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When to incorporate?

When to incorporate?

When to incorporate?

I am looking at starting my own civil design firm, but I am still about 1.5 to 2 years away (saving money and waiting for the development market to correct some).  However, in the meantime I would like to get some of the start up issues out of the way, such as talking to an accountant and lawyer about incorporating and taxes (this forum is cheaper, though).   

My question is: when should I incorporate?  I would like to have the company set up so I can hit the ground running on Day 1, but on the same token I do not want to run into any tax burdens of having the company but not actually starting work yet (idling).  I have the time now to get much of this out of the way, but is there any detriment to incorporating now or 1 year before start or 6-months before start?  

I have tried to research this question on the internet, but couldn't find the exact answer.

RE: When to incorporate?

Six of one - half a dozen of another.....

You really need to talk to a lawyer(a good one about businesses) and accountant (good one - again)

Depending on what you do, what state, etc., etc., they can guide you.  You might explore an LLC.

Since we are so tied to what we do (personally responsible)  -- some say it does not really matter whether you incorporate or just use a sole

But do get insurance!!  Good Luck!!

RE: When to incorporate?


As MiketheEngineer pointed out, it will depend mostly on what your objectives are.  Everything is a trade off including corporate structures.  You should engage an attorney or a certified CPA and di8scuss your situation in termns of tax and tort liability issues, cost of maintaining the company, protection of intellectual property, size and complexity of the company, regulatory requirements from local, state or federal government that are applicable to your particular business activity.

The basic choices you will have are:
1. C-Corp
2. Limited Partnerships and Partnerships
3. Sole Proprietorships
4. S-Corporation
5. Limited Liability Companies

Taxes, available benefits, & liability protection are the 3 biggest factors to most business owners.  There are trade-offs within each of the types of entities.

As mentioned above, LLC's are a very popluar choice.  Don't forget to catpure all of your start up costs for taxes.


Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website: www.oil-gas-consulting.com

RE: When to incorporate?

There are lots of websites that discuss the pros and cons of the many options.  Spend a few months looking through the internet to become familar and make choices.  Even you change your mind later, you can change the company structure.

A friend of mine did an LLC since he wanted simplicity. I did s-corp. to provide better liability separation and reduce the amount of social security expenses.

Don Phillips

RE: When to incorporate?

Thank you all for the replies.  I am going to check with an attorney on setting up my business structure.  
My biggest concern is setting it up too early though.  If I am still about a yar and a half away should I even be thinking about this now or should I wait until about 6 months or so before I start business?

RE: When to incorporate?

I set up mine in 2002 when I was between jobs and went full time in 2008.  Not sure why you are concerned about when to start it.  If you declare it a subchapter S corporation (maybe the accountant before the attorney), all costs flow through your 1040 and your taxable income is reduced by the loses your company would endure.  It is only a couple of hundred dollars a year in fees (in Ohio) to create and maintain a coporation.  You can then flow some of your professional expenses through the corporation and take that loss on your 1040.  I used my cell phone for my company so that expense was a loss until I went full time, and now it is just an normal expense.  Some thoughts to help you decide.

Don Phillips

RE: When to incorporate?

the cost to incorp (whichever way you do it) is pretty much fixed (and not all that significant).  you can "give" the company some money to start things with (buy shares in your company, give the company a loan).  what running costs are causing you concern ? ... there are company expenses you can right-off, you can income split with the other directors (your wife?), you can pay the kids to do company work "filing", "cleaning", ... i see no reason to delay starting a company (unless it's in competition with your daytime job, then your current employers could well get "snarky" about it) ...

good luck !

RE: When to incorporate?

DonPhillips + rb1957, thanks for the input that was the information i was looking for.  
Right now I plan on keeping my daytime job while having the corporation.  I do not plan on doing any work, but at least have it set up so when I am ready to go out on my own I can start right away.

RE: When to incorporate?

should you ever consider an 8 (a) status, you will need to justify 2 years of activity with profit before being elligible to apply.
I'd incorporate now, you will be glad to say later that you've been established since X years in your presentations.

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