Setting Up a Corporation
The info below is to help anyone who might be thinking of forming a small company, but doesn’t know where to begin. Though the process outlined below is likely similar for most US states, the corporation in reference was set up in compliance with the state of New Jersey.
Not too long ago we were motivated to turn The Elixir Haus into an official business entity. We found it difficult to find documentation in doing so, so we wrote this article to try and help anyone who who might be in a similar position.
There are two main business types typically formed by smaller entities, an LLC (Limited Liability Company) or an S-Corp (Subchapter S corporation). We initially looked into setting up an LLC, but found out that if the LLC ownership is individually owned, the company’s taxes pass through to the owner’s personal finances. That defeated the purpose for us. The S-Corp, even though a bit more expensive to set up, allowed us to take full advantage of tax “sheltering” benefits.
What to Know
There are four steps to setting up a Corporation. They are listed below with an idea of cost:
- Secure a Registered Agent to handle your legal documents:$125 annually
- Register with your state – This includes Certificate of Incorporation with Seal and a Tax Election form: $125 One time filing fee, $25 Certificate processing fee
- Acquire a Federal Tax ID Number: Free
- Buy Workers’ Compensation insurance (Needed in NJ, even if you’re the only employee):
Varies on type and size of company. Our cost is about $600 a year.
Initially, the actual set up process seemed extremely daunting. Finding clear documentation that outlined the process, requirements, and cost was difficult. Relatives of ours used LegalZoom in the past and had no complaints. To avoid the pain of trial and error, we initially started with them. After filling out a detailed questionnaire and selecting a matrix of options, we were presented with packages whose cost I found difficult to justify. Most of the offerings listed in the packages seemed like unnecessary sales concessions. I also found it difficult to proceed with LegalZoom since the only package that included acquiring the Federal ID number (the main item needed to qualify as a business entity) was the most expensive.
Note: We don’t mean to single out Legal Zoom. In researching a few services they all had a similar cost structure. If you would rather not be bothered by the whole process we’d definitely recommend LegalZoom based on the custom support and competitive pricing we experienced.
There was a bit of juggling needed to process everything. For instance, in order to secure a Registered agent, you need your business info and Federal Tax ID number. To set up a company with the state and get that info, you need a Registered agent. Fortunately this is typical bureaucracy for a Registered Agent, and ours didn’t have a problem setting up an account knowing the business details might change. It was important that we first searched the states’s online tools to be sure the business name was available. Having the Registered Agent’s contact info, we were then able to proceed with registering a business name with the state.
Although there were a few forms to fill out, the process of registering with the state and submitting to the IRS was quick and straight forward. On the state’s site, one form led to another for capturing info and making payments. Once the registration of the company with the state was complete, we were able to download the necessary certificates and documents. The state’s site linked us to the IRS site where we could supply our company info to register and download the qualifying IRS tax document including a tax ID number (EIN).
Setting up a Bank Account
You’ll need to setup a company bank account for your business. The bank will require a copy of your registration with the state, the Certificate of Incorporation, and signed meeting notes that confirm you the owner had a meeting and approve the opening of an account.
Electronic transfers to the IRS.
Most likely you will wait until the last minute to pay taxes and will not want to risk trouble with the postal service. The IRS has an electronic transfer system EFTPS for you to make payments online. To do so requires a PIN that must be received in the mail. Enroll a couple weeks before taxes are due if you you’re interested in making tax payments this way.
We hope this helps. If you have any points to add or details we missed, please share. Good luck.
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