Incorporation costs are top of mind when you’re thinking of starting a corporation. Learn more about how much it costs to create a corporation.
When you’re starting a corporation, incorporation costs will have a big impact on your business accounting. Knowing what costs to expect can help you budget successfully and start out on the right foot.
In this guide, we’ll walk you through the primary administrative costs of forming a corporation so you can plan ahead.
Before we dive in, we should note that this is just a list of potential administrative costs for forming a corporation. It’s possible that not all of these costs will apply to your unique corporation. And we’re also not going to cover more subjective expenses like capital improvements, rental costs for company office space, purchasing inventory or supplies, or marketing materials.
With that in mind, let’s discuss the startup costs of incorporating you should be prepared for.
The most important — and unavoidable cost — of the incorporation process is filing your Articles of Incorporation. This formation document is what officially creates your corporation in the state.
The incorporation fee that accompanies your Articles varies depending on your state. Some states charge a flat fee, and others charge a fee that rises based on the value of stock you issue.
If you want to expand your corporation into additional states, you’ll be considered a “foreign corporation” in each new state. (Note: You’re considered “domestic” to the state where you originally formed). To qualify as a foreign entity, you’ll need to submit an application for a Certificate of Authority in every state where you conduct business.
Not every corporation needs to obtain a foreign qualification. Keep in mind that the filing fee varies from one state to another. Plus, you might need to pay a few dollars to get a Certificate of Good Standing from your home state so you can make the application.
There’s no cost to create a business name for your corporation and simply file it in your Articles of Incorporation. But if you think of a name in advance and want to reserve it, or you need a trademark or DBA name, you’ll have some extra costs to account for.
Most states allow you to reserve a business name before actually registering your business (Alabama requires it). Making a reservation protects your name for your exclusive use for a set period — 120 days is the most common.
Every state has a slightly different filing fee for business name reservations.
If you ever want to operate under a name that’s different from your legal name, you’ll need a DBA, or “doing business as” name. DBAs (sometimes called trade names, assumed names, or fictitious names) are a bit like “business licenses” to use a different name. Not all states require you to register one, but the states that do require registration charge a filing fee.
You aren’t required to use a DBA if you don’t want to.
When you think of a big corporation, you probably think of its logo or trademark. Trademarks are part of intellectual property, usually governed by the United States Patent and Trademark Office. If you want to protect a trademark at the federal or state levels, you can expect to complete a lengthy application process and pay an application fee.
For smaller businesses, a federal trademark registration might not be necessary. But if you want the ultimate protection for your name and business logo, it can be a helpful tool. A state trademark is an easier, quicker, and less-expensive option, though they only apply within the borders of your state.
Every state in the country (and Washington, D.C.) requires corporations to appoint a registered agent. The registered agent accepts service of process and other official communications on the corporation’s behalf.
In some states, an employee or shareholder of the corporation can serve as the registered agent. But it’s generally recommended to appoint a third-party individual or company to serve as the registered agent instead. This often incurs an extra annual cost, but these services can save you a lot of time, headache, and hassle down the road. Our registered agent service can fill this role for you easily.
Every corporation must draft corporate bylaws and abide by them; it’s a corporate formality you have to uphold. Technically, you can draft bylaws on your own. But since the bylaws are such an important legal document, it’s wise to hire an attorney to help you draft them. At the very least, you should have a business lawyer review the bylaws you’ve created. That way, you can avoid or reduce future disputes in your business.
Of course, hiring an attorney comes at an additional cost, and many attorneys charge over $100 per hour of service.
It’s not uncommon for a corporation to need at least one business license; many will need more than that. Some states require every business to get a general business license, and other states let their cities and counties administer these licenses. There are also industry-specific permits and professional licenses to consider.
Not sure where to start? Our business license report makes it simple to discover what licenses your business needs.
Many corporations need to obtain several different insurance policies to protect themselves, their customers, and their employees. At a minimum, it’s recommended for a business to have at least one general liability insurance policy. Company cars should be insured, too. Certain professionals will want to maintain malpractice insurance.
Corporations with employees will need to maintain a workers’ compensation insurance policy, too.
If your corporation will be making public offerings of stock, you’ll have to register with the Securities and Exchange Commission. The fee to register is $110.20 for every $1,000,000 in stock offered.
