How to Start a Corporation
Of all the various legal business entities, corporations are the most complicated to set up and maintain. But they also provide business owners with the most protection of their personal assets, a significant ability to raise funds, and other advantages.
In any event, the size and type of business will help inform the kind of legal structure you should adopt. Before you rush into it, make sure you understand the process of incorporation and take it step-by-step.
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Below is a checklist of steps to take when incorporating your business. Keep in mind that your corporation's start-up requirements might vary from the list below, depending on the specific type of business you are in and where your business is located:
1. Decide on a Business Name
Keep in mind that your state may require that your corporate name include an identifying word such as "incorporated," "limited," "corporation," or an abbreviation of such a term. (Learn more: Pick a Winning Name for Your Business)
2. Search Name Availability
In addition to searching for references to your corporation's chosen business name, you also should look for similarities to existing names. If your name is too similar to an existing name, to the point that it could confuse customers, you may not be able to register it. (Learn more: Make Sure Your Proposed Business Name is Available)
3. Register Your Corporation's Name
In addition to your legal business name, you also want to register any fictitious business name under which you conduct business. (Learn more: Registering Your Business Name)
4. Pick a Place in Which to Incorporate
Even if your company's primary operations are in one state, you may incorporate in another if it provides advantages. For instance, a significant number of businesses are incorporated in Delaware despite being founded or operated elsewhere. (Learn more: Forming a Corporation: Where to Incorporate)
5. Choose Directors for Your Corporation
The board of directors is responsible for overseeing the operation and protecting the interests of the investors and shareholders. Directors may be officers of the corporation, investors, or individuals with no other stake in the company. (Learn more: Corporate Structure: Directors to Shareholders)
6. Create and Sign Your Articles of Incorporation
The articles of incorporation are filed with your secretary of state's office and serve as the official charter for your corporation. (Learn more: Writing and Filing the Articles of Incorporation)
7. Write Your Corporate Bylaws
Corporate bylaws outline responsibilities, such as the purpose of the corporation and who manages the business. (Learn more: Writing Corporate By-Laws)
8. Create a Shareholder Agreement
It's not always necessary to create a shareholder agreement or stockholder agreement, but it typically addresses the rights and responsibilities of shareholders, including share ownership terms and valuation. (Learn more: Shareholder Buyout Agreements)
9. File Your Articles of Incorporation
10. (Optional) Elect S Corporation Tax Status
There are specific tax differences between a C corporation and an S corporation that may be of interest to your business. For certain types of companies, S Corporation (S-corp) status avoids "double taxation" while retaining the liability protections of C Corporation (C-corp) status. With S-corps, there is no corporate tax. Instead, any gains pass through the corporate level and are assessed on the owners' personal income tax returns.
11. Open a Separate Bank Account
The corporation is a separate legal entity from its owners, so you want to make sure you open a bank account in the corporation's name as opposed to an individual.
12. Start a Minute Book for Your Meetings
Keeping meticulous records will help your business meet its goals and hold officers and board members accountable. The minute book is a record of all discussions and actions taken at board meetings.
13. Hold Your First Board of Directors' Meeting
Since it will be the first meeting, you will lay out the corporation's structure, vision, and goals and establish the tone for future meetings.
14. Issue Certificates to Your Initial Stockholders (if applicable)
The corporation will need to issue stock certificates. (Learn more by visiting the Securities Law section.)
15. Obtain Business Licenses and Permits
See Starting a Business: License and Permit Checklist for a general overview. Learn more about the permits you might need, including those from:
Get Help in Starting Your Business
Incorporating can be a long-term benefit to your new business in the long run, but the process can be complicated. To ensure that your new company complies with your state's legal requirements for all steps in the incorporation process, you may wish to use a reputable DIY business formation service or seek professional assistance from a local small business attorney.
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