If you’re starting an LLC, the business entity formation process is one of the first and most important hurdles. This step can be terribly complex ...
How to Start a Corporation
Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on September 28, 2021
Updated on March 16, 2023
When starting a business, one of the most important decisions to make is which type of business entity to form. A corporation is often the choice of business founders who are thinking big.
A corporation is a legal business entity that is separate from its owners and has many of the same rights as an individual. It can borrow money, enter into contracts, pay taxes, and own assets, and provides limited liability protection for its shareholders, meaning shareholders are not personally liable for the debts of the corporation.
This article details the process of forming a corporation, one step at a time.
Step 1: Choose Your Corporation Name
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
- Short, unique, and catchy names tend to stand out
- Names that are easy to say and spell tend to do better
- Name should be relevant to your product or service offerings
- Ask around — family, friends, colleagues, social media — for suggestions
- Including keywords, such as “meats” for a butcher, boosts SEO
- Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
- Avoid location-based names that might hinder future expansion
Use online tools like the Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
There are some rules to follow when choosing your corporation’s name. It must contain the word “corporation,” “company,” “incorporated,” “limited” or one of those terms abbreviated. It cannot use words like “bank”, “credit union” or “trust” without approval, nor can it contain words that might confuse it with a government agency. It also must be clearly distinguishable from any other business in your state.
Step 2: Select a Registered Agent
A registered agent is the person or company that sends and receives official documents on behalf of your corporation. The registered agent can be an owner of the corporation, or you can choose a third party such as an attorney, or a company that offers registered agent services.
The requirements to be a registered agent are:
- Age 18 years or older
- Have a physical address in the state where your business is formed
- Be available during normal business hours to accept correspondence personally
- If the agent is a business entity, it must be registered to operate in your state
Many corporations choose an owner who is highly involved in the business to be the registered agent, although a registered agent service can save you time and ensure compliance with the law.
Step 3: Appoint Directors and Create an Incorporator’s Statement
You need to appoint directors for your corporation and often, in a small business, the owners appoint themselves as directors. The number of directors required depends on your state’s requirements. The directors are responsible for the adoption, amendment, and repeal of corporate bylaws, and for the election of officers of the corporation.
You also need to create an incorporator’s statement that names the directors, then have this signed by all owners and stored in your corporate records. You may want to hire an attorney.
Step 4: File Your Articles of Incorporation
You can get articles of incorporation forms from your Secretary of State’s website. The articles will include the names of the directors and the name of your registered agent as the contact person for the corporation. The articles will also have the name and address of your corporation and the number of authorized shares the corporation can issue.
Step 5: Create Corporate Bylaws
While bylaws don’t have to be filed with the state, they are important to have because they spell out how the corporation will be governed.
Your bylaws should include:
- Roles and responsibilities of directors and officers
- Meeting guidelines and voting procedures
- Record-keeping guidelines
- Dispute procedures
- How bylaws can be added or amended
- Annual shareholder meeting dates
- Fiduciary duties to the corporation
Step 6: Create a Shareholder’s Agreement
While not required, a shareholders’ agreement is an important document to have. The agreement will specify what happens if an owner dies or retires, or if something else occurs that creates a need for the owner to transfer his corporate shares. The purpose is to protect the remaining shareholders.
Step 7: Obtain Business Licenses and Permits
You may need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located, and by industry. Check with your state for specific license and permit requirements for your corporation, or use MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
Step 8: Apply for an EIN
EIN stands for Employer Identification Number and is like a social security number for your business, allowing the IRS to identify your business easily. It is also known as a Federal Tax Identification Number (FTIN), or sometimes for corporations it’s known as a Tax Identification Number (TIN).
The EIN is used to identify US businesses and contains information about the state in which the company is registered. It identifies the taxpayers required to file business tax returns and is used by employers for filing taxes. It is normally required for businesses when they open a business bank account.
The application is free and can be found on the IRS website. The application is form SS-4, and it can be mailed to the IRS, or it can be submitted electronically. Once your information on the online application has been validated, the EIN is assigned immediately.
The EIN will never expire, and is never duplicated, even if you go out of business.
Forming a corporation is fairly straightforward, although more complex than forming an LLC. It is recommended that you consult an attorney when drafting important documents such as the shareholder’s agreement.
If your company grows, or you raise money from investors, it becomes even more important to get professional advice to make sure you remain in compliance with all laws. You will also need to be aware of the laws in your state regarding steps such as annual reporting.
How to Start a Corporation
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