Costs of Incorporating

Many small-business owners incorporate their businesses to protect themselves and their shareholders from liability. That way, their personal assets are safe from business creditors or lawsuits against their firms.

Before you incorporate, however, you should consider the costs of doing so. Here's a look at the major costs and how they can vary with circumstances.

Attorney fees. It's possible to incorporate without a lawyer — but it's not necessarily advisable. Without an experienced attorney, you might botch the process — and your corporation might not hold up under legal scrutiny.

Many business law firms offer a flat rate — typically $500 to $700 — for helping you incorporate your firm. They'll help you both fill out the required documents and set up the required first shareholder meeting.

You'll pay a higher attorney fee if your firm has more than one partner or shareholder. For example, add $500 or so if two partners wish to draw up documents governing what will happen to the business if one partner dies or wants to sell his or her shares. Tack on at least another $500 to $1,000 if you plan to sell shares to more than one shareholder. In that case, your lawyer will have to draw up a shareholder's agreement.

The more shareholders you designate, the more you'll pay in legal fees. If you plan to raise money by selling shares to a large number of people, attorney fees can exceed $10,000. The reason: your attorney will have to deal with complex securities law and draw proxy statements.