Start a Corporation

Starting a corporation is a significant step toward building a successful business. A corporation offers numerous benefits, including limited liability protection, enhanced credibility, and potential tax advantages. This guide will walk you through the essential steps to form your corporation effectively and efficiently.

What is a Corporation?

A corporation is a legal entity that is separate and distinct from its owners (shareholders). It has many of the same rights and responsibilities as individuals, including the ability to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.

What are the Benefits of Forming a Corporation?

• Limited Liability Protection: Shareholders are not personally liable for the corporation’s debts and liabilities.
• Perpetual Existence: Corporations can continue indefinitely, even if the ownership or management changes.
• Enhanced Credibility: Corporations often have more credibility with customers, suppliers, and investors.
• Tax Benefits: Depending on the structure, corporations can benefit from tax deductions and lower tax rates on retained earnings.

Steps to Start a Corporation

1) Choose Your Business Name

Selecting a business name is one of the most crucial steps in starting a corporation. The name you choose must be unique and distinguishable from other registered business names in your state. To ensure your name is available, you can:

• Conduct a Name Search: Use your state’s business name database to check if your desired name is already in use.
• Consider Trademarks: Check the U.S. Patent and Trademark Office (USPTO) database to ensure your name isn’t trademarked by another entity.
• Domain Availability: Ensure that a suitable domain name is available for your business’s online presence.

If you want to do business under a name that is different from the corporate name you’ve chosen, you may need to register a fictitious name. This allows you to keep the identity of your corporation separate from your business name. A fictitious name may also be known as:

• Doing business as (DBA)
• Assumed name
• Trade name

Depending on where you’re located, the laws surrounding DBA names can vary. Be sure to check with your  Secretary of State’s office to ensure your DBA name meets all legal guidelines.

2) Draft and File Articles of Incorporation

The Articles of Incorporation is a foundational document that legally establishes your corporation with the state. When drafting this document, you will need to include:

• Corporation’s Name and Address: The official name of your corporation and its primary business address.
• Purpose of the Corporation: A statement of the general business activities your corporation will undertake.
• Registered Agent Information: The name and address of the person or entity authorized to receive legal documents on behalf of the corporation. Click here to sign up for Registered Agent services.
• Initial Directors: Names and addresses of the individuals who will serve as the corporation’s directors until the first annual meeting.
• Stock Information: Details about the shares of stock the corporation is authorized to issue, including the number and type of shares.

3) Appoint Directors

Directors play a vital role in managing the corporation’s affairs. Initially, the incorporator (the person forming the corporation) will appoint directors who will serve until the first shareholders’ meeting. Considerations for selecting directors include:

• Experience and Expertise: Choose individuals with relevant industry experience and business acumen.
• Diversity: Aim for a diverse board to bring various perspectives and skills to the table.
• Availability: Ensure that directors have the time and willingness to fulfill their duties.

4) Create Corporate Bylaws

Corporate bylaws are internal rules that govern the corporation’s operations. While not required to be filed with the state, bylaws are critical for organizational structure and legal compliance. Bylaws typically address meeting procedures (frequency and procedures for board and shareholder meetings), election and duties of Directors and Officers (how directors and officers are elected, their responsibilities, and terms of service), stock issuance (procedures for issuing and transferring stock), and conflict of interest policies (guidelines for handling conflicts of interest among directors and officers).

5) Hold an Organizational Meeting

The initial directors should hold an organizational meeting to officially adopt the bylaws, elect officers, and conduct other preliminary business. Important actions at this meeting include:

• Adopting Bylaws: Officially approve the corporation’s bylaws.
• Appointing Officers: Elect officers such as the President, Vice President, Treasurer, and Secretary.
• Setting Fiscal Year: Determine the corporation’s fiscal year for accounting purposes.
• Authorizing Bank Accounts: Approve the opening of corporate bank accounts.

