A corporation is a legal entity that is separate from its owners, which can protect you from any business liabilities and help get your business off the ground.
Whether it's to save money on taxes, attract investors, protect yourself, or boost reputability, starting a corporation might be the best next step for you and the business.
In this piece, we'll walk you step by step through the incorporation process, review state-specific requirements, and answer some common questions you may have along the way.
1. Choose a business name
An important first step when starting a corporation is selecting a business name. In most states, you'll need to include a corporate designation or a word that identifies your business as a corporation.
Examples of corporate designations include:
- Incorporated (Inc.)
- Corporation (Co.)
When choosing a corporate name, you should also be sure that your name of choice doesn't infringe on any existing trademarks. A trademark search can help you ensure that your name is available to use.
It's also a good idea to check your state's list of restricted words. This list includes words that are off-limits for use in your business name. Examples include “bank" and “insurance."
Certain words are prohibited unless you are legally allowed to run your business as such by the respective government agency. To ensure that your name is legally available, check with your state's Secretary of State office.
2. Register a DBA
If you want to do business under a name that is different from the corporate name you've chosen, you may need to register a fictitious name. This allows you to keep the identity of your corporation separate from your business name.
A fictitious name may also be known as:
- Doing business as (DBA)
- Assumed name
- Trade name
Depending on where you're located, the laws surrounding DBA names can vary. Be sure to check with your state's Secretary of State office to ensure your DBA name meets all legal guidelines.
3. Appoint directors
When forming a corporation, the owners will often appoint directors. The owners can appoint themselves and/or others to be directors.
A director's responsibilities include:
- Governing the corporation
- Managing the corporation's business and affairs
- Electing corporate officers
- Attending corporate meetings
The number of directors needed will depend on the laws and guidelines of your state and could also depend on the number of owners your corporation has.
4. File your articles of incorporation
Next, you'll need to complete and file articles of incorporation with your state's Secretary of State office. By doing so, you will establish your corporation as its own business entity.
Articles of incorporation typically include the:
- Name and address of the corporation
- Purpose of the corporation
- Name and address of the registered agent
- Type and number of shares of stock to be issued
The registered agent is the contact person listed for your corporation. They will receive service of process notices, government correspondence, and compliance-related documents on behalf of your corporation.
Depending on your state, articles of incorporation may be called the certificate of formation or certificate of incorporation.
5. Write your corporate bylaws
Another important step is writing corporate bylaws. Bylaws are written rules that determine how your corporation will be governed.
Corporate bylaws typically cover things like:
- How many shares of stock your corporation can issue
- How many directors are required
- Meeting and record-keeping procedures
Although these bylaws are not required to be filed with the state, it is an important part of the incorporation process. It can be helpful to reach out for legal assistance when writing corporate bylaws to make sure nothing slips through the cracks.
6. Draft a shareholder agreement
A shareholder agreement will help protect the interests of any remaining shareholders in case certain events take place.
This agreement will be used:
- In the event of an owner's death
- If an owner transfers ownership of their shares
While optional, a shareholder agreement is a great document to have in an unexpected event. If needed, a business attorney can help you draft this document.
7. Hold initial board of directors meeting
No matter how many directors your corporation has, it's important to hold an initial meeting with your entire board of directors. Without an initial meeting, the board might lack direction or clarification that enables them to make clear decisions about the corporation.
An initial board of directors meeting should cover:
- Adoption of corporate bylaws
- Appointment of corporate officers
- Authorization to issue stock
Additionally, if you wish to elect S corporation status, you should also discuss this at the initial meeting and gain approval.
8. Issue stock
In this kind of business structure, stock is issued to help finance the corporation. After the board of directors has authorized the issuance of stock, you may begin issuing and distributing stock to investors.
When issuing stock, it's important to record:
- Who purchased the shares
- How many shares they bought
- How much the shares cost
- When they bought the shares
Stock is typically issued as a physical certificate or in the form of digital shares.
9. Obtain business permits and licenses
Before you can start doing business as a corporation, it's also important that you obtain all of the required business permits and licenses.
The permits and licenses required will depend on your:
- City and county laws
- State government and federal laws
- Your specific industry
As you begin the application process, check out your state's specific requirements on the Small Business Administration website.
