Once you have decided to incorporate your business, you have more decisions to make. You have to decide which type of corporation to form and where to incorporate.

If you are planning a for-profit venture, the choices are C or S Corporation or Limited Liability Company LLC. The main difference between a C and S corporation is the way profits are taxed. The basic set-up procedures are the same, except that an S corporation requires the further step of an additional IRS filing. Your state may impose additional filing requirements as well.

S corporations are often recommended for start-ups and small businesses because profits (and losses) "pass through" to the shareholders to be claimed on individual tax returns. C corporations pay corporate income taxes directly to the government. There are a few other differences, mainly regarding corporate stock allocation and the potential number of shareholders.

LLC laws vary by state. You are required to file corporate articles and pay filing fees as with conventional incorporation. You also have to file an "operating agreement," which is like a partnership agreement and takes the place of corporate bylaws. "LLC" (Limited Liability Company) must also appear as part of the company name. And you will need to decide whether to have "pass-through" taxation (like an S corporation) or be taxed at the corporate level.

Regardless of what type of corporation you decide on, you have to file either articles or a certificate of incorporation (with the commissioner of corporations or Secretary of State) and then pay a fee. It is a good idea to consult an experienced attorney during this process to ensure that you are aware of your options and the legal and tax consequences of any decisions you make.

The processing time of incorporation varies from state to state. The filing time is completely dependant on the state's workload of unprocessed filings. Among the early decisions a business must make after deciding to incorporate is selecting the proper state of incorporation. You are entitled to incorporate in any state in the U.S., rather than just the state in which you live and work. There might be good reason for this; another state might offer better tax treatment or more flexible incorporation laws.

Two issues must be weighed to determine the proper state: (1) a dollars and cents analysis comparing the costs of incorporating in the state of operation versus qualifying to do business as a foreign corporation in the state under consideration and (2) determining the advantages and disadvantages of each state's corporate laws and tax structure. The decision usually falls between the state in which the business is located, Delaware or Nevada.

If the corporation is a closely held corporation and does business primarily within a single state, local incorporation is often preferable. The cost of local incorporation will usually be less than incorporating in another state and qualifying to do business as a foreign corporation in the state. A foreign corporation that qualifies to do business in another state is subject to taxes and annual report fees from both the state of incorporation and the qualifying state. Another disadvantage of incorporating outside of your home state is the possibility of having to defend a lawsuit in another state.

A corporation is not required to incorporate in the state of its operations; however, often the best decision may be to incorporate in your home state. For advice regarding which state is optimal for your particular business situation, consult an attorney or an accountant.