6) Issue Stock

Issuing stock is the process of distributing ownership interests in the corporation to shareholders. Key steps include:

• Stock Certificates: Prepare and distribute stock certificates to initial shareholders.
• Stock Ledger: Maintain a stock ledger to record all stock issuances and transfers.
• Shareholder Agreements: Consider drafting shareholder agreements to outline the rights and responsibilities of shareholders.

7) Obtain Necessary Licenses and Permits

When starting a corporation, obtaining the necessary licenses and permits is essential to ensure legal compliance and smooth operation. The specific licenses and permits you need can vary widely based on your industry, location, and business activities. Here’s a breakdown of the common types of licenses and permits required:

Federal Licenses and Permits

• Agriculture: Businesses involved in the import or transport of animals, animal products, or plants.
• Alcohol: Manufacturers, wholesalers, importers, or retailers of alcohol.
• Aviation: Businesses providing air transportation or operating aircraft.
• Firearms, Ammunition, and Explosives: Businesses involved in manufacturing, importing, or dealing.
• Fish and Wildlife: Businesses dealing with wildlife-related activities.
• Commercial Fisheries: Businesses engaged in fishing activities.
• Maritime Transportation: Businesses transporting goods or people over water.
• Mining and Drilling: Businesses involved in drilling for natural resources.
• Nuclear Energy: Businesses dealing with nuclear materials.
• Radio and Television Broadcasting: Businesses involved in broadcasting.
• Transportation and Logistics: Businesses that operate commercial vehicles.

State Licenses and Permits

• Business License: A general license to operate a business in the state.
• Professional and Occupational Licenses: Required for certain professions, such as healthcare providers, lawyers, accountants, and contractors.
• Sales Tax Permit: Necessary if your business sells goods or services subject to sales tax.
• Employer Registrations: Required if you have employees, covering state employer taxes, workers’ compensation, and unemployment insurance.

Local Licenses and Permits

Local governments (county and city) may have additional requirements. These often include zoning permits to ensure your business location complies with local zoning laws, health permits for businesses in the food and beverage industry, and building permits if you are constructing or renovating a business location.

Other local permits might involve sign permits for any signage you place on your business property, home occupation permits if you are operating a business from your home, and alarm permits if your business has a security alarm system.

Industry-Specific Licenses and Permits

Depending on your industry, you may need additional licenses and permits. For example, businesses in the food and beverage industry require health department permits, food handling permits, and alcohol licenses. Construction businesses need contractor’s licenses and permits for electrical, plumbing, or HVAC work. Healthcare providers must obtain licenses for medical practitioners, clinics, and pharmacies, while retail businesses may need reseller’s permits and tobacco licenses if selling cigarettes. Transportation businesses require commercial driver’s licenses, vehicle registration, and operating authority permits.

8) Apply for an EIN

An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to business entities operating in the United States for the purposes of identification. Think of it as a Social Security Number (SSN) for your business.

You can apply for an EIN online through the IRS website for immediate issuance. Alternatively, you can apply by fax or mail using Form SS-4.

9) Register for State and Local Taxes

Ensure your corporation is registered for any required state and local taxes. Steps include:

State Tax Registration: Register with your state’s tax authority for applicable taxes, such as sales tax and employment tax.

Local Tax Registration: Check with local municipalities for any additional tax registration requirements.

State-by-State Guide to Starting a Corporation

Start Your Corporation Today with Ease!

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Start a Corporation FAQs

• What's the difference between a corporation and an LLC?
  A corporation is a legal entity owned by shareholders, managed by directors. An LLC offers liability protection with flexible management and taxation.
• What is the difference between a C corporation and an S corporation?
  A C corporation is taxed separately from its owners, while an S corporation passes income directly to shareholders to avoid double taxation. S corporations have more restrictions on ownership and can only issue one class of stock.
• Can I switch from an S corporation to a C corporation?
  Yes, you can switch corporate designations. To do so, you must gain majority shareholder approval to change your corporation's status with the IRS.
• What is a B Corporation?
  A B Corporation, or Benefit Corporation, is a type of for-profit corporate entity that includes a positive impact on society, workers, the community, and the environment in addition to profit as its legally defined goals. B Corporations are driven by both profit and mission, aiming to use business as a force for good.
• What are professional corporations?
  A Professional Corporation (PC) is a specific type of corporate entity designed for licensed professionals such as doctors, lawyers, accountants, architects, and other professionals who must adhere to ethical codes and regulatory standards set by their respective professions.
• What are the different types of ownership interest?

