If you have started an online business and are wondering how to incorporate in the United States in order to take advantage of a number of benefits, then this article – written in a collaboration with Ivy Answer – is for you. Read on.
Why Incorporate your Online Business?
Incorporation makes sense from a business standpoint for most online business owners, but if you are looking specifically to save money on taxes, receive better legal protection, and even better reach your market, then incorporation in the United States can really be a great deal. Of course, there are a few options as for states in which to incorporate, but we’ll cover that.
First, let’s discuss what incorporation really does for you and why so many online businesses are choosing to incorporate.
Which Type of Incorporation do You Need?
When you incorporate your company, you are taking legal steps necessary to reduce your individual liability. By creating a separate business entity with your incorporation, you are protecting your personal assets from the legal action of others.
There are three types of corporation: S-corp, C-corp, and LLC:
- S-corps do not usually pay income taxes at all and are a “closely held” corporation electing to be taxed by Subchapter S of Chapter 1 of the Internal Revenue Code.
- In a C-corp, subchapter C of the IRC dictates the taxation of this voluntary election.
- In a LLC, pass through taxation of a partnership or sole proprietorship can be combined with the limited liability of a corporation. The type of incorporation you choose will depend on what you need, and this can often be quickly determined with the help of a lawyer.
If you are based in the United States already, most lawyers will recommend that you go ahead and incorporate in the state you’re in. The reason for this is that you’ll end up paying your taxes based on where you’re based anyway. If you are an international entrepreneur, however, you have options. In this interesting scenario, you can use incorporation as a haven and choose the state where you incorporate your company.
Getting inccorporated: Where in the U.S.?
Now, if you know you’re going to be doing business in a particular state anyway, then you might consider incorporating there to best reach your market. If you have a choice, however, there are a few states that are best for incorporation when it comes to the international entrepreneur and owner of an online business.
The first choice for most international online business owners would be the state of Delaware, in most cases. Delaware already headquarters a huge portion of online companies, including Fortune 500 companies in the U.S. It’s government and taxes are simply more in favor of companies that elect to incorporate there.
Delaware is a known tax haven, and it charges no taxes on income earned from intangible assets. Delaware also has a Chancery Court, which is also unique. This Chancery Court is in place only to handle the resolution of business disputes. Delaware makes it very easy to incorporate there, too. All you need, in most cases, is a business name, a registered agent, and $89. That’s it!
Nevada is another popular choice for incorporating online businesses. Using a system that models Delaware’s very successful system, Nevada has no corporate income tax, no taxes on corporate shares, and no annual franchise tax. The legal system is also designed to quickly resolve issues.
Wyoming is also a top choice for sole proprietors – including online businesses – wishing to incorporate. There are no corporate income taxes in Wyoming, as well as no personal income taxes. It’s among the top business friendly states, and it offers a unique system for keeping information offline. If you want your business incorporated with max tax benefits but also privacy in mind, Wyoming might be the right choice for you.
4. South Dakota
In South Dakota, incorporation is also very simple. Aside from an easy incorporation process, South Dakota also offers no income taxes or corporate taxes.
As you can see, there are many favorable options for incorporating an online business in the United States. When it comes to actually getting the process started, you’ll need to first decide which state will be the best for you when you incorporate. Consider where you customers are, if saving on taxes is important to you, or if you’d like a higher level of legal protection.
Getting Incorporated: How?
Next, you’ll need to determine which of the three structures you’ll use for your incorporation: S-corp, C-corp, or LLC. If you aren’t sure about this step, then you’ll want to go ahead and consult a lawyer who specializes in incorporation in the U.S.
The other requirements for incorporating are usually pretty straightforward.
You’ll be expected to have a company name that fits the requirements of the state where you are incorporating. You might also need to appoint a registered agent, which is essentially a main point of contact for your incorporated company. This person will receive any applicable tax documents, legal documents, etc. Personnel will typically be verified to ensure they are of legal age and capacity and meet any other requirements. Within this process, you will also need to apply to the IRS for an EIN, which is a must-have whether or not state taxes are required.
When incorporating your online business in the U.S., it is extremely important to be sure that you have provided all necessary paperwork and are keeping all required documentation. Any breach can be problematic. Also, you’ll want to be aware of any tax filing deadlines to ensure that you are staying abreast of any obligations.
If you are not sure about taking care of all of this on your own, there are people out there who can help. There are websites, lawyers, accountants, and more who can help to make sure that your incorporation is a smooth and easy process.