IncFile.com - Business Incorporation Solutions

As more laid-off workers move into the entrepreneurial realm, business incorporation is becoming a more prevalent topic and makes identifying the right time and reasons to incorporate critical.

One key reason to incorporate is when an entrepreneur has significant personal assets to protect, such as a home, a car or substantial savings in his or her bank account. Incorporating a venture will ensure that personal assets remain untouched in case of a lawsuit.

Additionally, when a business begins to add partners or hire employees, it is prime time for incorporation. Expansion is exciting, but it should be done with risk management in mind, Nina Kaufman writes for Fox Business.

For example, Kaufman recounts how Ann Siegle of Tria Marketing and Design handled the process.

"Early in her serial entrepreneurship, when she added employees to her home-based design firm, she made the move from sole proprietorship to S Corp, which offers some tax benefits a regular corporation doesn't. Upon going into a second business with partners, Siegle sought the structure and liability protection of a limited liability company," Kaufman writes.

When a business is considering incorporating, it is a good idea to contact an attorney who has substantial experience with the process.

For companies looking to start an LLC, financing is a critical element that often requires rounds of private funding as part of the search for investors.

Recently, Lincoln Renewable Energy, a developer of U.S. solar and wind projects, closed a $14 million round of private funding, thanks to investments led by Austin Investments, private investors and LRE management and founding partners.

"We are delighted to welcome an investor with the track record and reputation of Austin Ventures and look forward to the tremendous value they can add to a high-growth company such as LRE," said Declan Flanagan, chief executive officer of Lincoln Renewable Energy. "With the current round of funding closed, we are well positioned to move our diverse and growing pipeline of solar PV projects towards construction."

LRE plans to use the capital to benefit projects currently under development in 11 states across the U.S., as well as continue to develop utility-scale solar photovoltaic projects.

The solar industry is expected to take off in 2011. According to a recent survey from the Solar Foundation, over the next 12 months, more than 50 percent of solar firms expect to add jobs.

William A. Franke, a Stanford law professor, recently gave the annual Widener University School of Law Pileggi lecture in which he advised public corporations to institute provisions that require the advanced selection of shareholder litigation forums.

Entrepreneurs who start a corporation that eventually goes public could eventually have two options at their disposal. They can either have the option to elect or be required to hold shareholder litigation in the state of incorporation if the policy suggested by Franke is adopted, Steven Davidoff writes in the New York Times. The recommended charter would apply only to state law claims involving issues such as breaches if fiduciary duty, not federal claims.

"This would have important implications since there is at least some evidence that plaintiffs have been drifting away from bringing suit in Delaware because of fears of adverse judgments," writes Davidoff. "These provisions would be a response to claims that these shareholder plaintiffs are forum-shopping, selecting the jurisdiction most favorable to their suit."

Delaware is the state with the highest number of corporations. Davidoff thinks that one way to gauge whether or not the provision is an appropriate form of corporate governance is to allow the shareholders to vote. 

Entrepreneurs who are interested in using their 401(k) to finance their startup must file a C-corporation in order to leverage their retirement funds.

Business owners must start a corporation in order to set up a retirement plan, notes Matt Quinn of Inc. magazine.

"The first action is to establish a C-corporation that has created but not issued stock. The corporation then adopts a retirement plan. Specifically, what you want is a profit-sharing plan that allows 100 percent of the plan assets attributable to rollovers to be invested in employer stock," writes Quinn.

The entrepreneur's next step will be to rollover his or her retirement funds from a former employer of IRA into the new 401(k) plan. Multiple sources and people can contribute to the fund. After making these changes, the corporation can now receive cash in the profit sharing plan in exchange for moving all of its issued stock into the new plan, Quinn writes.

When hiring a tax attorney or CPA to handle the formation of the corporation's new retirement plan, entrepreneurs should look for someone with extensive knowledge of the Employee Retirement Income Security Act. 

In order to protect their personal finances after forming a company, entrepreneurs should consider filing an LLC or an S-Corporation and keep business and personal money separate.

In an article for Entrepreneur magazine, Karin Price Mueller, a personal finance expert, offered some suggestions for small business owners. In order to protect personal finances from business creditors or other company-related litigation, Mueller recommends creating the company as a separate legal entity. This can be done by forming an LLC, which is one of the most flexible business structures, or an S-Corporation, which, like LLCs, prevents owners from being held personally responsible for debts or liabilities of the business.

