Each state has slightly different requirements for forming a corporation, but, in general, you’ll want to follow these steps.
1. Choose a name for your company
Choosing a business name is the first important step in forming a company. Your business name must be different from the names of existing businesses in your state. You can search for name availability online at the website of the Secretary of State or other state agency responsible for business filings. Each state office has specific rules regarding your corporation’s name, and you must comply with the rules of your state’s corporation division.
In general, here are some guidelines that generally apply:
- Your company name must contain entity identifiers, such as “Incorporated”, “limited”
“Company”, “Company” or an abbreviation, such as “Inc.”, “Co.” or “Ltd”.
- Exclude any words from your company name, such as “trust”, “bank”, “credit union” or “trustee” or words related to a government agency, such as “FBI”, “State Department” or “treasury “
2. Appoint initial administrators
The board oversees the general direction of your business, the “big picture”. To incorporate, you will need to appoint an initial board, but you can replace this temporary board with a more permanent board after your company is set up.
Different states have different requirements for how many people should be on your board. You may only need one board member or three or more.
3. File Articles of Incorporation
To form a new corporation, you will file a legal document called Articles of Incorporation with your state business filing agency (usually the Secretary of State). In most states, you can complete this process online. Although requirements may vary from state to state, statutes generally include:
- Your company name
- Its principal place of business
- Its goal
- The name and address of the registered agent who will accept service of legal documents on behalf of your company
- The names and addresses of the founders and/or the first members of the board of directors
The best thing to do is to research the documents required for your articles of incorporation based on your specific state. Each state has different requirements, different terminology, different forms and filing fees.
Once the statutes have been approved, you will receive a training certificate.
4. Draft company statutes
Some states require corporate articles of association to be legally recognized as a corporation. Corporate bylaws are the rules and regulations of a corporation outlining how it operates. You can write articles of association before or after submitting your company incorporation documents.
Corporate bylaws provide a roadmap for how the business will be run and how decisions will be made.
These statutes must include:
- The roles assigned to each agent
- How business decisions will be made
- Where and when will the annual meetings of shareholders take place?
- The percentage of shareholders needed to make decisions
- Where and when dividends are paid
If you need help drafting this legal document, it’s a good idea to consult a corporate attorney. You can also find a template online, but be sure to check with your specific state what needs to be included.
5. Hold the first board meeting
Once your corporation has been formally formed and the bylaws drafted, hold an initial board meeting. Be sure to follow the notice guidelines in your bylaws. At this meeting, the directors typically appoint a permanent board of directors, approve the articles of association, appoint officers to manage the day-to-day business of the company, establish the company’s fiscal year, and authorize the issuance of shares. Minutes of all board meetings should be recorded and kept with the company’s records.
6. Issue of shares
Issuance of shares to shareholders is one of the first formal actions of the company after the formation of a company. Make a record of the shares issued to each shareholder and the price paid.
A share of stock represents a unit of ownership. A company is owned by its shareholders and the shareholders make a contribution to the company for the shares of ownership. Shares allowed are the maximum number you are allowed to sell. The number of authorized shares is indicated in the articles of association.
Although small companies are exempt from many United States Securities and Exchange Commission (SEC) regulations regarding the issuance of stock, it is always a good idea to seek the advice of a small business attorney to ensure that you comply with all regulations when you issue shares.
7. Write a shareholders’ agreement
Although optional, a shareholder agreement can greatly contribute to the long-term success of your business.
A shareholders agreement is a contract between the owners of a small business. It determines the management of the property if a shareholder dies, retires, becomes disabled or leaves the company. Signing a shareholders’ agreement in the early stages of your business can help ensure business continuity and avoid disagreements in the future.
It is best to get help from a small business lawyer who can tailor the shareholders agreement to the specific needs of your business.
8. Get an employer identification number
An Employer Identification Number (EIN) allows the IRS to identify your business for tax reporting. It is similar to a social security number, but for your business.
A corporation is required to obtain an EIN, and you will need it to open a bank account, set up withholding, and set up state tax accounts. You can get an EIN quickly and free of charge from the IRS website.
9. Obtain business permits, licenses and DBAs
Most businesses require some type of business license or permit, but the requirements for your business will depend on where you are located and your industry. Some states and many localities require all businesses to have a general business license. Many industries, such as the sale of alcohol and firearms, aviation, and restaurants, require additional licenses.
The Small Business Administration (SBA) has a chart of industries subject to federal licensing. Contact your state and local government for information on additional licenses you need in your locality.
If you plan to do business under a name other than your official company name, you will also need to register a DBA name. The DBA name is also known as “doing business as” or “fictitious business name”. Depending on where you are located, you may need to register the DBA with your state, city, and county. If you only use your official company name in your business, you can skip this step.