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Edited by: Kimberlee Leonard
 and Reviewed: Kimberlee Leonard

Incorporation Costs For A Small Business

Author: | Aug 17, 2023

Editorial Note: We earn a commission from partner links on Go Sifter Advisor. Commissions do not affect our editors’ opinions or evaluations.

The cost of incorporating your small business is an investment. Because not paying incorporating costs could mean that you might have trouble down the road. A corporation is an entity outside of its owners and shareholders. It has its own debts, taxes, and liability which need protecting. Incorporation costs make it so the company is ultimately responsible for itself.

Owners are on the hook for paying taxes based on the company’s profits that go in their pocket. This could come in the form of salaries, bonuses, and dividends. However the corporation pays a separate set of taxes on profits earned by the company at a different rate. Paying incorporation costs is the first step to separating you and your company’s liability.

How much does it cost to incorporate depends on the size and structure of your company. The cost of incorporating can be tricky and sometimes pricey. Learning how to plan for incorporation costs will put you and your business ahead of the game.

When Should You Incorporate A Startup? 

Deciding when to incorporate a startup depends on various factors, including the nature of your business, your growth plans, legal considerations, and financial considerations. The timing of incorporation can significantly impact your startup’s success and future prospects. Here are some key reasons highlighting the importance of timing when it comes to incorporating your business:

  • When you need protection against liability

Founders should prioritize early incorporation to safeguard against personal liability. By establishing your business as a corporation, the company assumes liability risks, protecting your personal finances from potential third-party claims.

  • When you require flexibility 

Incorporating provides the advantage of flexible share transfers without requiring approval from other shareholders. Although startups often impose restrictions on share transfers to safeguard the corporation and shareholders, certain provisions like the right of first refusal allow the company to repurchase the departing founder’s shares.

  • When you are looking for investors

Investors at all stages of your startup, including angels and venture capitalists, typically demand incorporation before investing. Co-mingling investor funds with personal funds is not allowed, necessitating incorporation to create a company bank account, segregate company funds, and maintain transparent financial statements.

  • When you possess intellectual property (IP) assets

As your startup grows, accumulating intellectual property (IP) such as patents, copyrights, trademarks, and trade secrets becomes crucial. Establishing early corporate ownership of IP ensures a clear chain of rights and titles, avoiding uncertainties that can impact investment opportunities, partnerships, and potential acquisitions.

  • When you want to enhance credibility

Incorporating as a corporation enhances prestige, particularly for startups, when dealing with investors, partners, and customers. The corporate structure lends greater professionalism, instilling confidence and trust in stakeholders.

If you are the founder of a startup you should plan to pay incorporation costs as one of your first tasks. When to incorporate links directly to why your startup should incorporate. Are you building a staff? Developing a product or service? Starting to advertise? Then it might be time to figure out how and how much does it cost to incorporate a business.

Paying your incorporation costs earlier tends to be better. You and your startup become protected from personal liability along with your minority shareholders and founders. Funders will need you to incorporate before investing in your business. The cost of incorporation signifies credibility in your business and solidifies the startup’s intellectual property.

Costs of Incorporating a Startup Business Involves

The cost of incorporating will vary on what state you file your company’s incorporation paperwork. Incorporation costs might look different from state to state where taxes and fees might change on licenses, permits, annual renewals, and name reservations. 

Across the United States there are incorporation costs that every business needs to prepare to pay. Plan accordingly when determining how much does it cost to incorporate your startup. Make sure to plan for the following incorporation costs:

Incorporation Filing Fee With Secretary Of State

Using state law, as well as the “Articles of Incorporation” or “Certificate of Incorporation,” your startup must officially file a state set fee with the Secretary of State. This incorporation cost varies from state to state. It can include higher additional cost of incorporation if you want the process sped up. The average cost is $141, but can range as low as $40 and as high as $725 depending on the state.

