Forming a corporation is a bit more complicated than forming a limited liability company; it is also more expensive. Choosing to incorporate your business instead of forming an LLC is usually done because for some businesses a corporation provides better tax advantages than a partnership does. Both a corporation and an LLC are protected under the corporate veil, so the deciding factor is usually the tax benefits.
If you are thinking about incorporation, you will need to learn how to form a corporation. Learning how to form a corporation is easy, you can often do everything yourself. Here are the steps you will need to take to form a corporation.
Step one:
You will need to come up with a name for your corporation. When choosing a name for your corporation you will need to comply with the rules of the state that you are incorporating in. Most states will require you to use a unique business name, it cannot be the same or similar to any business names already on file with the corporations office. To prevent this you will need to perform a name search before forming your corporation. The name also has to have a corporate designator in it, such as Corporation or Inc. You also must avoid certain words that might suggest your corporation is involved with the federal government or is a restricted type of business.
Step two:
You will need to appoint directors for your corporation. When appointing directors for your corporation you want to keep in mind that the directors are going to be making the major policy and financial decisions for the corporation, so you want to choose wisely. The directors do not have to be the owners of the corporation, but most corporation owners appoint themselves as directors before the corporation opens. How many directors your corporation can have depends on the number of owners and the state you incorporate in.
Step three:
You need to prepare your articles of incorporation. The articles of incorporation do not have to be complicated; you can often do them yourself. If you do not think you can do them on your own you can hire a company or a lawyer to help you prepare them. The articles of incorporation need to include a few basic details about your corporation. The main thing it needs to include is the name of the corporation, the address of the corporation, the name of the corporation’s directors. You might also need to include a registered agent for the corporation; this is true if none of the directors is listed in the articles of incorporation.
Step four:
You will need to file the articles of incorporation after you have prepared them. When filing the articles of incorporation you will need to pay a filing fee that ranges from $100 to $800 depending on what state you are incorporating in.
Step five:
You will need to draft the corporate bylaws. The corporate bylaws are the rules that your corporation is going to follow so that it can smoothly operate. The corporate bylaws include when and where the corporation will have meetings, what the voting requirements are, and anything else that deals with the day-to-day running of the corporation.
Step six:
You will need to hold a meeting for the board of directors. The reason this meeting needs to be held before your corporation does business is that you need to make a few decisions that deal with the running of the corporation. At this meeting, you need to set the corporation fiscal year, appoint corporate officers, adopt the bylaws, adopt a corporate seal, and make the decision about issuing stock.
Step seven:
You need to issue the shares of stock based on the decision in the board of directors meeting. Issuing the stock is a way to divide the ownership of the corporation, but it is also a requirement of doing business as a corporation. If you want, the protection that is offered to corporations you have to act like a corporation at all times.