Every year, a corporation is likely to be required to create annual reports. One of those reports is actually quite simple: the state’s annual report. This simple filing keeps the state up to date on basic information about your business.
Filing fees for a corporation’s annual report vary from one state to another, ranging between just a few dollars to $50 or even several hundred. Our annual report filing service can make this process simple.
Taxes are an unavoidable part of running a business. You can expect to pay small business taxes on the federal, state, and local levels.
One downside to corporate taxes is that corporations are generally subject to double taxation. That means the corporation pays corporate income taxes at the business level. Then, the shareholders pay personal income taxes on any distributions they receive. In that sense, the same income is taxed twice.
Currently, corporations pay a flat income tax rate of 21% for federal income taxes. Corporations can also take advantage of certain tax benefits like deductions to reduce their taxable income.
A few qualifying corporations can elect S corporation status, which allows the business to be subject to pass-through taxation instead (plus a few other perks). But to do this, you have to meet the IRS criteria: be a domestic corporation, have fewer than 100 shareholders, and offer only one class of stock. All of your shareholders have to be individuals or qualifying trusts, too. You can elect this status with Form 2553.
Knowing if S corporation status can benefit your overall finances is tough. We recommend consulting with a licensed tax professional to learn if it can benefit you.
At the state level, you’ll usually pay income taxes based on how you’re taxed for federal income tax purposes. The majority of states have a corporate income tax, but you should also be on the lookout for other business taxes. Many states charge the corporate income tax and another tax type.
Your city or county might make local surcharges to certain taxes, such as income taxes, sales taxes, and more. Be sure to consult with your local tax authority to learn what requirements are in your area.
There’s a wide variety of other tax types that might apply to your business. Not all of these will apply to your unique business, we’ll still mention them here.
In some states, corporations (and other registered businesses) are subject to an annual franchise tax. States levy these for the privilege of doing business. Often, these taxes are charged on top of a corporate income tax. You should check with your state’s Department of Revenue to learn if you’ll owe franchise tax.
Some states charge a gross receipts tax. These taxes are levied on the revenue you receive from all sources without any deductions.
A large number of states impose a sales tax. If your corporation sells qualifying goods or services, you’ll need to collect sales taxes and pay them to the state. Generally, businesses charge these taxes to their customers, but you can pay the tax out of pocket yourself, as well.
To compliantly collect and pay the tax, you’ll probably need to apply for a sales tax permit.
As an employer, you’ll be expected to handle income tax withholding from your employee’s wages. You’ll also need to handle other payroll taxes, including paying half of Social Security and Medicare taxes for each employee (you’ll withhold their half of the tax from their wages). The tax total is 15.3%, so you’ll pay half of that tax for each employee.
Depending on how many individual employees you have, these taxes can really add up.
Cities and counties frequently charge property taxes for land, buildings, vehicles, and other assets. Odds are, your corporation holds one or more assets that are subject to property taxes. Property taxes vary from one location to another, so you’ll want to contact your county government to learn what impact these taxes will have.
Incorporating isn’t easy, but you don’t have to do it alone. Here at ZenBusiness, we love to empower business owners to be successful by handling the tedious “red tape” of business for them. Whether you need help starting your first corporation, ongoing compliance assistance, or anything in between, ZenBusiness has your back.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
The cost to incorporate varies depending on what state you’re forming your business in; every state charges a different fee for the Articles of Incorporation.
Beyond that, every corporation has different start-up needs, such as trademark reservations, legal fees, and more. No two businesses are exactly alike.
“LLC” stands for “limited liability company,” and “incorporated” refers to a corporation. They’re two different entity types. LLCs are owned by members, who may or may not manage the business themselves. In contrast, an incorporated corporation is owned by shareholders, who appoint a board of directors to lead the business. The directors appoint people to oversee the daily affairs of the corporation.
One important thing LLCs and corporations have in common is the corporate veil, which gives personal asset protection to the business owners.
An S corporation is a tax status that an LLC or a C corporation (the default form of corporation) can apply for. Businesses taxed as an S corp have “pass-through taxation,” meaning that, unlike a typical corporation, profits aren’t taxed at the business level, only the individual owner level. Because LLCs also have pass-through taxation by default, LLCs and S corps usually pay less in taxes than a C corporation.
To talk more about the financial impact your business entity choice will have, we highly recommend consulting with a business attorney or licensed accountant in your state.
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