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What is incorporation?

Thinking of incorporating your business? Or are you just starting out and want to know what exactly a corporation is? 

Corporations enjoy several significant benefits, from tax advantages to liability protection. Not to mention, others will look upon your business as more professional. 

Incorporating is slightly different in each state. However, the process is mostly the same and includes about 8 steps (9 if it’s an S corp), which we’ve broken down to make the process simpler and easier. 

Whether you’re looking to learn which business entity is best suited for you or how to incorporate your business, below we’ll cover that and more.

Table of contents:

  1. What entity is right for your business?
  2. How to incorporate a business (8-step process)
  3. Converting to a corporation

Which entity is right for your business? 

Before jumping into things, it’s important to know a few things:

  • A business doesn’t have to be a corporation, and
  • There are several different types of corporations

For that reason, it’s important to know what types of business entities are available to you, the difference between them, and why you might choose one over another.

One of the easiest examples is a typical corporation (let’s say C corp) vs. a non-profit organization

You likely already know if your company is a non-profit or not, but if not, the basic idea is this: if the purpose of your company is to further a specific cause, and you’ll be using all profit toward furthering that cause as opposed to distributing it to shareholders, you’re a non-profit. In return, you get special tax benefits.

However, for everyone else, the decision between which tax entity to choose takes a bit more work. 

Fortunately, the steps to incorporating your business are the same for all corporations (with the exception of the final step for S corps). 

But before we get into the steps to incorporate, let’s talk a bit about each business entity to help you decide which is the best fit for your business: 

EXCEL - LLC vs. Partnership

Sole proprietorship

Sole proprietorships are best for solo business owners. If you plan on working from a home office and won’t have any other employees than yourself, you’re definitely a sole proprietorship.

However, keep in mind that if the vision for your company is to stretch far beyond that, you’ll likely want to consider incorporating at some point. 

Who a sole proprietorship is best for

If you plan to be a solo captain for the entirety of your business, or you’re just starting out, a sole proprietorship is for you. 

If you’re still not sure whether you should incorporate, you can always start here then decide later as your business grows. 


Partnerships are similar to non-profits: you probably already know if you’re a partnership vs. sole proprietorship. To put it simply, if you have a partner, you can’t be a sole proprietorship. 

With partnerships, you decide together how ownership divides up percentage-wise when setting the business entity. 

However, keep in mind that any corporation can be run as a partnership as well, so you have the same options if you choose to incorporate. 

Who a partnership is best for

If you and your partner are just starting out, and you’re not sure if incorporating is right for you, or which type of corporation, then a partnership is a good place to start things up.

Keep in mind that you’ll have to select either a general or limited partnership. 

A general partnership involves both partners splitting everything equally (including your contribution to the company). However, a limited partnership is where one partner will be doing more than another. Which you choose is entirely based on your working agreement with one another. 

C corporation

The first of three basic types of corporations, a C corporation is the most common type of corporation. 

With a C corp, you have full liability protection and tax advantages, both of which sole proprietors and partnerships don’t have. 

As opposed to a sole proprietorship or partnership, a C corp is taxed separately from its owners, meaning while you’ll get certain tax benefits not available to you otherwise, you’ll have to file your personal and business taxes separately. 

Who a C corp is best for

If you have big plans for your business, and either already have several employees or plan to grow significantly and don’t want the restrictions of an S corp, becoming a C corp is something to seriously consider. 

S corporation

An S corp is more an extension of a C corp than anything else. Every S corp must start as a C corp and then apply to become an S corp afterward. 

The real difference is in two things, one the benefit of becoming an S corp and another a consequence of obtaining said benefit:

  • You get major tax savings, given that the corporation’s gains, losses, as well as credits and deductions, are passed onto its shareholders who then file that on their personal tax returns. This means the company itself isn’t responsible for paying federal income tax. 
  • However, because of this benefit, the IRS places strict restrictions on S corps such as a 100 shareholder maximum and only one stock class.

