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Founder Toolkit
As a startup founder, one of the most important decisions you have to make is about the legal structure of your business. It affects everything from how you file taxes to the number of shareholders your business can have to the type of assets your business can or cannot own. While you can consider several legal structures, this guide focuses on startup incorporation.
If you’re reading this, you’re probably thinking of forming a corporation. While the process of incorporating might seem daunting, it need not be. In this guide, we’ll cover the most important details you need to know about how to incorporate a startup.
Incorporating your startup means establishing your business as a formal legal entity that is separate from its founders or owners. When you incorporate your startup, the state under which you incorporated recognizes your business as a separate legal entity or “person.”
The default business entity is a sole proprietorship. If you start a business today without any formal registration, you are automatically a sole proprietor. Operating as a sole proprietorship may be right for a small business owner with no plans for expansion, but most businesses want to grow, acquire assets, or seek funding.
If you plan to raise investors' funds or grow your startup into a public company, you’ll need to incorporate your business.
Some of the benefits of incorporating your business include:
In a strict sense, a corporation refers to a separate legal entity created with the purpose of operating for profit. A corporation can own assets, enter into a contract, sue and be sued, pay taxes, and borrow money from financial institutions. Below are the main types of corporate entities to consider when incorporating your startup.
The C-corporation is the preferred type of corporation for most investors. Here’s why:
While the corporation startup process is extensive, and we recommend working with a law firm or legal advisor (more on this below!), founders can get started with these three steps.
This is usually the first and most important step for new businesses, not only because you want something unique and memorable but also because you can’t use a name already taken. You’ll need to perform a thorough search for registered corporations in your state to be sure there are no conflicts.
Consider these important questions:
The goal is to choose a memorable name that will stick with your business for a long time. Keep in mind that when you name a company, you are filing a legal document, and it might be challenging to change the name in the future.
Where should you incorporate your startup?
It's common to incorporate under the state's laws where you'll primarily do business, but you could also incorporate in a different state. For example, incorporating in Delaware is a popular choice for many venture-backed tech startups because of its well-developed corporate laws. However, doing business in one state and incorporating in another could mean additional filings and taxes, so be sure to weigh your options carefully.
Once you've selected a location, you'll need to get a business address, which is required for incorporation. You may consider a virtual or shared workspace address if you are not ready to rent an office space.
The process varies by state, but you'll generally need to do the following:
Each state has a different set of rules and guidelines, so you must look up the state guidelines and follow through with all the requirements, regulations, and processes.
Once you've filed for incorporation, it can take anywhere from two to five weeks to receive your certificate of incorporation. One way to ensure speedy processing is to provide all relevant information at the time of filing and ensure the information you provide is accurate — be sure to have handy social security numbers or all owners and bank account information.
Tip: Consider working with an attorney or an online legal services provider like LegalZoom to ensure you file articles of incorporation correctly. Getting expert advice upfront can help you avoid costly mistakes.
Getting incorporated is just the first step. You'll need to comply with applicable federal and state laws to ensure your business remains in good standing with the state, so proper financial reporting is crucial.
As an incorporated business, you must legally have accurate financial records, up-to-date tax filings, annual reports, and more. Staying on top of all these requirements can be overwhelming for many startups.
This is where financial service solutions like Zeni come in.
Zeni is a full-service AI-powered finance platform that provides intelligent bookkeeping, accounting, and CFO services for startups and small businesses. Zeni is like having a financial team that can help you dive deeper into your numbers and advise on issues like handling and paying your incorporated business taxes and how your business taxes affect your shareholders and income taxes. With Zeni, you get the technology and human expertise you need to maintain stellar financial records and make informed decisions.
Zeni Inc.
420 Florence St, Suite 300
Palo Alto, CA 94301
Office: +1 (510) 858-6558
Write UsEmail: hello@zeni.ai