and who is in charge of the company.  Upon approval of this form, you will receive a certificate of incorporation. This means that you are now a true legal entity.  All forms must be filed with the appropriate state agency.  There will be a fee to incorporate that is due upon filing.  It will cost around $85 to initially incorporate, which is cheap compared to your car, house, or savings account!  Be smart; incorporate as soon as you can!

Learn about business bank accounts