1. Picking the right entity type.
The first thing anyone must consider before incorporating or forming an L.L.C. (Limited Liability Company) is which type of entity (which formation type) would be the best match for his or her company. For example, entrepreneurs used to go with a “corporation” due to their familiarity with this company type and due to some of its (sometimes complex) tax advantages over other business types. More and more, however, owners are choosing to go with the newer (and usually more flexible) entity type – the L.L.C. The L.L.C. (short for “Limited Liability Company”) shares a corporation’s aspect of limited liability in that the owners are not liable for the company’s debts and expenses, but also has many aspects that are not shared by a corporation. Due to the short nature of this article, it would be impossible to list all of these benefits of an L.L.C., but it should suffice to say that most businesses would benefit more from an L.L.C. formation than any other type of entity. (For more detailed information about this subject, go to http://www.incnow.com/Is-an-LLC-Right-for-You.shtml).
2. Picking the right state.
The next step in forming your business is deciding in which state to first incorporate or form an L.L.C. (“forum shopping”). Each state has its own set of laws governing how businesses can and should operate. For example, states vary on the degree of corporate taxes and on the amount of information that is required to be disclosed to the government and to the public. Though each state establishes its laws with the intention of encouraging businesses to operate in their state, some states just do not “give” enough to be considered business-friendly. No matter where the company does business its “internal affairs” are governed only by the home state. As a result, there are a few states in which it is simply better to incorporate or form an L.L.C. The two best states, in this author’s opinion, are Delaware (currently the best state to start your business in) and Florida (a lower cost alternative to many states). Here is the best part, though – you need not have an office in those states to incorporate or form an L.L.C. with their state governments. You simply need a registered agent in Delaware or Florida that will accept legal documents on your behalf. To learn more about which state is best for you, please speak with a registered agent or government official (always get a second opinion however).
3. Picking the right package.
Last, but not least, you must pick the right package for your business. This is the easiest of the three steps to perform and even easier to explain, though it is one of the most important things you will ever do for your business. The easy solution to the question of “which package should I select?” is… (almost always) pick the most complete package. Some incorporation companies will offer you a $50 incorporation package which includes only a few of the essential elements of incorporating a business. The rest of the elements, all of which are extremely important and will cost you an arm and a leg later on down the road, are up to you to purchase. Skip this annoyance and go with the right package right off the bat – the one that offers all of these elements right away. Don’t go with the cheap package, for it will cost you far more in the long run when you have a problem and you cannot prove the ownership of the company. Go with the complete package, and if you feel it is over-priced, just realize it is a small price to pay to avoid a lawsuit or judgment down the road.
Ultimately, there will be many business decisions that take considerable time. Not only is the formation process a complicated one, but the learning curve is steep and soon you will master the essentials. It is this author’s hope that you at least now know some of the important things to consider. Here is the best advice of all, though – don’t believe everything you read. This article, like almost anything else you will read, is based on opinion. No one, including this author, could ever know exactly what services you demand as much as you do. So get a second opinion, talk to a lawyer, read a website designed by lawyers, read another article, ask questions. Farewell, and good luck.
About the Author:
Chris Einkauf works for Agents and Corporations, Inc. in Wilmington, Delaware. Agents and Corporations, Inc. has been forming various business entities (LLCs, corporations, etc.) since 1974. Their website is http://www.incnow.com.
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