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.
Contact Ana Law for assistance with your next corporate formation or renewal.