  There are three types:

  • Sole Ownership: Where one person has all ownership interest.
  • Joint Tenancy: Where two or more people hold title to a property.
  • Tenancy-in-Common: Where two or more people have ownership, but the ownership may be unequal.
• How many initial directors will I need to incorporate?
  Different states have different requirements. You may only need one, but you may need three or more. It’s best to check with your state or local small business attorney.
• Do I need to keep my initial directors after I incorporate?
  Initial directors play a crucial role in the formation and early governance of a corporation. However, they are not required to remain in their positions after incorporation. The corporation's shareholders have the authority to elect new directors as needed, ensuring flexibility and adaptability in corporate governance.
• Can S corporations be publicly traded companies? Can C corporations be publicly traded?
  1. S Corporations cannot be publicly traded. This is because S corporations are limited to 100 shareholders who must be U.S. citizens or residents, and they also do not maintain corporate formalities like C corporations. S corporations may invest in other corporations or mutual funds.
  2. Alternatively, almost all C corporations are publicly traded companies.
• What are the pros and cons of being my own registered agent?

  Being your own registered agent offers several benefits, including cost savings, as you avoid the annual fees associated with hiring a registered agent service, which can range from $50 to $300 per year. It also allows for immediate access to important legal and tax documents, eliminating potential delays caused by third-party intermediaries. Additionally, handling sensitive information directly can help maintain greater privacy control.

  However, there are significant drawbacks to consider. As a registered agent, you must be available during regular business hours (9 AM to 5 PM) at the registered address, which can limit your flexibility and personal freedom. Your name and address will be publicly listed, potentially leading to privacy issues and unsolicited mail. Managing this role also adds to your administrative workload and increases the risk of missing important documents or legal notices, which can have serious legal consequences.

  Ultimately, while being your own registered agent can save money and provide direct control, it requires careful consideration of the time, availability, and potential risks involved.

• How much does starting a corporation cost?

  The cost of starting a corporation can vary widely depending on several factors, including the state in which you incorporate, the type of corporation, and additional services you may require. Here's a breakdown of the typical costs involved:

  • State Filing Fees: The primary cost is the state filing fee for the Articles of Incorporation, which can range from $50 to $500. For example, Delaware charges around $89, while California's fee is $100. Some states offer expedited processing for an additional fee, typically ranging from $50 to $200.
  • Registered Agent Fees: If you choose to hire a registered agent, the cost can range from $50 to $300 per year. This is optional if you decide to be your own registered agent.
  • Legal and Professional Fees: Hiring an attorney to assist with the incorporation process can cost between $500 and $2,500, depending on the complexity of your business and the attorney's rates. Consulting an accountant for tax planning and setup can add another $200 to $500 to your initial costs.
  • Business Licenses and Permits: Depending on your business type and location, you may need various licenses and permits, which can cost anywhere from $50 to $500.
  • Corporate Bylaws and Agreements: Drafting corporate bylaws and shareholder agreements, either through a lawyer or an online service, can cost between $100 and $1,000.
  • Publication Fees: Some states require you to publish a notice of incorporation in a local newspaper, which can cost from $50 to $200.
  • Franchise Taxes: Some states impose an annual franchise tax or minimum tax on corporations, which can range from $50 to several hundred dollars annually. For instance, Delaware charges a minimum franchise tax of $175.
  • Other Costs: It's advisable to obtain business insurance, which can vary greatly based on coverage but typically starts at around $500 per year. Initial expenses for corporate stationery, a corporate seal, and other office supplies can add another $50 to $200.