So far we have picked a market, defined a product or service offering and selected a name. Now we need a business entity. First, a disclaimer: I used to be a lawyer.
We could spend hours discussing the benefits of the various legal entities and their infinite permutations. But honestly, this choice will have no impact on the success or failure of your startup. Your customers won’t care.
The cynic in me will tell you your accountant will likely prefer an S Corp. or an LLP and your attorney will prefer an LLC. You should consult with both, but lacking a compelling reason I would recommend that you select a standard C Corp.
Most successful companies that take outside funding will end up as a C Corp. My suggestion is to start there and spend the time and money you eventually save on the core of your business.
One reason to elect a C Corp. is the ease and low cost of creating one. I have used, and highly recommend, the services at BizFilings.com.
Once you have selected a name and secured the domain go to the BizFilings website with your credit card in hand. Answer a series of questions and within minutes your new corporation will be in process. There are five questions for which the answers are not obvious. The first question is which state. I recommend Delaware, as will nearly everyone you ask. The next question is business type, which we just discussed, so select the C Corp. choice and proceed.
BizFilings gives you a choice of packaged services. Select the Complete service which includes an EIN (Employer Identification Number). You will need this to open a bank account, file taxes and pay employees. Yes, you can apply for an EIN on your own, but it is not worth the time and trouble to do so separately.
The next question is the number of authorized shares. This number is relatively easy to increase in the future so I recommend starting at 10,000 with a par value of $0.01. The percentage math is easy and the number is large enough to avoid the need for fractions. One quarter of one percent is 25 shares. If your business is successful you will end up with shares in the millions, but there’s no need to start there.
The final question for which you may need some help is the description of the corporation’s legal purpose. This is a bit of a trick question, for the correct answer is actually “any legal purpose”.
That’s it. For less that $400 including state filing fees and a few minutes time you are incorporated. Within a week or so you should receive a nice corporation book and all the sample forms, including stock certificates, that you will need.