One of the first major decisions you'll face as an entrepreneur is whether you should incorporate your business. While incorporation has several advantages – for example, personal liability protection and potential tax benefits – it isn't free. In fact, small businesses in the US spend an average of 11% of their budget on operating costs, with incorporation being one of them. Every expense matters in the early days of a business, so it's important to consider the costs of incorporation before determining what's best for your business.

This guide will cover the expenses associated with incorporating a business and the best ways to save on costs when incorporating. Here's what you need to know.

What's in this article?

• How to incorporate a business
  
• How much does it cost to incorporate?
  
• How to save money when incorporating a business
  

How to incorporate a business

Incorporating a business is the process of forming a legal entity that is separate from the business owners. Here are the steps you need to take to incorporate your business in the US:

• Create a business name: Ensure that the name is available and complies with local regulations.

• Choose where to incorporate: Determine where you want to incorporate. For US companies, this could be their home state or another state with favourable business laws.

• Select a corporate structure: The most common business types are C corporations, S corporations, B corporations and limited liability companies (LLCs). Each type has different legal and tax implications.

• File the necessary paperwork: This typically involves filing articles of incorporation or organisation with the appropriate government agency.

• Establish corporate bylaws: Corporate bylaws are internal rules and procedures for governing your corporation, but they are not required for LLCs.

• Appoint directors (for corporations) or managers (for LLCs): These individuals will be responsible for overseeing your business.

• Obtain the necessary licences and permits: Depending on your industry and location, you may need specific licences and permits to operate legally.

• Open a business bank account: Keep your business finances separate from your personal finances with a business bank account.

How much does it cost to incorporate?

The cost of incorporating a business varies depending on a number of factors, including where you incorporate, the complexity of your business structure and which services you use during the process. Here are the typical costs associated with the incorporation process in the US:

• Filing fees: Most places have a basic filing fee for the articles of incorporation, which can range from US$50 to US$300.

• Corporation name reservation fee: If you wish to reserve your corporation name prior to filing, it is likely that you'll have to pay an additional fee.

• Annual filing fee: Incorporated businesses typically have annual filing requirements with associated costs set by the local government.

• Franchise taxes: Some places require the pre-payment of franchise taxes upon incorporation.

• Legal costs: Hiring a lawyer to assist with the incorporation process can provide valuable legal guidance, but it will increase the overall cost substantially. Fees are determined by individual law firms.

• Registered agent fees: Some incorporated businesses require a registered agent, which is an individual or a service with a physical address that is able to receive business documents during working hours. Different agents and agent services charge different fees.

How to save money when incorporating a business

While some incorporation fees are unavoidable, it's possible to lower your business's costs by handling as much as possible in-house and seeking professional help when necessary. Here are a few key strategies for saving money:

• DIY incorporation: If your business structure is straightforward and you're comfortable with paperwork, filing the incorporation documents yourself can save you hundreds or even thousands of dollars in legal fees. Online resources and guides are available to help you through the process.

• Compare registered agent services: Registered agent fees vary between providers. Compare prices and services from different companies to find the best deal for your needs.

• Consider forming an LLC: Limited liability companies (LLCs) are often simpler and less expensive to form than corporations, making them a cost-effective option for small businesses.

• Choose the right location: Some locations have lower filing fees and franchise taxes than others. Research different places to see which ones have the most favourable business environment for your industry and budget. Delaware is a popular choice in the US for its business-friendly laws and low fees, for example.

• Take advantage of online legal services: Online legal services offer affordable packages which can guide you through the incorporation process and provide templates for the documents required. Some may even have discounts and promotions for new customers. This can be less expensive than hiring a lawyer.

• Negotiate professional fees: If you need to hire a lawyer or accountant, don't be afraid to negotiate their fees. Some professionals might offer discounts for startups or small businesses.

• Plan for ongoing costs: While saving on initial incorporation costs is important, make sure that you factor in ongoing expenses, such as annual report fees, franchise taxes and registered agent fees.

How Stripe Atlas can help

Stripe Atlas sets up your company's legal foundations so you can fundraise, open a bank account and accept payments within two business days from anywhere in the world.

Join 75K+ companies incorporated using Atlas, including startups backed by top investors such as Y Combinator, a16z and General Catalyst.

Applying to Atlas

Applying to form a company with Atlas takes less than 10 minutes. You'll choose your company structure, instantly confirm whether your company name is available and add up to four co-founders. You'll also decide how to split equity, reserve a pool of equity for future investors and employees, appoint officers and then e-sign all your documents. Any co-founders will receive emails inviting them to e-sign their documents, too.

Accepting payments and banking before your EIN arrives

After forming your company, Atlas files for your EIN. Founders with a US Social Security number, address and mobile phone number are eligible for IRS expedited processing, while others will receive standard processing, which can take a little longer. Additionally, Atlas enables pre-EIN payments and banking, so you can start accepting payments and making transactions before your EIN arrives.

Cashless founder stock purchase

Founders can purchase initial shares using their intellectual property (e.g. copyrights or patents) instead of cash, with proof of purchase stored in your Atlas Dashboard. Your IP must be valued at $100 or less to use this feature; if you own IP above that value, consult a lawyer before proceeding.

Automatic 83(b) tax election filing

Founders can file an 83(b) tax election to reduce personal Income taxes. Atlas will file it for you – whether you are a US or non-US founder – with USPS Certified Mail and tracking. You'll receive a signed 83(b) election and proof of filing directly in your Stripe Dashboard.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company. Atlas C corp documents are built in collaboration with Cooley, one of the world's leading venture capital law firms. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects such as ownership structure, equity distribution and tax compliance.

A free year of Stripe Payments, plus $50K in partner credits and discounts

Atlas collaborates with top-tier partners to give founders exclusive discounts and credits. These include discounts on essential tools for engineering, tax, finance, compliance and operations from industry leaders like AWS, Carta and Perplexity. We also provide you with your required Delaware registered agent for free in your first year. Plus, as an Atlas user, you'll access additional Stripe benefits, including up to a year of free payment processing for up to $100K in payments volume.

Learn more about how Atlas can help you set up your new business quickly and easily and get started today.