One of the biggest reasons why many people don’t put additional thought into starting up a business is because they believe that it’s expensive to do so. In actuality, starting a business is far cheaper than these individuals realize. Of course the startup costs are dependent on the type of business you’re planning in terms of equipment and/or inventory. However, the initial paperwork to start your own corporation is quite nominal in comparison.
A C-Corporation is an entity that is taxed separately from those who set it up, such as owners and shareholders. It is regarded as a separate entity that can hold its own credit rating, liabilities and assets. Personal liens and debts cannot influence a C-Corporation’s assets or bank accounts because it is its own entity owned by the shareholders and not the founding individual.
Why You Would Want a C-Corp
Forming a C-Corporation has many advantages that are ideal for businesses. As there are many types to choose from, you should have an idea of what you need to form according to your ultimate goals. The C-Corporations have benefits such as:
- Unlimited growth potential
- Private shareholders and investor accountability
- Limited liability
- Perpetual existence – A C-Corporation has perpetual existence meaning that it will continue to operate even if the owner quits his or her position. The corporation will continue to conduct business as normal and doesn’t require the founding member to be a part of the staff. For example, Steve Jobs left Apple in 1985 although he was a founding member. Without his influence, Apple continued to conduct business.
One of the biggest reasons why many owners decide to form C-Corporations is to protect assets against personal debt. As a corporation is a separate entity and does not technically belong to the creator, personal debtors are unable to attach liens or garnish bank accounts from the business entity. For instance, child support owed by an employee of the corporation are paid from his or her wages – not directly from the bank accounts of the C-Corp as those funds do not belong to the individual.
Now that you’ve decided to form the C-Corp, let’s establish what you’ll need. First, you’ll need to establish officers such as CEO, President, and Secretary. If you’re planning on developing a corporation that is into retail or online sales, you will definitely need your sales tax ID commonly referred to as your “resellers license.” You’ll also need the Federal Employer Identification Number, Articles of Incorporation and possibly a corporate book that is optional. What’s first?
1. Articles of Incorporation - The Articles of Incorporation are documents that prove the legality of your business entity. This form is the base of what your C-Corp will function under. Without it, you are unable to develop your corporation legally. Prior to completing this form, you will need to establish officers within the business. This includes positions such as President, Vice President, CEO, Secretary, and Treasurer. Although most areas allow a single individual to play more than one role, it’s always a good idea to have at least two people on the AOI (Articles of Incorporation) in different positions and responsible for those tasks.The Articles of Incorporation are essentially the rules and governance that pertains to any corporation and must be filed in the state of which you are conducting business. These documents dictate and regulate the liabilities of shareholders, officers and other members of committees that are formed within the corporation and are enforceable by law. Although there are various templates available for each state within the United States, each corporation is different and may add material pertaining to the company’s primary focus of conducting itself.
2. Federal Employer Identification Number - The Federal Employer Identification Number is required in order to support your C-Corp. It is this number that is tied to your taxes as well as tracking should you need to hire employees. Whether you are filing monthly, quarterly or annually taxes, this number is of utmost importance.
A lot of your business will revolve around the FEIN. Aside from taxes, this number will be needed for opening bank accounts for the corporation and applying for your sales tax identification.
3. Sales Tax ID - Having the sales tax identification number allows you to sell goods that are taxable. Since many areas do not tax services performed, you may not need this number as there is nothing to file. However, you may want to check with your local Secretary of State to make sure you don’t need it before conducting business. You could be on the line for fees and penalties if you open your business without all of the correct documents.
Even if you are not required to obtain the tax ID for the type of business you are operating, it’s still a good idea to have the number. This will allow you to expand your business if you want to sell goods at a later date. If you have the number now, you could immediately sell a wide range of goods at any point in time.
With these three forms completed, you can now start making money as your own corporation. The total fees for obtaining all three forms varies depending on your methods and the location you are establishing the business. Once this is completed, it is up to you to make the business a success.