Corporate Formation

Forming a corporation provides many advantages, from limiting personal liability to facilitating investment and financing. 

However, setting up a corporation requires following specific legal procedures, understanding key concepts, and maintaining ongoing compliance.

Key Steps to Forming a Corporation:

1. Choose a Name

• The corporation’s name should be unique, not easily confused with another business, and must typically include a designator such as “Corp.,” “Incorporated,” or “Ltd.”
• Check state regulations and databases for name availability.

2. Select a State for Incorporation:

• Many businesses choose to incorporate in their home state, but states like Delaware are popular due to business-friendly laws.

3. Draft and File Articles of Incorporation:

• This foundational document includes basic information about the corporation, such as its name, address, and the nature of its business.
• Submit to the Secretary of State or similar agency in the state of incorporation. There’s typically a filing fee.

4. Establish Corporate Bylaws:

• Internal rules governing the operation and management of the corporation. It may cover issues like meetings, voting procedures, and officer roles.

5. Appoint Initial Directors:

• Directors oversee corporate affairs and make major business decisions.

6. Hold an Organizational Meeting:

• Initial directors meet to undertake essential tasks like adopting bylaws, setting the fiscal year, and appointing corporate officers.

7. Issue Stock

• Define share classes, authorize shares, and set their par value.
• Abide by federal and state securities laws when issuing and selling stock.

8. Apply for Necessary Licenses and Permits:

• Depending on your business and location, various licenses might be required.

9. Register for State Taxes:

• If the state levies sales, use, employment, or corporation taxes, ensure your corporation is registered accordingly

10. Obtain an Employer Identification Number (EIN):

• Necessary for tax purposes. Acquire from the IRS, typically at no charge.

Benefits of Corporate Formation:

• Liability Protection: Shareholders are not personally responsible for corporate debts.
• Credibility: A corporate structure can enhance your business’s credibility with customers and partners.
• Access to Capital: Easier to raise funds via stock sales.
• Perpetual Existence: The corporation continues, even if owners or officers change.

Ongoing Compliance and Considerations:

• Annual Reports: Most states require corporations to file regular reports, outlining current operational and contact details.
• Maintain Corporate Records: Record and store minutes of meetings, resolutions, and major decisions.
• State Taxes and Fees: Be aware of ongoing tax liabilities and any renewal fees.

Properly forming and maintaining a corporation ensures its benefits are maximized while minimizing potential legal issues.