Formation of a Corporation
Forming a corporation is an important decision and an intricate process. By forming a corporation, the business owners can benefit from a more distinct level of legal protection, the benefits of potentially lower personal tax liabilities, and the creation of a more professional and attractive business. To form a corporation, business owners must submit paperwork to the appropriate state agency and state taxes and fees.
Steps of forming a Corporation
1. Choose a Business Name: Before creating a corporation, the first step is to choose a business name. The name must meet state regulations and standards and it must be distinguishable from any other business entity registered in the state. The name should also be relatively easy to remember, as it will be used frequently.
2. File Articles of Incorporation: The next step is to file Articles of Incorporation in the appropriate state. The articles must contain necessary information such as the corporations name (as stated above), the purpose of the corporation, the name of the incorporator and the addresses of the corporations initial registered office and agent.
3. Obtain an Employer Identification Number (EIN): Once the Articles of Incorporation have been accepted and approved, the corporation must then obtain its own federal tax identification number, which is known as an Employer Identification Number (EIN).
4. Establish Corporate Bylaws: The corporation must also establish corporate bylaws. Corporate bylaws are basically a set of rules that dictate how the corporation should operate, how it is managed and how important corporate decisions are made.
5. Appointment of Directors: The Articles of Incorporation must also list the names of the corporations initial directors, who must approve and sign the corporate bylaws before they can officially become the corporations directors.
6. Issue Stock Certificates: A corporation must also authorize the issuance of its own stock, and must issue stock certificates to its shareholders to formally recognize them as partial owners of the corporation.
7. Adoption of an Operating Agreement: The corporation may also need to adopt an Operating Agreement or Business Agreement, which defines the rights and responsibilities of the shareholders, managers and employees of the corporation.
8. File Initial Reports with the State: Finally, after all of the steps above have been completed, the corporation must file its Initial Reports with the state in which it was incorporated. This will show the state that the corporation is officially organized and compliant with all state laws. This also notifies the state of any changes that have occurred since the corporation was established.
These are the general steps for forming a corporation, but it is important to be aware that state laws vary widely, and that some states may require additional steps or paperwork in order to properly establish a corporation. It is strongly recommended to consult a knowledgeable business attorney prior to the formation of a corporation, to ensure that all paperwork is filed correctly and that all necessary steps have been taken.
