So you’ve decided to start a corporation. Great! Now where do you begin? While procedures and laws for creating corporations vary by state, there is a core set of steps that business owners can follow. Let’s take a look at them.
Choosing a Name
Your name should be unique and not infringe on any copyrights. It should end in a corporate designator (Ltd. Llc., etc.), and it must adhere to your specific state's laws. Additionally, a corporation name should never imply that it is affiliated with the government.
Selecting your Board of Directors
Choosing your board of directors is a matter of preference. Since the board controls major company decisions, you may choose to appoint several members, or to simply appoint yourself. Most states have laws governing who may be on the board, or how many people may preside, so you will need to check the laws of your specific state.
The next step is to incorporate yourself and write your bylaws. Incorporation, in general, means filling some basic forms known as the articles of incorporation, and submitting them to your state. The form may require the names of board members and the contact information of the person selected to handle public relations, so it is important to make those decisions beforehand. The filing fees vary by state, but can cost hundreds of dollars. After this, you will want to write the bylaws, or rules, of your corporation. Bylaws define the general company guidelines and, depending on whether your company is publicly held, can establish anti-takeover procedures. While hiring an attorney for assistance is not required, it is highly recommended.
Conducting the First Board Meeting
The next step is to call the first meeting for the board of directors. This first meeting is when the board members are officially appointed, stock is authorized, and bylaws are officially adopted. This is also the point where you decide how your company will operate. Business owners can choose between operating as a C company or as an S company. If you’re wondering what the difference is, the answer is taxation. Type C companies are taxed twice; once at the company level, then again at the shareholder level after distribution), allowing the company to pay in a lower tax bracket. Type S companies are only taxed through the shareholders. The way this works is the shareholders are taxed at a higher rate while the company is not taxed at all. The minutia of these laws can be found in several guides, but it is up to you to choose what’s best for your company.
Distributing Stock and Obtaining Business Licenses
The final steps are to distribute stock certificates to the owners, and procure your business licenses. Distribution of stock divides the ownership of the company, and is required. Larger companies are also required to register stock with the Federal Securities and Exchange Commission and with the state. Registration usually results in additional fees, so you should account for those expenses in your company budget. Smaller companies may be exempt from registration, so you should always check with your state. Once this is completed, you need to obtain your license. Depending on the type of business you are operating, you may need to obtain several licenses before you can open for business. There are federal, state and local ordinances that must be followed when getting your licenses, so always check with all three agencies and consult an attorney while doing so.