Who an S corp is best for

If you’re a U.S. citizen (a requirement for S corps) and want to incorporate, but don’t see your business growing beyond 100 shareholders, then an S corp is worth considering. Just remember the strict requirements you’ll need to meet to take advantage of those tax savings. 

Limited liability company (LLC)

The final entity, a limited-liability company or LLC is a hybrid between a sole proprietorship/partnership and a corporation.

You can run an LLC and be taxed as any of the above entities: sole proprietor, partnership, S corp, or even an S corp. 

As an LLC, you also enjoy limited liability protection, similar to corporations. LLCs are costly to maintain in some states, though their flexibility is a bit plus. 

Who an LLC is best for

The name of the game with an LLC is flexibility and adaptability. 

If you’re not sure what direction you’re headed as a company and just want to make sure you’re prepared for whatever might happen, an LLC is a perfect choice. 

You can shift between more of a sole proprietor, take on a partner, or take on more of the shape of a corporation if you begin growing rapidly without having to change your business structure.

However, keep in mind that you don’t get all the benefits of a corporation. So, if your business becomes large enough, it may be worth considering incorporating. 

How to incorporate a business

Now that you have a better idea of the different options available to you, let’s talk about what you’ll need to do to incorporate your business. 

Fortunately, incorporating a business isn’t that difficult. Expect it to take a few weeks and a few hundred dollars in set up fees. But aside from that, it’s just a bit of paperwork. 

Make sure to check with your secretary of state’s central office to make sure you’re fulfilling your state’s exact requirements to incorporate. 

With that said, here are the basic steps to incorporate your business: 


1. Get licensing and other compliance requirements established

Depending on what industry your business occupies, you may need certain business licenses and permits to operate. 

For example, if you’re in the food industry, you may need a food permit and a liquor license

Before beginning with the incorporation process, make sure to take care of those as you’ll need them in order before you can operate. 

2. Choose a unique name

Just as with a sole proprietorship or partnership, the first step is to choose your business name. 

It’s important to choose a unique name, not just because you won’t be able to file your new business if it has the same name as another corporation, but because if it’s too similar, it could result in a potential lawsuit. Not fun. 

Instead, take a moment to search for your secretary of state’s name search directory to double-check that your chosen name isn’t already taken. 

3. Choose your registered agent

Next, decide who your registered agent will be. 

Your registered agent is the person or company that will receive official mail for your company. If you already have an office in place, this would likely be where you’d pick. 

If you have a home office and rather not list yourself as the registered agent for whatever reason, online legal services such as LegalZoom also offer the option of being your registered agent. 

4. Draft and file your articles of incorporation

All corporations must file articles of incorporation (or corporate charter) with their state. This includes your company’s basic information: name, address, registered agent, shares, etc. 

Make sure to check your state’s specific articles requirements as some require additional information such as: 

  • Information on the board of directors
  • Or the officers
  • A description of the business’s purpose

Once you’re done filling out the 1-2 page document, you’ll need to file it with your state. This is where the incorporation fees come in, typically no more than a few hundred dollars depending on the state. 

Follow the instructions listed on your secretary of state’s website to file your paperwork. Alternatively, if you’re a little unsure about this whole step and prefer to get assistance, just as with your registered agent, an online service like LegalZoom can help draft and file your articles of incorporation

5. Write corporate bylaws or operating agreement

Once your articles of incorporation are filed, you’ll need to write your corporate bylaws or operating agreement.

Both are basically a description of how your company is run. However, there is a slight difference between the two.

Corporate bylaws are internal guidelines a corporation must follow, whereas an operating agreement is a set of internal procedures for an LLC

Your bylaws or operating agreement include information such as:

  • How board meetings work
  • Voting rights
  • The types of shares the company will issue
  • How the company will review and approve contracts, loans, and other transactions
  • How often the corporation will have its financials reviewed

Keep in mind that not every state requires you to file bylaws, so check with your secretary of state first before doing so. However, in any case, you may still need them if you want to apply for a business loan or acquire investors, so they’re important to have. 

6. Start your corporate records book

The IRS requires all corporations to keep a book of records to show that you’re operating in compliance with federal rules. 