Mueller spoke with Barry Jones, a tax attorney with Wise Carter Child & Caraway, who advises entrepreneurs to be vigilant if they chose an S-Corporation. Jones says that if entrepreneurs didn't carefully adhere to a myriad of technical rules the company would lose its S-Corporation status and be treated as a C-corporation.

It is important that business owners focus extra attention on avoiding situations where state law disregards corporate protections and expose personal assets. These include cases involving fraud, the mingling of company and personal assets and using corporate assets for personal use.

Entrepreneurs who have started an LLC, S-Corporation, C-Corporation or sole proprietorship can find retirement plan guidance on a website recently launched by the U.S. Department of Labor and the American Institute of Certified Public Accounts.

The website, "Choosing A Retirement Solution for Your Small Business," introduces several retirement plan options, describing their various features and advantages. The site allows business owners to list the type of corporation they own and what features they're looking for in a plan on a form that will then suggest an option for a retirement plan program.

In a small business retirement plan guide, the IRS states that having a retirement plan may help business owners attract and retain quality employees. Retirement plans also have tax advantages. The money in the program can grow tax-free, employer contributions are deductible from the employer income and employee contributions are not taxed until they are distributed.

Private-sector retirement programs tend to be either an Individual Retirement Arrangement, defined contribution plan or defined benefit plan. IRAs are established by employees and the employer can help with the setup. Defined contribution plans don't specify a specific retirement benefit and are created by the employer. Defined benefit plans do offer a specific amount to be given at retirement. 

Entrepreneurs who file an LLC have provided a substantial level of protection for their company, but they need to evaluate their other insurance needs as well.

Each small business has different needs, but there are a host of insurance options that all business owners should consider. Business News Daily recently offered a comprehensive list of some of these options.

General liability insurance protects a business from negligence lawsuits and is required for renting a business space or securing a loan. Also, property insurance is vital to securing a space, as many mortgagors and landlords won't rent to companies without it.

Companies that make, distribute or sell a product will benefit from product liability insurance. This will help protect the company from negligence, breach of warranty, faulty instructions and product defects.

Service providers can receive additional protection from professional liability insurance, which covers client or patient litigation.

Umbrella insurance offers extra insurance for claims that exceed the limits of a general policy. It is relatively cheap, but not necessary. Crime and fidelity insurance protects businesses from workplace theft. This is more applicable to select sectors, such as art storage.

Entrepreneur magazine also suggests getting business interruption insurance to ensure that the company will be able to operate in the event the business owner is injured or otherwise unable to work. 

Cyber criminals often target small businesses, so entrepreneurs looking to start a corporation should be prepared to protect their company's information.

Dennis Fisher, a security expert at Kaspersky Lab, told Business News Daily what business owners can do to protect bank account numbers and passwords from hackers. Fisher told the news source that "business owners are prime targets for attackers now, especially smaller businesses without trained security staff.”

It is important to turn on automatic updates for all operating systems, software programs and web browsers.

Limiting access to sensitive information is key. Administrator rights should only be given to a select group of employees that business owners trust. All others should be restricted to user rights only.

Designate one computer that is used for online banking and bill payment only. There should be not other web browsing or email on this system and only one or two people should be allowed to use it.

It is also important to protect archived emails. If the archived emails are stored on-site, business owners must ensure they are secure. Another option is to use a cloud-based archiving service, which can often be more affordable than maintaining the archive on-site. 

Entrepreneurs can avoid double taxation and lower their tax rates through incorporation, especially by forming an S corporation from their existing LLC or C corporation.

Many LLC members pay a self employment tax that can be reduced to a lower payroll tax by forming an S corporation and allocating a small portion of profits for personal salaries, according to Wayne Davies at RoFx.net.

Switching to payroll taxes could reduce the rate by more than 7 percent while still maintaining the same liability protection that an LLC provides.

If all shareholders in a smaller C corporation agree, they can eliminate double taxation by forming an S corporation. This avoids the obligation to pay taxes on both corporation profits and then again on personal income for individual shareholders.

