Disclaimer: I am not a lawyer. Do your homework and check your local city/county/state laws as they may have different regulations. Follow this guide at your own risk.

Intro

Whether you’re starting a side-gig, investing in real estate, or quitting your full-time job to follow your passion, you’ll realize that at some point you should probably incorporate. Incorporation provides many benefits, such as but not limited to:

• Protecting yourself and your personal assets. A company is a separate legal entity that is responsible for its own debts, meaning if you get sued or incur liabilities, you won’t lose your house over it.
• Ability to partner with others or transfer the business. You can divide up the ownership fairly, add provisions for vesting, or sell the business when if it’s time to move on.
• You may simply be required to. If you have suppliers, they’ll typically want a sales license, and you’ll need a company first. If you accept credit card payments, your payment processor will require you to have a business bank account once you reach a certain payment volume. As you decide to incorporate, you’ll face the decision of what type of corporate structure to use. Typically I’d recommend an S-Corp or LLC to minimize taxes, but in certain circumstances you’ll be forced to go with certain structures. For example,
• If you have foreign owners, you’ll need to have a C-Corp. Some investors also prefer this structure, so keep that in mind if you know you want to seek funding later.
• If you have more than 25% passive income, an S-Corp is not for you. So if you’re buying and holding rentals, you may want to consider an LLC instead. S-Corp owners may also have to pay a tax if you’re transferring property from the business to yourself, since this counts as a sale (e.g. if you want to convert an investment property into your primary residence). You can avoid this with an LLC.

Let’s get down to it

I ultimately went with a California S-Corp for my side projects. No matter what type of structure you decide to go with, the process is pretty similar. Here are the steps I followed.

Step 1

Rent a private or virtual mailbox if you don’t have a business office. I don’t recommend using your home address as it will become public record. Plus, your local zoning laws and/or HOA may prevent you from using your home address in the first place. I went with Virtual Post Mail. You’ll need a notarized USPS Form 1583 to get one of these mailboxes. Typical costs: $15-50 per month.

Step 2 (Optional)

Get a registered agent, especially if you want to stay anonymous or live in a different state than your business. Some incorporators or virtual mailboxes may provide this for free as part of their service. Typical costs: $75-175 per year.

Step 3

Generate and/or file the initial incorporation documents (articles of incorporation, initial minutes, stock certificates, bylaws). My needs were pretty straightforward, so I just went with IncFile.com. If you need a more complex structure (i.e. dealing with co-founders and/or aiming to be the next hot Silicon Valley startup), go with an actual law firm. Typical costs: $150-5000.

Step 4

Get an EIN. Don’t pay extra for this “service” unless if you’re lazy as it’s super easy to do it yourself online. Typical costs: $0.

Step 5

Sign up for a business bank account and maybe also a business credit card. I’ve not found a bank that lets you use a virtual/private mailbox as your address yet, but you can just use your home address here with minimal issues. I recommend something like CapitalOne Spark if you don’t deal with cash a lot. I also hear good things about Silicon Valley Bank if you’re aiming to be a startup and not stay a small business. Typical costs: $0.

Step 6

File your initial report. In California, this is the Statement of Information and is due within 90 days. This needs to be filed every year. Typical costs: $25.

Step 7 (Optional)

If you pay yourself as an employee or have employees, you probably need to register with your state’s employment department. In California, this is the CA EDD. Typical costs: $0.

Step 8 (Optional)

If you want to be taxed as an S-Corp, file your Form 2553 with the IRS. You have 75 days to do this. This needs to be done every year. Typical costs: $0.

Step 9

File a notice of exemption for your initial shares. This is form 25105(f) in California and can be filed online. Typical costs: $25.

Step 10 (Optional)

Get your sales tax account and seller’s permit if applicable. You may also need a local business license from the city. Typical costs: $0.

And don’t forget to file taxes every year! Other things you may want to consider depending on your situation:

• File a DBA.
• Get business insurance. Typical ones to look into include: general liability insurance, worker’s comp, E&O insurance, business owner’s policy, directors & officers insurance, data breach insurance.

That should do it! It’s a decent bit of paperwork, but it really shouldn’t take you more than a few hours of work; in the long run it’s worth it. Since you do need to spend a decent chunk of money, if you’re in the idea stage I suggest making a few sales and proving your product or service before jumping through the incorporation process. Typically the entire process takes about a month or two, but you can always pay a little more for expedited processing which can get you set up in as little as a few days.

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