As part of your corporate records, you’ll need to keep these documents on hand:

  • Annual reports for the company
  • Shareholder, board, and annual meetings time records (minutes)
  • A copy of your articles of incorporation
  • A copy of your corporate bylaws
  • Any and all stock transactions
  • Business loan and contract documentation

These records can be kept as either physical or digital copies, whichever you prefer. And keep them somewhere secure and easy to access in the event of an audit. 

7. Complete your first board meeting

Another basic requirement of all corporations, you’ll need to complete your first board meeting.

There are specific items you’ll need to cover during the meeting, including:

  • Selecting corporate officers
  • Adopting the corporate bylaws and articles of incorporation
  • Issue shares to shareholders
  • Determine corporate seal
  • And make sure to record the minutes of the meeting

There’s a lot that goes into this first meeting (especially issuing stock), so consider consulting a professional to make sure you’re completing this step correctly. 

8. Check for, and complete, additional requirements

You’re on your final step! We know, you’ve done a lot so far, but you’re in the home stretch. 

These are the final details you’ll want to take care of to have everything in order: 

  • Open a business bank account: A business checking account is important for any business, but keeping your personal and business financials separate with a corporation is even more important. 
  • Complete required notice: Some states such as Arizona require you to announce the establishment of your corporation in a local newspaper. Check with your secretary of state for a list of requirements to establish a corporation if you haven’t already to see if this is required for you. 
  • Get an EIN: All corporations are required to have an EIN (you can’t use your social like with a sole proprietorship). You can apply for an EIN for free on the official IRS website

Keep in mind that beyond these steps, things such as tracking your board meetings are constants, i.e. things you’ll need to continue to do to maintain your corporation moving forward. 

Step 9: S-Corp only

Congratulations, you’re done incorporating to a C corp! However, if you’re doing an S corp, you have one final step.

To become an S corp, you must file IRS form S-2553, which is a request to convert from a C corp to an S corp. 

Keep in mind that if you just incorporated, you’ll need to submit this within 75 days for it to take effect this year, otherwise it won’t take effect until the following. 

Converting to a corporation (from a different business entity)

What do you do if your business is already established and you want to convert to a corporation from a different business entity?

It’s common to start out as a sole proprietor, partnership, or LLC then as you grow incorporate to take full advantage of a corporation’s benefits. 

Fortunately, the process is straightforward for most non-corporate business entities. 

In fact, if you’re a sole proprietorship or partnership, all you have to do is follow the same steps we outlined above with two additional steps: 

  1. Dissolve your DBA name (if you have one) and switch all paperwork and associated accounts to your new corporation.
  2. Get a new EIN number

Converting to an LLC is a bit more complicated, and for that, you might want to hire a professional. 

3 Ways to convert from an LLC to a corporation

There are 3 primary methods for converting from an LLC to a corporation:

  1. Statutory conversion: The easiest method, this requires you to and all of the LLC’s members to approve a certificate of conversion and file it with the state. Check with your secretary of state’s office for paperwork that must be turned in with the certificate. 
  2. Statutory merger: A bit more complicated than the first, this method requires the LLC members to form an entirely new corporation and then exchange membership rights for shares of stock in that new corporation then dissolve the LLC. 
  3. Nonstatutory conversion: This is the most difficult of the 3 options, so only use this if you can’t use the first or second method. This method requires you to follow the same steps as in the statutory merger along with an additional step: transfer the LLC’s debts and liabilities to the new corporation. 

Also, keep in mind that the steps for maintaining your new corporation are the same as with your old LLC, including holding board meetings and maintaining records. 

How to incorporate: Made easy

Incorporating a business takes a bit of work, but the tax and liability benefits you receive in exchange more than make up for the work involved. 

If you’re just starting out and not sure where to begin, consider a sole proprietorship, partnership, or LLC. You can always convert later. 

However, if you have big plans or you’re already established and need something that will help you take advantage of all available benefits as you grow, incorporating your business is a valuable option to consider.