Log InJoin 

How To Incorporate Your Small Business

How To Incorporate Your Small Business

Incorporating your small business is often a strategic move to protect the individual from legal liability, to obtain credit and maintain a separate entity status and receive certain tax benefits. All individuals who own a business and are not incorporated leave themselves vulnerable to lawsuits and other litigation which could haunt them for years. Which type of incorporation you choose will depend on what your goals are for the business and how simple or sophisticated its operations become. Online resources such as the Small Business Administration and state resources like the Small Business Development Center can assist you in determining what business type is most appropriate for you and your company.

Limited Liability Company

Limited liability companies are a type of incorporation which combines the benefits of a partnership with the legal protection of a Corporation. This also allows for a shares to be distributed evenly among partners while affording individuals protection from lawsuits. Because shares are distributed among partners each member has a voting share and a say in the operation of the company. Liability however is relegated to the owner operators as they are responsible for their actions but not for the actions of employees. Personal assets are normally not subject to litigation unless certain circumstances present themselves leaving only corporate assets open to seizure. Also, since each partners benefit financially from proceeds of the company they are responsible for their income taxes but the business does not have a tax liability.

C corporation

A C corporation is normally formed by one or more individuals and per this type of business structure requires a director level appointment to create company policy and manage operations. This individual is responsible for their own actions and that of the organization but are not responsible for employee actions. Much like the limited liability company, corporate assets are seized first to satisfy legal judgments resulting from lawsuits and personal assets are normally only vulnerable under certain circumstances. In terms of tax liability, individuals who receive compensation are responsible for taxes on earnings but now the Corporation is also responsible for paying a corporate tax rate.

S corporation

An S corporation first starts out and is registered as a C corporation which has similar liability both legally and financially. The primary difference between the two is because of the modified structure, an S corporation does not have to pay federal taxes. Each individual state has a specific fee schedule for this type of Corporation and it is also limited to no more than 35 shareholders.


Whether or not you form a limited liability company, C corporation or S corporation will depend on your specific organizational structure needs and tax liability. These types of decisions can have far reaching consequences and can be complicated in nature and as such it is normally recommended to consult with lawyers who specialize in this type of corporate law to process the paperwork. The Internet is an invaluable resource in this circumstance for doing the initial leg work so you are more informed when meeting with legal counsel and better able to make important decisions regarding the incorporation. Every state has a Corporation Commission which will provide additional information and documentation regarding more in-depth questions.