Incorporation Service Fees

Paperwork and filing are all necessary incorporation costs. Luckily there are services out there that will take care of it all. This includes the preparation of resolutions of the board of directors, character documents, and bylaws for your startup. Different companies offer competitive packages that can start at $200 and be as expensive as $1000. That doesn’t include the filing fees from the state.

Attorney’s Fees

If your company has several investors, founders, or specific intellectual property you might have higher incorporation costs. It is tricky to figure out all the contracts without an experienced attorney. Incorporation costs involve attorney fees that are usually billed hourly in the range of $250 to $600 an hour.

Several law firms adversity a packaged “fixed fee” for general services. This incorporation cost will usually cover charter preparation and other documents related to your startup’s creation. Whatever you decide, make sure to budget for the cost of incorporation when it comes to this expense. Skipping it could lead to bigger problems for you and your company down the road.

Registered Agent Fees

Otherwise referred to as an “agent for service of process” who comes with their own incorporation cost. The registered agent gets authorization in the state of your incorporation. They are an individual or business that receives official tax and legal correspondence for your corporation.

An officer of the company, shareholder, director, local state resident, or dedicated registered agent service company can hold the title of registered agent. Some companies will charge an additional incorporation cost of $100 to $300. This fee makes them your startup’s registered agent.

An outside registered agent lists their address as a public record instead of your personal one. It is well worth the cost of incorporation to protect your privacy.

Tax ID Fee

One cost of incorporation comes to $0. That’s getting your company’s tax ID from the IRS, which is free. Commonly referred to as an “Employer Identification Number” (EIN), you can think of it like a Social Security Number for your startup. It allows your business to file taxes and open bank accounts. This free incorporation cost is available online at the IRS website.

Minimum Franchise Tax

A minimum annual franchise tax differs from state to state. In fact, some states do not have this cost of incorporation at all and some will waive it for the first year. The lowest a franchise tax will be for any business is $175. However, it is much higher in some states. For example, the incorporation cost is $800 in California for the state’s minimum annual franchise tax.

DBA Filing Fee

“DBA” stands for “doing business as” and relates to this certificate that informs the Secretary of State that your small business will be operating under a name other than the official one filed. This one time incorporation cost is typically between $25 and $50.

Permit, License Or Registration Fees

As your start-up figures out how much it costs to incorporate, be ready to pay some fees to the state that are all relative to your company. This includes regulated business permits, sales tax licenses, zoning permits, seller’s permits, and health department permits. Your startup might also have incorporation costs on the federal level, including tax and employer identifications. Costs vary from state to state, ranging anywhere between $35 and $500.

Annual Filing With The Secretary Of State

A few states ask for basic company information to have an initial and filing every year. In California this $25 incorporation cost’s name is “Statement of Information” while in Georgia this fee is $50. Information to include in all states would be business address, name of officers, and registered agent.

Stock Sales Exemption Filing

Your startup might need to register in accordance with federal and state securities laws if stocks are part of the equation. Lots of startups do not pay this incorporation cost just by filing a request and paying an exemption fee between $25 and $50.

Other Costs Of Incorporating A Startup:

Once you decide how much does it cost to incorporate your business get ready for more. Other costs of incorporation go beyond just the incorporating itself. Taxes and insurance live on forever. 

As your startup expands, accounting, bookkeeping, and other service providers might add on to your expenses. Grow even more and you might be looking at payroll, contractor, and software fees. The cost of incorporation ripples throughout the lifespan of your startup as it develops.

Do You Save Money By Incorporating?

The answer is yes. You will be glad you did. Spending money upfront on incorporation costs spares you when tax season arrives. That’s because incorporating your company means you will not be responsible for self-employment tax as you are now collecting dividends that are nontaxable.

The majority of startups and other companies start from an unincorporated position of sole proprietor or partnership. That is self-employment! It’s not necessary to incorporate at that point because the workload does not require it, nor do the expenses.

Over time you and your startup will want to incorporate for many reasons. It’s a sign of growth within your company and leadership. Paying the incorporation costs upfront gives your business the runway it needs to get off the ground.

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