In my mind, one of the biggest barriers of entry into starting a business (and I’m sure I will laugh at myself in retrospect) is the logistics of the incorporation process: starting a business entity that is recognized by the government. The more I research, the more complex it becomes; there are laws, bylaws, amendments to the laws, differentiation between state and federal laws, and the list goes on and on. What type of corporation should I form? What are the differences between S corporations, C corporations, partnerships, sole proprietorships, and LLCs? And when I figure out all that mumbo jumbo, which state should I incorporate in and what are the ramifications, not only in terms of taxes but how much time it will take for bookkeeping? Not to mention the differences in start-up and annual costs (per state I might add).

They say that an accountant is your best friend. So I decided to go out and make a best friend. On a hot and muggy New York City Thursday, I made the trek out to Harlem in search of answers. Here’s what I learned from my accountant:

1. In New York, there is such a thing as the LLC Publication Requirement. All LLCs formed in New York are required to publish a “notice of formation” for six consecutive weeks in assigned newspapers. In other words, you essentially have to publish the equivalent of an advertisement in a newspaper for six weeks. Depending on which county you are incorporating in (and which newspaper is assigned to you) this could run between $600-$1200. Ouch. In California, there is an annual Franchise Tax of $800 minimum. Double-ouch. Lesson learned: be like The South, realize that not all states are equal. Here’s a good resource for state-by-state information.

2. Do you want your personal assets liable if someone sues your company? If not, then you just narrowed your business entity possibilities from 5 to 3 (Sole Proprietorships and Partnerships have unlimited liability when it comes to personal assets).

3. How hard-core is your business? Are you a Microsoft or a Smuckers already? Or are you a start-up like TripTie? If you are startup like me, then you can safely windle your options from 3 down to 2 (C Corporations are hard-core, period). And even if you think that you can be the next Pfizer, you can switch your incorporation method at a later date. So what you are left with are LLC’s and S Corporations. I’m still trying to decide (but leaning towards LLC’s based on recommendation). Here is a good resource for a comparison table of business entities.

4. Should you have an accountant file the paperwork or do it over the Internet? Cost-wise, doing it over the Internet is more effective. My accountant charges around $750 for an S Corporation and $2500-$3000 for an LLC (publication costs for New York included). On LegalZoom, an Internet company founded in part by Robert Shapiro (of the famed OJ case), an S Corporation will run about $350. An LLC will set you back $440 (publication costs excluded). The difference? An accountant will give you more advice along the way as well as prevent common pitfalls for novices (a good accountant, that is). Things to watch out for on the Internet: blank forms (not personalized), and don’t create an initial company with 20,000 shares (not only is there a penalty, but every time you wish to dole out shares, you will have to order a new certificate from the Internet company you incorporated with).

5. Estimated taxes, form 1040ES for the Federal, 2105MN if you live in New York. If you are self-employed (and starting your own business is a form of this), you must pay the government and the state estimated taxes. In other words, instead of what your employer takes out of your paycheck on a per-paycheck basis, you make coupons for yourself and pay the government an estimate of what you think you should be taxed (based on what you think your profits should be). It sounds more complicated than it really is, just look at the form. If you don’t pay estimated taxes, you will be slugged with a penalty based on percentage.

6. For start-ups, an accountant is usually a once-a-year relationship: when you close your books for the year, your accountant does your tax forms. (Not the best friend relationship I was looking for).

7. On the other hand, accounting is a 24-7 duty (again, not what I was looking for). Pay your estimated taxes, keep track of all the money in/out, and save receipts (label a new manila envelope every month where you stash your receipts). Use Quickbooks (to simplify the tracking and arithmetic) or do it the old-fashioned way (checkbook-style).

8. Do everything as if you know you are going to be audited by the IRS at the end of the year.

9. Open up a separate bank account for your business. They (people in-the-know) can’t stress this enough.

10. Oh, and hold annual meetings (and keep minutes). Even if it is just yourself, have a meeting with yourself on a designated day of the year (usually a derivative of your date of incorporation). I hear that those minutes (the record of the meeting) can really save your ass in the end.

So that’s that. Now I just have to decide between an S Corporation and an LLC. I’ll keep you informed.