Reducing taxes is always an attractive idea, but with rising healthcare costs and governments looking to raise sales and local taxes to make up for budget shortfalls, business owners are looking for ways to maintain profitability.

The city of Philadelphia is now attempting to tax bloggers who earn money from their writing to cover falling tax revenues, and the state of Texas is considering a possible rise in the gasoline tax to fund road infrastructure.

The most recent Federal Reserve quarterly survey of banking loan officers revealed that conditions for business loans have become more flexible and credit lines are no longer being reduced, boding well for entrepreneurs forming an LLC and looking for capital.

For the first time since 2006, major U.S. banks are reporting their lending standards are being loosened, opening up loans and credit for more small businesses. With many entrepreneurs looking for startup capital, the easing of loan terms could provide new sources of financing.

According to MarketWatch, banks loosen standards for commercial and industrial loans by lowering credit score requirements, increasing lines of credit, requiring smaller down payments or charging lower interest rates.

The Federal Reserve reported that as many as 20 percent of large U.S. banks have eased lending for small businesses. For the first time since January 2009, most banks have stopped reducing credit limits for existing borrowers and customers.

President Barack Obama has been touring the country and pushing for Congress to pass the Small Business Jobs Creation Act, aimed at making more capital available to small businesses. Obama also supports a proposed bill that would allow credit unions to increase their percentage of small business loans.

There are a few easy ways to maximize success and prevent fraud after forming an LLC.

Fraud and embezzlement often hit small businesses harder than the bigger companies, the Association of Certified Fraud Examiners told the Wall Street Journal. More than 30 percent of all fraud cases occur at companies with fewer than 100 employees, and average $150,000 in losses.

However, the WSJ reports that following a few easy steps can help prevent fraud and theft.

First, using two different employees – one for accounts receivable and one for accounts payable – makes it difficult for someone to hide embezzlement.

Additionally, the ACFE recommends using independent, outside accountants once a year to review the books. The association also told the WSJ that most employees who are embezzling don’t take days off because they think someone might notice the theft while they are gone.

Lastly, embezzlers usually spend the money they steal quickly, so business owners should be aware of sudden changes in lifestyle.

Last week a Massachusetts drywall company received back a portion of the more than $1 million that a former employee embezzled after the government confiscated her three homes, six cars and $100,000 in cash, reported Boston’s FOX Channel 25.

Forming an S corporation offers a number of advantages for independent salespeople, real estate agents and others, according to certified public accountant and Christian Post blogger John Dillard.

The first advantage to S corporations, according to Dillard, is that business incorporation gives the company instant legitimacy. He says if a business is not incorporated, many state or local governments will not buy from or lend to them.

Dillard also says that S corporations give entrepreneurs personal liability protection in the event that someone tries to sue them. He says that the world is "full of people who are looking to make a fast dollar" and that "courts are full of frivolous cases where greed rather than fairness are the watchword."

S corporations also offer significant tax benefits to some types of entrepreneurs. Dillard says that currently in an S corporation, after owners salaries are deducted, all shareholder distributions are exempt of employment taxes.

To be an S corporation, the Internal Revenue Service says domestic companies must have fewer than 100 shareholders – all of which must be legal U.S. citizens or residents – and have given out just one type of stock.

Deciding when to undergo business incorporation and which type of entity to form is an important step for business owners looking to grow a company. Corporations and limited liability companies are two well-known forms of business. The eCommerce Times offers some insight into the origins of these business structures as well as information about why they remain solid entities.

The source quotes the late Chief Justice Marshall as defining a corporation as "an artificial being, invisible, intangible, and existing only in contemplation of the law." Corporations were originally intended to separate a business owner from the debts of a company – a purpose they still serve. Corporations have been popular since their inception.

LLCs, on the other hand, have become popular just in the past 15 years. The eCommerce Times says limited liability firms are something between sole proprietorships and corporations. The source calls LLCs "flexible" business entities. As its name suggests, an LLC limits the personal liability of founders and shareholders.

The source advises small business owners to do their homework on how these entities have developed, and the advantages they offer in the current economic climate before incorporating, but both offer a number of benefits to entrepreneurs.

Business owners can consult online incorporation service websites to learn more about the protection offered to business owners through these different business types. Whether filing an LLC or forming an S corporation, online incorporation services can lower the expense of these procedures so more money can be invested in developing a company.