Form a Corporation: 10 Vital Steps
Forming a Corporation? Here are the 10 steps you need to take.
Step 1: Name Availability
Choose the Name of your Corporation and make sure it is available with your Secretary of State (“SOS”). Name availability search can often be done on your state’s SOS’s website. Additionally, if you want to do business under your Corporation’s name, also check to make sure the trademark and/or service mark is available with the United States Patent and Trademark Office (“USPTO”). A basic Trademark search can be done on the USPTO’s website; however this search is fairly complicated and is not necessarily conclusive. You might consider talking to an attorney about performing this search for you. Checking to see if the domain name associated with your chosen business name is available (search for your domain name on GoDaddy), as well as performing a search of local phone books and directories to see if any local businesses are currently operating with the same or a similar name that did not appear in your other search results.
Step 2: Articles of Incorporation
Prepare your Corporation’s Articles of Incorporation (“Articles”), have the Articles signed by the incorporator and file the Articles with the Secretary of State’s Office, paying the filing fee and requesting an extra certified copy. Each state has its own rules and regulations regarding what must be included on the Articles, and, in fact, some states don’t even call them articles. If you would like a detailed template of sample Articles, check out docstoc.com. Additionally, forms can often be found on the website of the Secretary of State of your state. The filing costs and other fees differ from state to state.
Step 3: Order A Corporate Set
A corporate set is a kit which includes several of the items that you will need for your corporation, as will be detailed below, and is a convenient place to store the corporate formality maintenance documents. These sets can be purchased online for between $30 and $200, depending on several factors, including how many items you want to be included; search for “corporate set” or “corporate kit” and you will find a variety of offerings. It is important that the kit includes at a minimum a minute book, corporate seal, share certificates and share ledger.
Step 4: Corporate Bylaws
Prepare Bylaws for the Corporation. Bylaws are usually not required to be filed with the SOS (but check your State’s laws). The Bylaws contain the rules for the actual operation and running of the corporation, and should be complete so that the officers of the corporation can rely upon them in their management of the corporation. If you would like a detailed and attorney reviewed sample Bylaws, a sample specific to your state can be found on docstoc.com. Bylaws are the most important documents for a Corporation, as they set forth the rights and duties of the Shareholders, Directors and Officers and how the corporation will operate and be run. In addition, in many states (including California) Bylaws are required by law.
Step 5: Shareholders’ Agreement
If desired, prepare and have the Shareholders execute a Shareholders’ Agreement. A Shareholders’ Agreement is an agreement often utilized by small “close” corporations that desire to restrict who can become a new shareholder, and set provisions for how existing shareholders can exit the corporation and sell their shares, among other things.
Step 6: Organizational Minutes
Draft and execute Organizational Minutes. Organizational Minutes document the organizational meeting of the Board of Directors and allow the Corporation to formalize its appointment of Board Members, Officers and other important resolutions such as the decision to obtain a Federal Identification number, open a bank, choosing of a tax status and many of the other tasks described herein. Organizational minutes are a one-time task that is specific to the organization of the Corporation. Thereafter, the Corporation will have Annual Meetings of the Shareholders and Annual Meetings of the Board of Directors, as well as Special Meetings of the Shareholders or the Board of Directors from time to time.
Step 7: Issue Shares of Stock Purchased by Shareholders
Prepare execute and deliver Share Certificates (including all required legends) and update the corporation’s Share Ledger. The Share Certificates and Share Ledger will be included in your corporate set. Corporations are required to keep track of how many Shares have been issued, how much is outstanding and how much each Shareholder has. It will be important to the Shareholder to document his or her interest in the Corporation.
Step 8: Employer Identification Number
Prepare, execute and submit to the IRS Form SS-4 (Application for Employer I.D. Number), this can be done on paper, printable at: http://www.irs.gov/pub/irs-pdf/fss4.pdf, or can be applied for online at: https://sa1.www4.irs.gov/modiein/individual/index.jsp. The Employer Identification Number (“EIN”) is the Corporation’s Social Security Number (Social Security Numbers can only be issued to people; EINs are issued to corporations). This number is necessary to open a Corporation bank account and also for tax reasons. Some of the questions on the EIN application have tax implications, so it might be good to consult an attorney or tax professional.
Step 9: Tax Election
For federal income tax purposes, a Corporation can elect to be taxed as a type S-Corp or type C-Corp. This decision has significant tax consequences, so before making such an election it would be valuable to contact a tax professional. If you decide to be taxed as an S-Corp, IRS Form 2553 (http://www.irs.gov/pub/irs-pdf/f2553.pdf) should be prepared, executed and forwarded to IRS.
Step 10: Obtain Required Permits and Licenses
Your Corporation should determine whether it needs any permits or licenses from regulatory authorities having jurisdiction over the Corporation, and if so, apply for and obtain said required permits and/or licenses. For a comprehensive overview on what licenses your business requires, go to www.license123.com for a detailed report.
For additional details, download Docstoc’s Corporate Formation To Do and Information Check List.