How to Form a Corporation in All 50 States Start Your Company
The work accomplished by the promoter prior to incorporation often necessitates contractual arrangements such as leases and loans. Because the corporation does not officially exist yet, the promoter must be the entity that enters into contracts. Later, when the corporation is legally formed, the corporation is considered as having assented to those contracts that were formed to benefit it prior to its official birth.
Additionally, banks and creditors may ask to see your corporate bylaws to establish the legitimacy of the corporation before extending loans or allowing your corporation to open accounts. Appoint a registered agent and file the articles of incorporation. Every corporation must have a registered agent in the state https://www.bookstime.com/ where it files the articles of incorporation. This is the individual or company (i.e., registered corporate agent) who will accept the required notice, also known as the service of process, if your corporation becomes party to a legal action. An individual who wishes to start a corporation is known as a promoter.
FAQ: Corporate Formation
After incorporation, additional stock may be sold in order to raise capital for the business. However, they own some stake in the success of a firm much like the shareholders. On the other hand, their passions might or might not have anything to do with money. Forming a Corporation However, the shareholder has a restricted role in the corporation because they have neither authority nor the responsibility to oversee its daily operations. Shareholder rights differ relative to the type of investment possessed and the relevant law.
A corporation will continue to exist despite new owners or new shareholders and deemed to have a legal existence until it’s formally dissolved. Changes in personnel, directors, and shareholders doesn’t usually affect a corporation’s legal status. A corporation’s bylaws supplement any rules set forth by the federal government or the state. Each share of stock represents a percentage of ownership in the company. For example, if a corporation issues one share of stock, the shareholder would then own 100% of the corporation. After the corporation is formed, an organizational meeting should be called by the incorporators or by a director if one was named on the formation documents.
“Doing Business As” (DBA) Name
There are two formal types of corporations, but keep in mind it can be far more complex . Where they differ primarily is in taxation and corporate ownership, but some similarities include the following. We recommend starting with a high number of authorized shares. Many attorneys and business professionals suggest 10 million. By starting with a high number, you have the flexibility to issue shares as needed without paying legal fees to increase your initial authorized shares amount. Some states will require you to submit an Initial Report after forming your corporation. Your corporation will need to pay fees shortly after formation or incorporation.
They can sign agreements, make loans, bring an action in court, employ people, possess property, and pay taxes. Several legal obligations and rights that apply to persons also apply to corporations. Observing all the corporate formalities provides evidence that the corporation is a separate legal entity rather than an extension of the shareholders. The reason it is necessary to enforce the notion that the corporation is a separate legal entity is to protect the limited liability of the shareholders. The main advantage of a corporation is the liability protection it provides its owners or shareholders. Liability is limited because the corporation is a legal entity separate from its shareholder owners. One of the best-known and most widely used business entity forms is the corporation.
Step 1 – Run a Business Name Search
Sit back and relax while one of our filing experts completes the required paperwork quickly and accurately on your behalf. To learn more about the differences between an llc and a corporation, take a look at our detailed llc vs corporation comparison. To learn more, read our review of the Best Corporate Meeting Minutes Templates. Meeting minutes are not legally required in some states, but they are necessary. Well-recorded minutes are indispensable during disputes and court actions.
How many shares should a small corporation start with?
How many shares do startup founders need to issue? The commonly accepted standard for new companies is 10 million shares.
Note that if you are working with a lawyer or online incorporation service, you might name an “incorporator,” who is responsible for managing the articles of incorporation. This is typically a temporary role and ends once the incorporation process is complete. If those last three paragraphs muddied the waters, I’ll reassure you that most businesses that exist and do business in their own state should also incorporate there. You’ll avoid the potential extra headaches, paperwork, registration, fees, and legal compliance. For single-owner corporations, the sole owner simply prepares, signs, and files the articles of incorporation himself.
Outsource This, Not That: A Guide for Small Businesses
A close corporation is one that is managed by its shareholders. Directors do not have to be elected and officers do not have to be appointed. In addition to these formalities being eliminated, the laws usually streamline some of the other meeting and voting requirements. The intent is to relieve some of the administrative burdens to the small corporation owner.
