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Incorporation is an important part of ensuring the success of your startup, but the time it takes can depend on a wide range of factors, from the state you’ve chosen for incorporation to whether you’ve done the preliminary work to get your documents together. In this article, we’ve outlined the steps you need to take before incorporating as well as the approval process and general cost.
Advantages of incorporating a business
Corporations may require more work and money to maintain than sole proprietorships or Limited Liability Companies (LLCs), but they come with several benefits.
Incorporating your startup creates a legal entity that’s entirely separate from your personal finances and can save your personal assets if you encounter a business-related lawsuit. It offers stronger protection than you might receive from a sole proprietorship or an LLC. You can think of incorporation’s protections as a "liability shield.”
Another reason to incorporate is if you plan on raising capital. Because of their legal requirements, corporations are often trusted more by investors. In some cases, investors are required to invest in corporations and not other business structures. Corporations can also conduct activities that help investors, like issuing stock.
Incorporation is also an attractive option if you plan on eventually selling your company or taking it public because you can easily sell shares to transfer ownership to new business owners.
What is the process of incorporation?
There are several preliminary steps to take before you file for incorporation with your state business agency. The amount of time this process will take depends on factors like the complexity of your business and how much time it takes for you to put together your paperwork. If your business is relatively small and its structure is simple, you can complete these steps in just a few business days. If your business is more complex, it might take longer.
1. Decide on a corporation type
There are three main types of corporate entities that you can choose from:
- C-corporation: C-corporations are the most common type of corporation. They are legal entities that are separate from their business owners.
- S-corporation: Designed for small corporations (<100 shareholders), S-corporations offer more tax benefits than C-corporations and need to be registered with the IRS. Unfortunately, S-corporations are not recognized in every state.
- B-corporation: B-corporations are for-profit corporations that also offer a public benefit. This structure is recognized in most states.
2. Find a corporation name
Your corporation needs to have an official name. Many states have databases that you can parse to make sure you're not infringing on another business' name. Some states also require that you have "Corp," "Corporation," or some other variation in your business name. Check with your state's business agency to be sure of these requirements.
You don't need to worry too much about finding the perfect name from the start. You can always file for a doing business as or DBA to use a different name down the line. This is also known as a "certificate of assumed name" in some states.
3. Get a registered agent
A registered agent serves as your point of contact with the state where your business is registered. You can act as your own registered agent if you live in your business’ registered state. If you don't want that responsibility or don't live in the state where the corporation will be registered, you'll need to find or hire someone to serve as your registered agent.
4. Write up bylaws and articles of incorporation
Articles of incorporation are the official formation documents you must file with your state to start a new business. For LLCs, these documents are known as articles of organization. You can hire a business attorney to draft your articles, write them yourself, or use a template.
Additionally, you might want to spend some time gathering your corporation’s bylaws. If your business was structured as an LLC, these bylaws will be known as your operating agreement.
Your bylaws are your company’s handbook on aspects like its management structure. They’re primarily used for internal purposes. You don't need to file these bylaws with your state business agency, but they’re important documents to have because organizations like financial institutions can request to see them.
5. File articles of incorporation
Once you’ve prepared your articles of incorporation, it’s time to file them with the state. If you're opting for an S-corporation, you'll need to file these articles with the IRS.
Double check the requirements for filing articles of incorporation in your state in case there are any procedures specific to your area. For example, the state of Nevada requires that businesses identify the names and addresses of everyone on their board of trustees when they file; this is not common practice in other states.
Ensure that you're able to meet the requirements of incorporation in your state before you submit the paperwork. That way, your filing won't be denied and you can launch immediately after your paperwork is approved.
6. Wait for approval
Without incorporating, your business is prohibited from performing key activities like applying for grants and funding.
We recommend contacting your state's business agency before you file to find out the current processing times. This can help you decide whether you'd like to pay an expedited filing fee ahead of time. The expedition may be more difficult once you've already filed.
How long does the approval process take?
Once your state business filing agency receives your articles, they’ll need to check that your paperwork has the required elements, such as a registered agent, a business name, and the number of shares you'll issue. If it's not approved, you'll need to add the missing information and resubmit your papers.
Standard processing times
The amount of time it takes for incorporation varies by state. In most states, you can expect it to take about seven business days.
Some states such as Rhode Island and Kansas can process paperwork in as little as two days. Other states can take much longer, such as Alabama (66 business days) or North Dakota (30 business days).
However, these processing times aren't guaranteed. If a filing agency is slammed with a lot of requests, for example, processing times can take even longer. This often happens during popular filing times such as the end of the fiscal year or the end of the calendar year.
You may be able to cut down on the time you spend waiting for approval by ensuring that you have all the details and papers your state requires for incorporation.
You can also call up your state filing agency to check on expected processing times before you file. That way, you can decide whether or not to pay an expedited filing fee.
Options to speed up the process of incorporation
Many states offer the option of expedited filing. If you pay the fee, you can expect to have your articles of incorporation approved in as little as two business days.
Some states offer multiple levels of expedited filing. For example, the West Virginia Secretary of State charges $25 for a 24-hour turnaround, $250 for a two-hour turnaround, or $500 for a one-hour turnaround.
How much does it cost to incorporate?
In most states, incorporation costs around $100.
In states like California, this is a flat fee. In other cases, like Nevada, the actual fee ranges from $75 to $35,000, depending on how many shares your corporation has.
These fees are for the standard process of incorporation. If you'd like to expedite filing, that price increases.
Again, the fee varies depending on where you live and how fast you want your papers processed. In Montana, you can get your articles of incorporation approved in as little as an hour if you're willing to pay a $1,000 expedited filing fee. In Michigan, a 24-hour turnaround time will cost you a mere $50.
It pays off to plan ahead for incorporation, especially if you’re counting on time-sensitive deadlines like applying to an accelerator. Give yourself the extra time to figure out the details behind incorporation. It can help ensure that your startup gets off the ground