How to Start a Corporation – Forbes Advisor

Each state has slightly different requirements for setting up a corporation, but generally you’ll want to follow these steps.

1. Choose a name for your corporation

Choosing a company name is the first important step in forming a corporation. Your business name must be different from the names of existing businesses in your state. You can search for name availability online at the website of the Secretary of State or other state agency responsible for business records. Each state office has specific rules regarding the name of your corporation, and you must follow the rules of your state’s corporate division.

In general, here are some guidelines that generally apply:

  • Your business name must contain legal entity identifiers such as “Incorporated”, “limited”
    “Corporation,” “Company,” or an abbreviation such as “Inc.,” “Co.,” or “Ltd.”
  • Exclude any words in your business name, such as “trust,” “bank,” “credit union,” or “trustee,” or words related to a government agency, such as “FBI,” “State Department,” or “Treasury.”

2. Appointment of Initial Directors

The board of directors oversees the overall direction of your company—the “big picture.” To incorporate, you will need to appoint an initial board, but you can replace this temporary board with a more permanent one once your corporation is formed.

Different states have different requirements for the number of people that should be on your board. You may only need one board member, or you may need three or more.

3. Write down the statute

To form a new corporation, you’ll file a legal document called a memorandum of association with your state’s business records agency (usually the secretary of state). In most states, you can complete this process online. Although requirements may vary from state to state, the memorandum of association typically includes:

  • The name of your corporation
  • His main place of business
  • Its purpose
  • The name and address of the registered agent who will accept service of legal documents on behalf of your corporation
  • The names and addresses of the founders and/or original board members

The best thing to do is to research what documents are required for your articles of incorporation according to your particular state. Each state has different requirements, different terminology, different forms and filing fees.

Once the articles are approved, you will receive a training certificate.

4. Draft corporate regulations

Some states require corporate bylaws to be legally recognized as a corporation. A bylaw is a corporation’s rules and regulations that outline how it operates. You can draft articles of incorporation before or after you file your incorporation papers.

The corporate bylaws provide a road map for how the company will be run and how decisions will be made.

These regulations should include:

  • The roles assigned to each employee
  • How business decisions will be made
  • Where and when annual meetings of shareholders will be held
  • The percentage of shareholders needed to make decisions
  • Where and when dividends are paid

If you need help drafting this legal document, it is a good idea to consult a corporate attorney. You can also find a template online, but be sure to check with your specific state about what should be included.

5. Holding the First meeting of the Board of Directors

Once your corporation is officially formed and the bylaws are drafted, hold a meeting of the initial board of directors. Be sure to follow the notice guidelines in your bylaws. At this meeting, the directors usually appoint a standing board, approve bylaws, appoint officers to manage the company’s day-to-day operations, establish the corporation’s fiscal year, and authorize the issuance of stock. Minutes of all board meetings must be recorded and kept in the corporation’s records.

6. Issue shares

Issuing stock to shareholders is one of the first formal corporate actions after a corporation is formed. Make a record of the shares issued to each shareholder and the price paid.

A share is a unit of ownership. A corporation is owned by its shareholders, and shareholders contribute to the corporation for ownership interests. Authorized shares are the maximum number that are issued for sale. The number of authorized shares is specified in the company’s articles of incorporation.

Although small corporations are exempt from many U.S. Securities and Exchange Commission (SEC) regulations regarding the issuance of stock, it is still a good idea to get advice from a small business attorney to make sure you comply with all regulations when you issue shares.

7. Drafting of the Shareholders’ Agreement

Although optional, a shareholder agreement can make a significant contribution to the long-term success of your business.

A shareholders agreement is a contract between the owners of a small company. It sets out how ownership will be managed if a shareholder dies, retires, becomes disabled or leaves the company. Signing a shareholders’ agreement in the early stages of your company can help ensure business continuity and avoid disagreements in the future.

It’s best to get help from an experienced small business attorney who can tailor a shareholders agreement to your company’s specific needs.

8. Get an employer identification number

An Employer Identification Number (EIN) allows the IRS to identify your business for tax reporting. It’s similar to a social security number, but for your business.

A corporation is required to obtain an EIN, and you’ll need it to open a bank account, set up payroll deductions, and set up state tax accounts. You can get an EIN quickly and for free on the IRS website.

9. Get business permits, licenses and DBA

Most businesses need some type of business license or permit, but the requirements for your business will depend on where you are located and what industry you operate in. Some states and many localities require all businesses to have a general business license. Many industries, such as the sale of alcohol and firearms, aviation and restaurants, require additional licenses.

The Small Business Administration (SBA) has a chart of industries subject to federal licensing. Contact your state and local authorities for information on additional licenses you may need in your locality.

If you plan to do business under a name other than your corporation’s official name, you will also need to register a DBA name. A DBA name is also known as a “doing business as” or “fictitious business name.” Depending on where you are located, you may need to register a DBA with your state, city, and county. If you will only be using your legal corporation name in your business, you can skip this step.

Leave a Comment

Your email address will not be published.