- Requirements and fees will vary based on location, business activities, and local government rules.
- During this initial meeting, either the incorporator will elect the board of directors or the initial director will appoint the officers.
- For example, adding members to an LLC requires additional paperwork, and a sole proprietorship would have to convert its entity type in order to add a new owner to the business.
- As a result, you could lose some of your creative freedom and autonomy that you might have as a different entity type.
- For bylaws, one can use a self-help guide or employ an attorney in the state to draft them.
- There are several types of corporations, including C corporation, S corporation, B corporation, closed corporation and nonprofit corporation.
These legally binding documents must be signed and issued to all of the stockholders. As you can see, the standard California filing time is six weeks. But with Incfile, you can get this down to just five business days. If you’re an entrepreneur looking to become a small business owner, one of the first things you’re going to have to decide on is how to structure your company. The primary benefit of this service is that it provides a layer of privacy between you and the public. As the Registered Agent’s name and address is one of public record, generally the Registered Agent’s legal address will be the one listed in all official public documents. In the event of loan default or other credit-related issues, your personal credit would remain intact should the business go into bankruptcy.
LLC vs. Incorporation: Which Should I Choose?
Using a professional registered agent service is an affordable way to manage government filings for your corporation. After you’ve chosen a name for your business and appointed your directors, you must prepare and file «articles of incorporation» with your state’s corporate filing office. Typically, this is the department or secretary of state’s office, located in your state’s capital city. While most states use the term «articles of incorporation» to refer to the basic document creating the corporation, some states use other terms, such as «certificate of incorporation» or «charter.» To determine if incorporation is in your best interest, you need to know your company’s goals and capabilities.
Liability might also become an issue, so be sure to reach out to a business attorney for this matter. Otherwise, annual fees fall somewhere between $45 to $315, depending on your state. When budgeting for annual fees, you should also consider recurring costs, like an annual report. Common state-regulated activities are plumbing, restaurants, retail, and dry cleaning. Depending on your state, county, and city, you might need specific requirements, so it’s recommended to visit your state’s website. Registering your business with a DBA name doesn’t provide any legal protection by itself. DBA names are known as trade names, fictitious names, or assumed names.
Pass-through taxationmeans the net income of the business passes through to the LLC member individual tax returns. This means the business itself will not be taxed and you will only be taxed on the business’s net income on your individual tax return.
What are the 8 advantages of corporation?
- Limited Liability.
- Easy Availability of Capital.
- Corporations have Perpetual Existence.
- Easy Transfer of Ownership.
- Builds Credibility.
- Complex Process.
- Double Tax.
- Conflict of Interests.
Then, work with your lawyer or our simple-to-use business formation service to set up your business following your state’s laws. Once incorporators agree on the state in which to incorporate, they apply for a corporate charter.
Step 4: File the Certificate of Incorporation/Articles of Incorporation
For more information, check out our What is an S Corporation page. Professional corporations that require licensed individuals may need certain permits and licenses to operate their businesses. That being said, corporations have an easier time raising capital than an LLC and they enjoy several tax benefits that LLCs do not, such as a lack of self-employment tax. Nonprofit corporations use profits to advance the company’s mission rather than distributing them to shareholders. An investor in a corporation pays taxes on dividends only when they receive them whereas an investor in an LLC would have to pay taxes regardless of whether they received a distribution or not.
- Your first board meeting is a critical step, but I recommend that you focus on the minimum required steps to fully comply, and save deeper discussions for other venues.
- But California imposes a minimum $800 franchise tax due each year.
- However, the shareholder has a restricted role in the corporation because they have neither authority nor the responsibility to oversee its daily operations.
- Bylaws are rules maintained by the company that set out the organization and operation of the corporation.
- But an EIN comes free with Incfile’s Gold and Platinum business formation packages.
- If so, you must apply for both, likely with both a state and local agency.
The corporate management structure is ideal for multiple stakeholders going into business together. Corporations have a board of directors, officers, and shareholders, with each having its own unique roles and responsibilities. This keeps everyone in check and limits the power of each individual shareholder. So one person can’t always make a final decision without the approval of others.