7 Min. Read

How to Start a Corporation: A Step by Step Guide

July 8, 2021

Here is all the information you need to start a corporation, from choosing a name to opening a bank account.

One of the first things that a new business owner needs to think about is how to set up and structure their company. There are a few different options such as a sole proprietorship, general partnership or a limited liability company. Each one brings its own set of advantages but it all depends on your type of business.

Structuring your business as a corporation comes with a lot of different benefits. And it can generally be a simple process to take. Depending on where your business is located and any government regulations, there are some things that you might or might not have to do.

Here’s everything you need to know to start a corporation.

Here’s What We’ll Cover:

What Is a Corporation?

How to Start a Corporation

Key Takeaways

What Is a Corporation?

When you set your business structure up as a corporation it becomes a separate legal entity. By doing this, the corporation can enter into different legal contracts, apply for loans and take legal action. And since it has legal protection, there’s no personal liability for you or any shareholders for legal issues, debts or obligations.

They’re set up in a kind of two-level structure. The first is ownership, and the second is management. Shareholders of a corporation are usually considered to be the owners and the management level consists of the board of directors. Shareholders decide and choose the members of the board.

As well, there are two distinct types with C corporations and S corporations. With a C corporation, there’s an unlimited number of shareholders. You can also file to become a publicly traded company that’s listed on the stock exchange. Members of the public can then purchase shares in the company.

An S corporation is defined by the Internal Revenue Service (IRS) as, “corporations that elect to pass corporate income, losses, deductions and credits to their shareholders for federal tax purposes.” Basically, S corporations are designed for an owner to process business expenses with their personal tax returns. This helps to avoid the possibility of being double taxed.

How to Start a Corporation

You have done the thinking and done the planning. Now, you have made the decision to structure your business as a corporation. But where do you start? What are the steps that you need to take?

Below is a step-by-step guide to starting a corporation.

1. Choose Your Name and Make Sure It’s Available

Apart from deciding to structure your business as a corporation, choosing the right name is one of the most important first steps to take. Once you decide on a name, you need to make sure it isn’t similar to a corporation or business that already exists. You can check with local government offices or use an online search tool to determine if your name is available.

On top of that, you can also look into whether or not similar patents or trademarks are available. Local directories can also help you determine if there’s a domain name available. Even if you aren’t sure if you will have a website or not, jumping on an available domain name that matches your business will stop anyone else from taking it.

Once you have made sure that there are no other businesses with the same name, you can move forward with organizational details.

2. Set Up Organizational Details

One of the first essential steps you will need to take after choosing a business name is to appoint directors. A director oversees the creation and any amendments of operational bylaws. They also look after the election and removal of officers within the corporation.

From there, you can decide on a share structure and overall strategy. Shares get broken down into separate units of ownership of your corporation based on percentages. And they can get structured into classes that have different rights and privileges.

You will also need to create an incorporator’s statement. This includes the names and addresses of the initial directors that become appointed. And all of that information gets stored in a corporate records book

3. File Articles of Incorporation

An article or certificate of incorporation is a requirement when you form your corporation. Depending on where you’re located there can be different requirements to follow. But the basis is to provide important information like ownership structure, location and how your stock gets issued.

After you prepare your articles of incorporation, they need to be signed by the incorporator and filed in the location of your business. There will be a fee associated with filing the articles and you should also get a certified copy of the documents.

4. Establish Corporate Bylaws

Bylaws are incredibly important documents to establish. They outline all the rights and duties of shareholders, directors and any officers in the corporation. And they provide an overview of how the corporation will operate.

They’re not required everywhere, but it would be a smart move to create them regardless. Bylaws can help organize accurate meeting minutes, your business entity type and any business assets. You can contact your local government office to check on requirements and find out more information.

5. Issue Stock

The details of how your stock can get shared would have been included when you set up your initial organizational details. They’re broken into units where a single share will represent a percentage of ownership in the corporation. Since you have now filed the necessary articles of incorporation, you will need to issue authorized shares.

There are a few different ways you can do this. Some corporations issue a paper stock certificate and others use electronic ledgers to issue and track the shares. As a corporation, you’re required to keep track of how many get issued, how many are still available and who owns them.

6. Get Any Licensing Requirements and Register for Tax

There are certain business permits and licenses that you will need to have when it comes to legal status. They vary depending on location and the industry that you operate but can be a requirement. Contact your local or state government to determine exactly what you need for the public record. They can also let you know if there are any corporate tax benefits.

You will also need to register with state and local tax agencies for things like payroll, sales and any other taxes. And for federal income tax purposes, there’s a big difference between getting taxed as either a C corporation or an S corporation.

Every corporation is also required to apply for an employee identification number. You can use this number to open bank accounts and when you file federal taxes. It’s basically a social security number for your business.

7. Open a Corporate Account

As a corporation, it’s crucial to have a bank account that’s completely separate from owner bank accounts. Contact your bank to find out what details and documentation you will need to do this. Most banks will require your articles of incorporation and Employee Identification Number.

Key Takeaways

There are a ton of benefits to being a corporation compared to sole proprietorships or a limited liability partnership. You can issue shares to generate more capital and there’s a defined infrastructure for further stability. You’re also not legally liable should anything happen.

It can seem like an overwhelming and complex process to go through to establish a corporation. But chances are you have weighed the pros and cons and determined it to be the best solution for your business.

The location and operational structure can have different requirements to follow. Use the seven steps outlined above to help get you started and begin to establish your corporation’s legacy.

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