How to Incorporate Your Business
When you're planning out the future of your business, it's important to know what kind of structure you will have. If you want to become a corporation, you'll need to understand how to incorporate the business.
The details of the process can get pretty nitty-gritty, but there are general steps that can help you get familiar with the process. Here are the steps you can take to begin the incorporation process.
1. Choose a Name for the Corporation
It's not like picking an email address. You're not just going for the name's uniqueness and the ring of it. You need to make sure it follows your state's corporation rules and identifies the type of corporation you have (like an LLC).
2. Appoint Directors
When you're forming a corporation, you'll need to appoint directors who will be in charge of making financial and policy decisions for the corporation. Big decisions your directors will have to make include authorizing the sale of stock for the corporation.
3. File the Articles of Incorporation
One you've found the perfect (and perfectly legal) name for your corporation with the perfect directors, you'll need to file the articles of incorporation, also called a "certificate of incorporation" or a "charter," with your state's government.
Rest assured, the articles of incorporation sound more intense than they are. You'll mostly have to give basic information like the corporation's name, address, and sometimes the name of the directors.
4. Draft Corporate Bylaws
This very important step addresses when and how often shareholder meetings will be held and other rules about voting rights. Usually, the bylaws will be adopted during the corporation's first meeting of the directors.
5. Shareholder's Agreements
These agreements explain what will happen to a shareholder's ownership if he or she dies, becomes disabled or leaves the corporation.
6. The First Meeting of the Board of Directors
At the first meeting of the board of directors, many corporate decisions are made. This is when officers are chosen, bylaws are adopted, and stock shares are issued.
7. Issuing Stock
Before you start conducting business, you need to make sure that you issued stock. Once the stock is issued, the ownership of the corporation is formally divided between the owners.
8. Securities Registration
Because of securities laws, large corporations that issue stock have to register all stock offerings with the SEC. This is pretty time-consuming and can cost a pretty penny.
If you're a small business owner, you're in luck. Most small businesses who don't making an offering of stock to more than 35 people don't have to register their stock offerings with the SEC.
9. Issuing Shares
When your corporation is ready to issue the actual shares, you'll have to keep some pretty detailed documents of the shareholders' information. Each shareholder will then get a stock certificate.
Where to Incorporate
Another big issue in incorporating your business is deciding where to incorporate. You'll have to decide what works best for you. Many small businesses are best in the business's home state, while others might benefit from registration in Delaware or another state.
- C or S Corporation: What's the Legal Difference? (FindLaw's Free Enterprise)
- Pros and Cons: Why Form a Corporation? (FindLaw)
- Forming an LLC (FindLaw)
- Where Should You Incorporate Your Small Biz? (FindLaw's Free Enterprise)
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