How to Form a Corporation
These are the essential steps to form your corporation.
After you have sorted through all the different business structures and decided that you want to start a corporation, you must complete many important tasks. Here are the things you need to do:
1. Designate a registered agent
2. Select a business name that is available and compliant with the state’s corporate rules.
3. Identify the first directors for your corporation.
4. Get an EIN
5. Filing formal paperwork (often called articles of incorporation) and paying a filing fee, which varies depending on where you are incorporated, costs $100 to $800
6. You should create corporate bylaws that define the operating rules of your corporation.
7. The first meeting of the board.
8. Issue stock certificates to the first owners (shareholders).
9. Get all licenses and permits necessary for your business.
1. Designate a registered agent
In your incorporation paperwork, you will list your registered agent as well as your office. The registered agent must be available at all times to receive your corporation’s legal mail and state information. If you choose to be your registered agents, your name and address will become permanent public records of your corporation. A registered agent service is a great way to keep your personal information private.
2. Selecting a corporate name
Your state’s corporation division will require that your corporation name conforms to its rules. For specific rules, you should consult your state’s office. However, the following guidelines are generally applicable:
The name of a corporation cannot be identical to the one on file with the corporation’s offices.
Names must include a corporate designation, such as “Corporation,” “Incorporated,” or “Limited,” or an abbreviation (Corp., Inc., etc.).
Names cannot include words suggesting an association with the federal government, restricted type of business, or Bank, Cooperative Federal, National, United States, or Reserve.
The state’s corporation office can help you determine if your proposed name is available. You can often reserve your corporate name until you file your articles.
You must ensure that your name does not violate the trademarks of any other company. Find out more about trademark law and general advice for choosing the right business name.
After choosing a legal name that is available, you don’t usually need to file your business name with the state. Your business name will automatically be registered when you file your articles.
If you plan to sell your products or services under another name, you will need to file a “fictitious” or “assumed” name statement with your county or state.
3. Nomination of Directors
The corporation’s directors make critical financial and policy decisions. Directors authorize stock issuance, appoint corporate officers, set their salaries, and approve loans from and to the corporation. The initial shareholders (shareholders) usually appoint directors before the company opens. Owners often establish themselves as directors. Directors do not need to be owners.
Most states allow a corporation to have only one director regardless of how many owners. A corporation can have only one director in other states. If it has two owners, it must have at most two directors. Corporations with three or more owners will need three directors.
4. Get an EIN
For federal tax filings, your corporation will need an employer identification number (FEIN or EIN). You’ll also need an EIN to open corporate bank accounts, apply for permits and licenses in the state, and establish credibility with vendors and clients. An EIN can be used online, via fax, or mail by filing Form SS-4 to the IRS.
5. Filing Articles of Incorporation
Once you have chosen a name and appointed your directors, it is time to prepare and file the “articles of incorporation,” which must be filed with your state’s corporate office. This is typically the secretary of state or department located in your capital city. Although most states use “articles of incorporation” to refer to the basic document that creates the corporation, there are some states that use other terms such as “certificate or charter” and “charter.”
A corporation cannot have more than one owner. Single-owner corporations have one owner. The sole owner prepares, signs, and files the articles. Co-owned corporations have two options: one or all owners can sign the articles, while the other owner may appoint only one to do so. The “incorporator” and “promoter” are the two names for the person who signs the articles.
Articles of incorporation do not have to be complicated or lengthy. You can often prepare articles of incorporation within a few minutes by simply filling out the form provided by your state’s corporate filing office. The articles of incorporation should typically only include basic information about your corporation, such as its name and principal office address. Sometimes, it may also list the names of its directors.
Likely, you will also need to list the name, address, and phone number of one person (usually one of your directors) who will be acting as your corporation’s “registered agents” or “agent of service of process.” This person is needed to let the public know how to contact the corporation, for example, if they wish to sue or involve the corporation in a legal proceeding.
6. The Creation of Corporate Bylaws
Bylaws are internal rules that govern how a corporation operates. Learn how to make bylaws for your company.
Bylaws are internal rules that regulate the day-to-day operations of a corporation. They include the location and time for directors’ and shareholder meetings and the voting requirements for directors and shareholders. You can either follow the directions in a self-help guide or hire a local lawyer to create your bylaws. The directors of the corporation usually adopt the bylaws at the first meeting of their board.
A Shareholders Agreement allows you to plan for ownership changes
The shareholders’ agreement will enable owners of small corporations to plan and decide what happens if one owner dies, becomes disabled, or retires.
7. A First Meeting of Directors
The owners must appoint directors and file articles of incorporation. Bylaws are created and filed by the directors. Directors then hold an initial meeting to deal with some corporate formalities and take important decisions. Directors usually meet at this meeting:
- Set the accounting or fiscal year of the corporation
- Appoint corporate officers
- Adopt the corporate bylaws
- Authorize the issuance of stock shares
- Adopt a corporate seal and stock certificate form.
Directors should also approve the election of S corp status if the corporation is an S corporation. (For more information about whether your corporation should adopt S-corporation status, please see S Corporation Facts.
8. Issue Stock
It is illegal to do business as a corporation until shares of stock have been issued. The formal division of ownership in a company is done by issuing shares. It is a requirement to do business as a corporation. To qualify for corporate status, you must behave like one.
It can be challenging to issue stock; you must follow the securities laws. Large corporations will need to register stock offerings with the federal Securities and Exchange Commission and the state securities agency. It takes time to register and often requires additional legal and accounting fees.
Securities Registration Exemptions
Most small businesses are eligible for exemptions from securities regulation. SEC rules don’t require corporations to register a private offering. This is a sale that is not advertised to a restricted number of people (generally 35) or to persons expected to care for themselves based on their income or net worth.
Many states have their versions for this SEC exemption. Suppose your corporation issues share to a limited number of individuals (generally ten or fewer) who actively participate in the running of the business. In that case, it will be eligible for exemptions from securities registration.
Passive Shareholder Rules
Complying with federal and state securities laws can be difficult if you sell stock shares to passive investors, who will not be directly involved in the company’s running. A good lawyer for small businesses can help you.
Issue the shares
You will need to document these details when you are ready to issue actual shares.
The names of the first shareholders
The number of shares that each shareholder will purchase.
How each shareholder will pay for their shares.
Finally, you will prepare and issue stock certificates. You may need to file a “notice stock transaction” with your state corporation office in some states.
9. Get the Required Licenses and Permits Per State
You’re nearly ready to go after filing your articles, creating bylaws, holding the first directors’ meeting, and issuing stock. You still need to get the licenses and permits required to open a new business. This includes a business license, also known as a tax registration certificate. The IRS may require a seller’s permit from your state or an employer identification number.