You need to know the true cost of incorporation before you make mistakes that could sink your business.
Why do you need to know the true cost of incorporation? Running a small business leads to a life full of difficult decisions. As your business grows, managing taxes, costs, liability and asset protection becomes a juggling act. You may have looked into incorporating as a way to protect yourself and your partners to clear the way for future expansion. This can be an excellent method if it is employed correctly. Incorporating has many associated costs and enormous potential for losses. Here’s an idea of what to expect.
Basic Fees Are a Large Cost of Incorporation
When you file as a corporation, there are four essential fees you can expect to face. First, you’ll pay a bill to file with your secretary of state. After this, most states require a prepayment for the first year’s taxes. The third place you’ll be hit is with a myriad of smaller filing fees.
- File With Secretary of State: These fees vary by state, but on average you can expect to pay a few hundred dollars.
- Tax Prepayment for First Year: This will be determined by your business history, so check your accounting for a good estimate.
- Smaller Filing Fees: These fees are dependent on how you file as a business, but you can still expect them to be on the order of hundreds of dollars.
- Legal Fees: You’ll need a legal expert to dot your I’s and cross your T’s.
With these fees paid, you might think that you have covered the cost of incorporating. This is the fatal mistake that many small businesses make.
Liability Raises the Cost of Incorporation
The whole point of incorporating is to reduce personal liability. Most business owners believe that once the process is complete, they are safe. Unfortunately, lawyers have found a common and exploitable loophole to get around corporate protection. In general, this comes in the form of alter egos. When you set up the corporation, you have to supply names and bylaws. If these aren’t air tight, a legal team can still pin liability on you for taxes, lawsuits and just about anything else you were looking to avoid with this move. This is a good point for us to emphasize yet again how much you need an expert to review your case before you file.
Taxes Can Make Incorporation Costs Explode
We mentioned the prepaid taxes you’ll be expected to handle, but that’s only the beginning. Corporate tax law is unimaginably more complicated than small business taxes. It is downright easy to make mistakes on taxes, especially considering how the system becomes more convoluted every year. Whether you are paying more than you should or unintentionally misreporting, this is a source for huge losses that your corporation should be able to avoid.
Protect yourself from common mistakes. Incorporating is still probably the best move for your company, but make sure you do it the right way from the beginning. There’s no need to be hit with liability or excessive fees when experts are available to aid you in the transition and help you manage the true cost of incorporation.