Forming a Corporation

Sep 17, 2019Business Law

The following steps provide a guideline to help you form a corporation properly. Note that, depending on the state in which you live, you may or may not have to take all the steps outlined below to start a corporation. To obtain state-specific information on how to start a business or form a corporation, check out the list of links to state business offices maintained at the Small Business Administration website.

 

1. Choose a business name.

This is the important first step when starting a corporation. This will also include a corporate designation—a word which identifies the business as a corporation—such as “Incorporated” or “Limited” or “Corporation” (or the abbreviated version of these terms).

 

2. Check availability of name.

In addition to selecting a name for the corporation, a search should be made ensure that the name is legally available. Checking with the Secretary of State’s office of business and corporations is used to determine if the corporate name is available for use. This also includes checking to make sure the proposed corporate name doesn’t infringe on any registered trademarks. A trademark search will help determine if there are pending trademark applications or active registered federal trademarks with the USPTO.

 

3. Appoint directors.

Directors are typically appointed by owners, and in many cases owners will appoint themselves as directors. However, while an owner can be a director, a director need not be an owner. A minimum of at least one director is required under state law.

 

4. File articles of incorporation.

Once a name has been chosen and at least one director has been chosen, the incorporator (person or entity registering the corporation) need to find, complete, and file articles of incorporation with the Secretary of State office. These are also commonly referred to as certificates of incorporation or charters. Typically the state requires that the incorporator list the names of the corporation’s directors on the articles of incorporation. The state also requires the designation of a registered agent.

 

5. Draft corporate bylaws.

Bylaws set out the rules governing how the corporation will be run. Generally, corporate bylaws will cover things like the stocks which the corporation is authorized to issue, the number of directors required and procedures related to meetings and record-keeping. While bylaws do not typically need to be filed with the state, they are an important part of running a corporation. Consulting with a business attorney is recommended for assistance in drafting appropriate bylaws for the corporation.

 

6. Draft a shareholders’ agreement.

While optional, a shareholders’ agreement is a document details what occurs in event of the death or retirement of an owner, or some other event which causes an owner to need to transfer ownership of his or her shares in the corporation. Having such an agreement helps to protect the interests of the remaining shareholders if one owner dies or otherwise wishes to leave the corporation.

 

7. Hold initial board of directors meeting.

Whether a corporation has several directors or just one, an initial board of directors meeting should be held to deal with a variety of matters, including the adoption of bylaws, appointment of corporate officers and the authorization to issue stock. If an S corporation tax election is going to be made, typically this matter should be dealt with and approved by the directors at this initial board of directors meeting.

 

8. Issue stock.

As a small corporation, most likely the corporation will be exempt from the requirements of the Securities and Exchange Commission (SEC) and the state’s securities regulation agency. Therefore, once the board of directors have authorized the issuance of stock, the corporation can issue stock certificates if required.

 

9. Obtain business permits and licenses.

Before a corporation can be open for business, it will likely need to obtain certain business permits and licenses. Requirements will vary depending on state and local governments, as well as the industry in which the business will operate.

 

10. Register with the IRS and state and local tax agencies.

C corporations are separate tax-paying entities; this requires obtaining a tax ID number from the IRS and as well as state and local tax revenue agencies.

 

11. Open a corporate bank account.

It’s important that the corporation has a bank account that’s separate from the bank accounts of its owners. Check with the bank of choice to see what documents will be required to open a corporate bank account. Some banks require a corporate resolution in order to open a corporate account, while others may need only a copy of the articles of incorporation. Most banks also require a corporation’s EIN or Employer Identification Number, which can be obtained from the IRS.

Consulting with a business attorney who understands your business and can help guide you through the process of starting a corporation is an essential first step towards having a successful business. Schedule your free, personalized consultation today.

Jonathon Frantz

Jonathon Frantz

Attorney

Questions about business law? Schedule a consultation so I can help you learn more.

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