One of the most lucrative goals for many small business owners is to incorporate their business in order to gain a variety of legal, financial, and tax benefits. But forming a corporation isn’t always easy. The steps can vary by state and business structure, so you’ll have to do some research before you get the ball rolling. If you’ve been considering incorporating your business for some time or want a refresher guide on how to start a corporation, keep reading for 7 simple steps that will help you form your new corporation in the United States!
What is a Corporation?
A corporation is a business entity that is separate from its owners. The owners of a corporation are called shareholders, and they all have a stake in the company. The shareholders elect a board of directors, who run the company and make decisions about what happens to it.
The shareholders also receive dividends from their shares, which are payments made to them based on how many shares they own. For example, if you own 100 shares in a company that pays out $20 per share each year, then you would receive $2,000 annually from those shares.
What are the benefits of becoming a corporation?
Becoming a corporation can give your business numerous benefits. One of the main advantages is that it allows you to limit the personal liability of owners, managers, and other employees. This means that if your business does something illegal or makes a mistake that causes a loss for someone else, then their only recourse against you will be to sue the company itself, not you personally.
Also, as a corporation, you get tax advantages. For example, if you have employees then they can deduct some expenses from their income taxes. You also won’t have to pay taxes on your profits until they’re distributed to shareholders (and even then there are limits). This means that your company will have more money available for operations and future growth.
Another benefit of becoming a corporation is that it protects against personal lawsuits. If an employee or customer sues you personally because they feel they’ve been wronged by something related to your business then they won’t be able to collect any damages from you personally unless they can prove malicious intent on your part – but even then there are limits!
Steps to Start a Corporation in the United States – 7 Easy Steps
It is easy to start a Corporation in any state of America with the proper guidance. You can do it yourself or get a professional formation service to do it for you. To start a Corporation yourself, you will need to follow these steps:
Choose a name for the company.
Once you have a legal form for your corporation, it’s time to choose a name. The name of your company should be in good taste and there are rules about what kind of names are allowed. In general, try to avoid using words that describe your business (such as “wine” or “funeral services”) or make up an acronym (like “AAA” for American Airlines). Also, avoid choosing a name that is already being used by another business.
The following are some tips on how to select a suitable name:
- Choose something unique–you don’t want two companies with the same or similar sounding names operating at the same time in your area!
- Avoid long names unless they are very well known nationally/globally – it will make people think twice before choosing them over a competitor(s) because of complexity in pronunciation and spelling
- Keep each word meaningful; avoid using common articles such as ‘the’, ‘an’, etc which do not add any value but just make things more complicated for both customers/clients who may find themselves unsure about calling you by different terms depending upon whether they hear from someone else first hand vs reading newspaper advertisements where these details might have been omitted due to space constraints etcetera…
File Articles of Incorporation with the Secretary of State.
A corporation is a legal entity with its rights, obligations, and liabilities distinct from those of its shareholders. The corporation exists as long as it continues to be in good standing and complies with relevant laws and regulations.
As the official filing agency for business entities in your state, the Secretary of State’s office will help you register a corporation by preparing articles of incorporation and providing instructions on how to complete them. This can be done online or at an office location near you (check their website). You will need to provide basic information about the incorporator(s) such as name(s), address(es), date of birth, social security number (SSN), etc., along with some details about the corporate structure: whether it’s public or private, who will serve on its board of directors, what bank account should be used for initial funding purposes, etc.
After filing these documents—which may take up to two weeks depending on where you live—you’ll receive an official Certificate of Incorporation from which all other filings stem; this will include an employer identification number (EIN) if applicable.
Write corporate bylaws.
Once the corporation is created, you’ll need to write bylaws which are the rules for running your company. The board of directors or shareholders can write these rules, and they should be in place before the corporation is formed. The bylaws are not required by law but they do give people who buy shares in your company an indication of how it will be run.
The main reason to have bylaws is that they describe how the business will operate, who has authority over certain decisions, and other important issues such as how much money each person owns concerning everyone else who invested in making this dream come true!
Appoint a board of directors.
The board of directors is responsible for managing the corporation. The board of directors is made up of shareholders and may be elected by the shareholders or appointed by shareholders with a majority vote. In most cases, a company’s first meeting will also serve as its first official election of its board members; however, some states require that each director be elected individually within 30 days after incorporation.
Hold a meeting of the initial board of directors.
A board of directors is a group of people who oversee, advise and make decisions for a corporation. The board is responsible for making sure that the business operates in accordance with state law and its articles of incorporation (which are filed with the state government).
Directors should be knowledgeable about business law, accounting standards, and corporate governance procedures. Directors should also have experience working on other companies’ boards or managing their own businesses successfully before being appointed as directors at your corporation. You can appoint yourself as an initial director if you do not know any other people who meet these criteria; however, it is best to find someone else to fill this role so that they can provide guidance on how to run your company properly from day one onwards.
Create corporate stock certificates.
The next step is to create stock certificates. This is a legal document that represents ownership of a company, and it can be used to raise capital through the sale of shares. Stock certificates are often issued to investors as a way of raising capital, but they’re not required in all cases. It’s also possible for corporations in the United States to operate without issuing any stock certificates at all—they simply use another form of ownership instead, such as membership units or partnerships (which we’ll discuss later).
Stock certificates can come in two forms: bearer bonds or registered bonds. A bearer bond allows anyone who has possession of it (the “bearer”) access to any rights associated with that bond; this means that whoever holds onto it owns whatever is printed on it until someone else takes their place by claiming that they now have possession over it.
Bearer bonds are generally easier than registered ones because there’s no need for official registration paperwork; however, anyone who holds one can redeem its value whenever they wish—this makes them more likely targets for theft than other types like common shares where only those authorized by shareholders may do so unless otherwise specified beforehand by contract terms between parties involved with each respective issue date.
Issue stock to yourself and other founders.
To issue your shares directly to yourself or other founders in the company. You or they must own at least 51% of the company’s voting power (or “voting stock”) before you can use this method.
For example, let’s say that you want four people to be founders of your corporation and each person will be responsible for a different part of operations: sales and marketing, finance, operations management, and technology development. You would divide 20% of the total shares among all four founders so that every founder receives 5% ownership of the company’s capitalization (or “capital”). When issuing stock this way, you’ll need a Certificate of Incorporation from your state government office where you registered as an LLC entity—and possibly also corporate legal counsels’ assistance in drawing up contracts for each founder stating what their responsibilities will be within the organization.
First things first, before you decide to form your own corporation in the US, you need to do your research. While a corporation sounds like it’s a pretty good idea and might help add an air of legitimacy to your business, if you aren’t prepared for all the paperwork, forms and tax records that have to be kept up with consistently, owning a corporation might not be for you.