How to Form a Corporation
How to Form a Corporation
You're starting a business, you've researched all the different business structures and a corporation appears to be the right structure for your new business. Your next step? Forming a corporation.
You may have been wondering how to start a corporation. When you form a corporation (also known as incorporate) there are a number of important steps you must take in order to form a corporation properly.
How To Form A Corporation
The following steps provide a guideline to help you form a corporation properly. Note that, depending on the state in which you live, you may or may not have to take all the steps outlined below to start a corporation. To obtain state-specific information on how to start a business or form a corporation, check out the list of links to state business offices maintained at the Small Business Administration website.
1. Choose a business name. Choosing a business name for your corporation is an important first step when you start a corporation.
You'll probably need to include a corporate designation—a word which identifies your business as a corporation—such as "Incorporated" or "Limited" or "Corporation" (or the abbreviated version of these terms). You should also check your state's list of restricted words; these are words which you are not permitted to use in your business name. Commonly restricted words include "Bank" and "Insurance."
When choosing your business name, you should also make sure your proposed corporate name doesn't infringe on any trademarks. A trademark search can help you determine if there are pending trademark applications or active registered federal trademarks with the USPTO.
2. Check availability of name. In addition to selecting a marketable name that works with your brand, you'll also need to ensure that the name is legally available. This means you will need to choose a name that's not already being officially used by another corporation in your state. Check with your state's office of business and corporations to determine if a corporate name is available for use.
In most cases, your new business name will be registered when you file your articles of incorporation. Once you've selected an available business name, check with your state's corporations office to see if you can reserve the name until you are able to get your articles of incorporation filed.
3. Register a DBA name. If you plan on operating your business under a different name than the corporate name you've selected, you may need to register a "fictitious name" (also known as a "doing business as" or DBA name, an "assumed name" or a "trade name"). The laws surrounding DBAs change from state to state, and can even differ on the county and city level as well. Check with your local, county, and state office of business development, corporations, or small business to get the details for your location.
4. Appoint directors. Directors are typically appointed by owners, and in many cases owners will appoint themselves as directors. However, while an owner can be a director, a director need not be an owner. The number of directors you will need to appoint will depend on state regulations; some states, for example, require a certain number of directors depending on the number of owners, while others do not.
5. File your articles of incorporation. You will need to find, complete, and file articles of incorporation with your state's Secretary of State office. Depending on your state, the articles of incorporation may instead be known as certificates of incorporation or charter. You should be able to obtain articles of incorporation forms from your state's Secretary of State office.
Some states also require the names of a corporation's directors on the articles of incorporation. You'll likely also have to designate a registered agent—a registered agent is the contact person listed on file for a corporation, and is the person who will receive service of process notices, government correspondence and compliance-related documents on behalf of your corporation.
6. Write your corporate bylaws. Bylaws set out the rules governing how your corporation will be run. Generally, corporate bylaws will cover things like the stocks which the corporation is authorized to issue, the number of directors required and procedures related to meetings and record-keeping. While bylaws do not need to be filed with the state, they are an important part of running a corporation, and you may wish to consult with an attorney for assistance in drafting appropriate bylaws for your corporation.
7. Draft a shareholders' agreement. While optional, a shareholders' agreement is a document you'll want on hand in the event of the death or retirement of an owner, or some other event which causes an owner to need to transfer ownership of his or her shares in the corporation. Having such an agreement helps to protect the interests of the remaining shareholders if one owner dies or otherwise wishes to leave the corporation. You may want to consult with an experienced business attorney to assist you in the drafting of the shareholders' agreement.
8. Hold initial board of directors meeting. Whether your corporation has several directors or just one, an initial board of directors meeting should be held to deal with a variety of matters, including the adoption of bylaws, appointment of corporate officers and the authorization to issue stock. If you want to elect S corporation status, the matter should also be dealt with and approved by the directors at this initial board of directors meeting.
9. Issue stock. As a small corporation, you will most likely be exempt from the more onerous requirements of the Securities and Exchange Commission (SEC) and your state's securities regulation agency. Once the board of directors have authorized the issuance of stock, you can issue stock certificates if required.
10. Obtain business permits and licenses. Before your corporation can be open for business, you'll need to obtain certain business permits and licenses. Requirements will vary depending on your state and local government, as well as the industry in which your business operates. For state requirements, you can check the Small Business Administration's website to see what licenses and permits your corporation will require.
11. Register with the IRS and state and local tax agencies. C corporations are separate tax-paying entities; you will need to obtain tax ID numbers from the IRS and your state and local revenue agencies. You can obtain more information about the taxation of corporations on the IRS site.
12. Open a corporate bank account. It's important that your corporation has a bank account that's separate from the bank accounts of its owners. Check with the bank at which you intend to open the account to see what documents will be required. Some banks require a corporate resolution in order to open a corporate account, while others may need only a copy of the articles of incorporation. Most banks also require a corporation's EIN or Employer Identification Number, which can be obtained from the IRS.
Starting a corporation in your state may vary from this list, but these twelve steps will help you get started getting a corporation up and running.
Ready to start a corporation? LegalZoom can help you form a C or an S corporation. Just fill out a few simple questions, and we will file the paperwork on your behalf, getting important legal requirements out of your way.