10. Register your business
Because corporations are separate taxpaying entities, you will need to obtain specific tax ID numbers to ensure you are paying the appropriate taxes.
You will likely need tax ID numbers from:
- The Internal Revenue Service (IRS)
- Your state revenue agency
Depending on the state you're doing business in and your corporation type, the taxation your corporation could face will vary. For the most up-to-date information about the taxation of corporations, you can visit the IRS website.
11. Open a corporate bank account
A crucial step in forming a corporation is opening a corporate bank account. This account will be separate from the bank accounts of its owners, which helps protect your personal funds from any business liabilities. LegalZoom works with Bank of America to help our customers open business checking accounts.
Be sure to check with the bank you choose to see what documents will be required. Examples of required documents and information include:
- Corporate resolution
- Articles of incorporation
- Employer identification number (EIN)
If you're unsure what your corporation's EIN is, you can obtain it from the IRS.
Forming a corporation: A state-by-state guide
Whether it's the cost to incorporate, the difference in tax laws, or variation in document names, it is common for the incorporation process to vary slightly from state to state. Here are some states with some notable differences in the incorporation process.
When forming a corporation in California, you must also file a Statement of Information. This document must be filed within 90 days of filing your articles of incorporation.
This form will also contain the information that's included in your articles of incorporation.
Delaware is a popular state to incorporate in because of its lenient laws for business owners. When incorporating in Delaware, you do not have to be a Delaware resident. This allows those from other states to benefit from Delaware's business-friendly tax advantages.
To remain active as a corporation in Florida, you must file what's known as the Annual Report. This report form must be filed by May 1.
When incorporating in Georgia, you must publish a notice of intent to incorporate in a newspaper in the county where your office will be located. This process must be initiated within one business day after filing your articles of incorporation and published once a week for two consecutive weeks starting within 10 days after receipt of the notice by the newspaper.
After registering as a corporation in Missouri, you must file the Missouri Annual Report within 30 days.
When forming a corporation in Nebraska, you must also publish a notice of incorporation in a legal newspaper located in the same county as your corporation's office.
The published notice must contain:
- The name of your corporation
- The number of authorized shares to be issued
- The address of the corporation's registered office and agent
- The name and address of each incorporator
This process must take place after filing your articles of incorporation with the Nebraska Secretary of State.
Additional paperwork is required when filing your articles of incorporation in Nevada. You must also file the Nevada Initial List of Directors and Business License Application.
To officially register your corporation in New Mexico, you must file the New Mexico Corporate Initial Report. It must be filed within 30 days of receiving your certificate of incorporation from the New Mexico Secretary of State.
All New York corporations must file a statement every two years. This statement must be filed with the Secretary of State during the same month that the certificate of incorporation was filed.
As a corporation in South Carolina, you must also file the Initial Annual Report of Corporations. This additional document must be filed with the South Carolina Department of Revenue along with your articles of incorporation.
To officially create a corporation in Tennessee, you will need to file the Domestic For-Profit Corporation Charter. Similar to articles of incorporation, this document will officially register your business as a corporation. This document must be filed with the Tennessee Secretary of State.
To incorporate in Texas, you must file a certificate of formation with the Secretary of State. Once this certificate has been filed along with the filing fee, the corporation is official.
To incorporate in Washington, you must file the Washington Initial Report within 120 days of your incorporation date. You may also include this report with your articles of incorporation.
Forming a corporation FAQ
Here are answers to some common questions you may ask yourself when determining if forming a corporation is the right move for you and your business.
Q: What's the difference between a corporation and an LLC?
Just like a corporation, a limited liability company (LLC), protects owners from business liabilities and debts. The main difference between the two is that an LLC has one or more owners, whereas a corporation has shareholders.
Another key difference is the way the two are maintained. A corporation will generally have more formal record-keeping and reporting requirements than an LLC.
Q: What's the difference between a C corporation and an S corporation?
When incorporating your business, you may choose to form either a C or S corporation. One of the main reasons that people choose to form an S corporation is to save money on taxes.
As a C corporation, you must pay taxes on your income twice—on the net business income and the profits received by shareholders. As an S corporation, you will only pay taxes on the latter.
Q: Can I switch from an S corporation to a C corporation?
Yes, you are able to switch corporate designations. To do so, you must gain majority shareholder approval to change your corporation's status with the IRS.