The Incorporation Guide
Corporate Compliance by Local Corporate Guides®
Incorporating a business involves filing a single document, usually called the Articles of Incorporation, with the state. The specific agency with which you file varies by state but will typically be your state’s Secretary of State, corporation commission, or corporation division. The corporation is one of the oldest, securest, and most trusted business structures, but it is also one of the most complicated and expensive to start and maintain.
We recommend working through this start a corporation guide to understand the general concept and then following the linked pages to learn more about how to incorporate a business in your state.
Starting a Corporation - Now What?
What is a Corporation?
A corporation is a business with a legal existence separate from its owners or members. If properly maintained, a corporation can conduct business in its own name and has many of the rights and obligations of a natural person, including the ability to enter into contracts, sue and be sued, hold assets, and pay taxes in its own name.
Corporations can get formed for for-profit purposes or nonprofit purposes (or a combination of the two, as with a benefit corporation), but the majority of corporations exist mainly to benefit and enrich their shareholders. The corporation’s independent legal status ensures that shareholders’ personal assets, apart from their investments in company stock, aren’tusually on the line if the corporation gets sued or can’t pay its debts.
The rest of this article focuses exclusively on for-profit corporations. Interested in starting a nonprofit corporation instead? Or maybe a benefit corporation? Visit the following pages to learn more:
Who owns a corporation?
Corporations are owned by their shareholders and usually managed by a board of directors. The shareholders or the initial incorporators elect the directors. The directors then elect officers like a President, Vice President, CEO, CFO, Secretary, or Treasurer, all of whom have fiduciary duties to their shareholders, although a single person can also serve all of the roles in a corporation.
Shareholders have the right to vote in the corporate meetings because of the shares they own for investing their money in the corporation, but the votes of most individual shareholders usually have very little power and influence in publicly-traded corporations because of the vast number of corporate shares issued and owned. Private corporations, however, typically have only a few shareholders, and the corporation’s founder usually holds 51% of the shares to maintain control of the company.
How will my corporation get taxed?
By default, corporations are classified by the IRS as C corporations and taxed separately from their owners, which results in the so-called “double tax”—probably the least popular feature of the corporate business structure. The double tax is an informal term for how C corporations pay taxes on their profits before distributing those profits to shareholders. The shareholders then pay taxes on that money again as personal investment income.
Qualifying corporations, however, can elect to get taxed as S corporations (an option that is also available for LLCs). With the S corp tax election, a corporation’s profits pass through the company, get divided up among its shareholders, and get taxed only once as the shareholders’ investment income.
Curious to learn more about the corporate business structure? Wondering which is the better option for your business—an LLC or a corporation? Thinking about seeking the S corp tax election? Check out the linked articles below on the following topics:
How to Start a Corporation
Choosing Where to Incorporate
Your business can incorporate in any US state or jurisdiction, and there are definitely more and less business-friendly and tax-friendly states, but the best place to incorporate is usually just where your corporation will do most of its business. The administrative burdens of incorporating in one state and operating in another are usually more than enough to offset any money your corporation initially saves by incorporating in a business-friendly state.
However, there are some exceptions. If your corporation intends to operate in every state, for instance, you might consider incorporating in a tax-free state like Wyoming, South Dakota, Nevada, Delaware, or Florida. These states, to which we might add tax-friendly South Dakota, can also provide benefits to holding companies or corporations that intend to operate exclusively online.
To learn more, read through Northwest’s articles on the following topics:
Your corporation will need a name that is distinct from other business entities registered with the state. Fortunately, every state has an online database through which you can search to find an available name. The available name will belong to your corporation once the state has filed the Articles of Incorporation. You do not need to reserve a name prior to filing, unless you are forming a corporation in Alabama.
Check the availability of your corporation’s name with a Free Business Name Search.
All states require a corporation to appoint a registered agent. Registered agents receive official mail and service of process (legal notices) on behalf of registered business entities such as corporations. Registered agents must be an individual or business that resides in the state where the corporation was formed, and registered agents must be available during regular business hours and have a physical address—called a registered office—where they can receive service of process.
Discover everything you need to know about designating a Registered Agent for your corporation.
Articles of Incorporation
After choosing a registered agent and a distinct name for your corporation, you should have all the information you need to complete your corporation’s Articles of Incorporation. Each state has a unique set of requirements for Articles of Incorporation, but generally your articles will need to include the following:
- Corporate name
- Physical and mailing addresses
- Statement of purpose
- Number of initial authorized shares or par share value
- The incorporator’s name and signature (a corporation’s incorporator is the person authorized by the corporation to complete the Articles of Incorporation)
In nearly half of all states, Articles of Incorporation must also list the names and addresses of the corporation’s initial directors. Once the state approves your articles, you’ll typically receive a Certificate of Incorporation from the relevant state agency. At that point, you have officially incorporated your business.
We offer a free template for template for creating Articles of Incorporation. Want the particulars—forms, filing times, and fees—for how to incorporate a business your state? Select your state from our menu above or the map below.
Corporate bylaws are the documents that lay out how your corporation functions. You corporation’s bylaws should answer such questions as how long a director’s tenure lasts, which responsibilities belong to each officer, what restrictions are placed on shareholders’ voting rights, and any other details relevant to effectively managing your corporation. You typically won’t file your corporate bylaws with the state, but they remain your corporation’s most important internal document.
Not sure how or where to start writing your corporate bylaws? We have an adaptable, free corporate bylaws template for download, as well as numerous other free corporate forms, to help get you started:
Your corporation will need to get an employer identification number (FEIN or EIN) for its federal tax filings, and you’ll likely need an EIN to open a corporate bank account, apply for state licenses and permits, and more generally to establish your corporation’s credibility with potential clients and vendors. You can apply for an EIN by filing Form SS-4 with the IRS online, by fax, or by mail. It’s fast, easy, and free.
Everything you need to know about getting an EIN.
Corporate Bank Account
Once you incorporate your business at the state level, your corporation becomes a distinct legal entity in need of its own business bank account to keep its income and assets completely separate from those of its shareholders, officers, and directors. Opening a corporate bank account usually requires a few key documents: your Articles of Incorporation, corporate bylaws, and EIN. Some banks will also want a board-approved resolution authorizing someone from your corporation to start a bank account in the organization’s name.
Ready to open a corporate bank account? We offer a free board resolution to open a corporate bank account.
Business Licenses and Permits
Depending on your corporation’s business purposes and activities, it may need to obtain different licenses and permits to do business in the state. This will require some research, since few states and municipalities lay out their requirements in a single place.
A good place to start checking for your corporation’s licensing requirements is with state departments. Here’s contact information for your state’s Secretary of State and licensing agencies.
After you form your corporation, you will need to file annual, biennial, or periodic reports (depending on your state’s requirements) to keep your corporation’s information updated on the state’s records. Some states also require corporations to file an initial report due shortly after you incorporate your business. These reports are usually pretty simple, but, for whatever reason, thousands of companies neglect to submit them every year and fall out of good standing with their states.
Expanding to New States
While you may start a corporation in one state, you may want to do business in other states as well. Operating a corporation in a different state requires some paperwork—typically an application for a Certificate of Authority. Overall, registering your out-of-state corporation (also called a “foreign corporation”) is a similar process to forming a corporation in your home state. You’ll need to pay a filing fee and appoint a registered agent in the new state.
Everything you need to know about Registering Your Corporation in a New State.
Ready to Start a Corporation?
Click on one of the state names below to learn more about how to start a corporation in your home state. Or simply click “Get Started” now to sign up for any of our services—from registered agent services to incorporation services—and let Northwest Registered Agent guide you.