How to Form a Corporation in 5 Simple Steps

Bylaws are written rules that determine how your corporation will be governed. 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. 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. If you want to raise money for your business concept and sell shares to investors, you’ll want to incorporate as a C corporation. Issued shares are authorized shares sold to and held by company shareholders. Companies must record the number of issued shares on a balance sheet and list the shares under owners’ equity or capital stock.

Each state has individual laws regarding corporations, however, many states follow the Model Business Corporation Act. The articles of incorporation must be filed with the Secretary of State along with the applicable filing fees. Unless a delayed effective date is specified, corporate existence begins when its certificate of formation is filed by the Secretary of State. A delayed effective date for a certificate of formation may be no later than 90 days after the date it is filed.

Step 3: File the Articles of Incorporation/Certificate of Incorporation

Forming a corporation protects individual shareholders from personal liability for the company’s debts or legal judgments. The tax treatment of the company’s income and restrictions on its shareholders depends on the type of legal structure you choose. Once you have registered your company as a corporation, you may issue shares of stock to raise funds from investors. If you’d like to file yourself, you’ll find the documents you need on your state’s Secretary of State website, and possibly at the physical location of the filing agency office. The cost of filing ranges between $100 up to $800 or so, depending on your state and type of entity. Sole proprietorships, partnerships, and S corporations may be the best type of business entity for tax purposes.

All entries and signatures should be typewritten or legibly printed in black ink on white paper. Avoid dark paper, small or light type, outline or condensed fonts, colored inks, etc. The filing receipt reflects the date of filing, the name of the corporation, an extract of information provided in the Certificate of Incorporation and an accounting of fees paid.

Can just one person form a corporation?

The sale of stocks or bonds can generate additional capital and the longevity of the corporation can continue past the death of the owners. Legal Counsel should be consulted regarding the variety of options available. Compare the general traits of these business structures, but remember that ownership rules, liability, taxes, and filing requirements for each business structure can vary by state. Please confer with a business tax specialist to confirm your specific business needs. Nonprofit corporations are organized to do charity, education, religious, literary, or scientific work. Because their work benefits the public, nonprofits can receive tax-exempt status, meaning they don’t pay state or federal income taxes on any profits it makes.

For example, some states do not recognize S corporations, taxing them like C corporations. In other cases, certain states might tax S corporations in profits above a specified limit. Our services provide long-term business support to help you start, run, and grow your business.

• If one shareholder withdraws or dies, the existence of the corporation may be threatened.
• A separate request may be made for overnight delivery service for certified copies.
• Our services provide long-term business support to help you start, run, and grow your business.
• For example, if a company is sued, its shareholders are not individually responsible for the firm’s liabilities even when a corporation may not possess the assets to fulfil the debt.

In most states, you only need one person to form a corporation, while the maximum number of shareholders varies by corporation type. For example, C corporations don’t have ownership restrictions, while S corporations are limited to 100 shareholders who must all be U.S. citizens. Whether a corporation can own an LLC is a state-specific question. However, generally, states do not have requirements on ownership, and thus members may include individuals, corporations, and other entities.

Which Type of Corporation Is Right for You?

You might have to get your DBA registered with the state, county, or city in which your business is located. It is important to note that getting your DBA name registered does not tantamount to legal protection of your business name. However, many states ask you to register your DBA in case you use one.

It is important to note that the states regulate a relatively wider range of business activities than the Federal government. Few of these activities include construction, auctions, drycleaning, farming, plumbing, restaurants, retail, and vending machines. It is always advised to create bylaws or resolutions for your business even if your state does not demand it. This is because such a document protects you and your business legally. You’ll require a registered agent in your state before getting your business registered with a state agency. Provided that your business is an LLC, Corporation, Partnership, or Non-Profit.

Having a well-written, comprehensive list of corporate bylaws is crucial to starting a functional corporation. The ZenBusiness template can help you create an all-encompassing list, without the added stress of wondering if you forgot something important. Lastly, when the corporation drafts the legal documents, they should consider rules regarding general operations, stock, shareholders, and more. Even though not legally required in every state, they are very beneficial to companies. They are beneficial because they set the guidelines and processes that the owners and board will use to run the business. Hiring a registered agent service can help corporations manage paperwork, have a physical address, and operate without any privacy concerns.

As a C corporation, you must pay taxes on your income twice—on the net business income and the profits received by shareholders. 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.

What Are “Articles of Incorporation” for an S Corporation?

An Incorporator Statement with complete names and addresses of each director, and meeting minutes, will be signed after the meeting and should be stored in your corporate records book. If you’re already operating in a state different from where you first formed, foreign qualifying can save you the hassle of fines, fees, and tax liabilities. It’s our goal to help you form a corporation so that your business can succeed.

Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. The partners with limited liability also tend to have limited control over the company, which is documented in a partnership agreement. Profits Forming a corporation are passed through to personal tax returns, and the general partner — the partner without limited liability — must also pay self-employment taxes. It also covers the responsibilities and powers of the corporation’s management and its board of directors.

Your state’s corporations office can tell you how to find out whether your proposed name is available for your use. Often, for a small fee, you can reserve your corporate name for a short period of time until you file your articles of incorporation. The incorporation of your business happens as soon as you file your articles of incorporation with the secretary of state. Although filling out the form may only take a few minutes, it could take weeks or even months to prepare all the documents you will need to file the articles of incorporation. A corporation’s shareholders (similar to the members of an LLC) are the people or legal entities who own the business.

You can think about the bylaws as a constitution for your corporation. You will need to set up a DBA to operate under a name other than your legal name. Some states also require certain business types to file a DBA and some states don’t allow DBAs at all. Before you register your corporation, you should make sure a good URL is available for your business name.

Plus, the legal benefits and fundraising possibilities that corporate status brings may be worth the effort. Professional legal counsel and business consultants can help you navigate the process and decide whether or not to take the leap. On the upside, the three biggest advantages of becoming a corporation are limited liability, business continuity, and access to funding. A nonprofit designation is typically reserved for companies benefiting the public or working to effect a specific cause. Nonprofit organizations may structurally resemble C corporations, but they must handle their profits differently.

If you’re selling shares of stock to passive investors (people who won’t be involved in running the company), complying with state and federal securities laws gets complicated. If you need advice on shareholders’ rights or whether you’ll need to register your securities offerings, you should talk to a small business lawyer. They can help you draft your shareholders’ agreement and help you comply with federal and state securities laws.

How to Start a Corporation: A 9-Step Guide

Portions of these profits become the shareholders’ salaries, bonuses and dividends. The shareholders then pay individual income taxes on the money they receive from the corporation. This practice is known as double taxation because business profits are taxed both when received by the business and when passed on to the shareholders. Corporations are legal entities separate from their shareholders and the business they own. It is possible to form a corporation when a group of investors, each of whom holds a stake in the new corporation, band together to accomplish a common goal.

• Get the fastest corporation formation online with worry-free services and support to start your business.
• Some states allow a type of corporation called a close corporation, which may appeal to small business owners.
• Registered agents must be available in person during all regular business hours at a listed address.

Check with your state on the minimum number of board members, but assume you might want three people serving in this capacity. Your business name must not be currently used by another corporation, particularly in your industry. You also must document financial dealings between the corporation and its shareholder, directors and officers. For example, a loan made to or from the corporation should be evidenced by a corporate resolution.

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