Starting a corporation is a significant business decision, and there are various legal steps you must follow to ensure your corporation is legally established and complies with all applicable regulations. A corporation is a separate legal entity from its owners, which can provide limited liability protection, among other benefits. Here’s a breakdown of the legal requirements for starting a corporation:
1. Choose a Corporation Name
The first step in starting a corporation is selecting a business name that is unique and complies with your state or country’s naming rules. The name must be distinguishable from any other registered business entity in your jurisdiction.
- What You Should Do:
- Ensure the name is available by conducting a name search through your local business registry or state database.
- The name should include an appropriate designation, such as “Inc.” (Incorporated), “Corp.” (Corporation), or a similar term that denotes it is a corporation.
2. Decide on the Type of Corporation
There are different types of corporations depending on your goals and needs. Common types include:
C-Corporation (C-Corp): This is the standard form of a corporation where profits are taxed separately from the owners (double taxation).
S-Corporation (S-Corp): Similar to a C-Corp but allows income to pass through to shareholders to avoid double taxation (only available to U.S. entities under certain conditions).
Non-Profit Corporation: This is for entities created to perform charitable, educational, or public service work, and they are typically tax-exempt.
What You Should Do: Choose the type of corporation that fits your business needs. Consult with an attorney or accountant to decide if an S-Corp or C-Corp is right for you, or if you should form a nonprofit.
3. Prepare and File Articles of Incorporation
The Articles of Incorporation (also known as the Certificate of Incorporation or Charter) is a legal document that officially establishes the existence of your corporation. It must be filed with the appropriate government office (usually the state Secretary of State in the U.S.).
- What You Should Do:
- Complete the Articles of Incorporation form, which typically requires information such as your corporation’s name, business address, purpose, stock details, and the names of the incorporators.
- Submit the form along with the filing fee to the appropriate government agency.
- This document makes your corporation legally recognized.
4. Create Corporate Bylaws
Bylaws are the internal rules that govern the operation of your corporation. They cover how the corporation will be run, such as how decisions will be made, how shareholders will vote, how directors will be elected, and how meetings will be conducted.
- What You Should Do:
- Draft the corporation’s bylaws. While not all jurisdictions require this by law, it is highly recommended as it provides a clear structure for decision-making and governance.
- These bylaws should be adopted during the first organizational meeting of the board of directors.
5. Appoint Directors and Hold the First Meeting
Corporations must have a board of directors responsible for managing the company’s affairs. At the initial meeting of the board, key corporate matters will be discussed, such as adopting bylaws, issuing stock, and appointing officers.
- What You Should Do:
- Appoint directors to the board of your corporation.
- Hold the first meeting of the board to officially adopt bylaws, appoint officers (such as a CEO or CFO), and take any other necessary corporate actions.
6. Issue Stock
A corporation is required to issue stock to its shareholders as part of its ownership structure. This stock represents ownership in the company. Stock issuance must be recorded in the corporation’s records and may require a stock ledger.
- What You Should Do:
- Decide on the number of shares to be issued and their value.
- Issue stock certificates to the initial shareholders, recording all stock issued and maintaining a stock ledger.
7. Obtain an Employer Identification Number (EIN)
An Employer Identification Number (EIN) is required by the IRS (in the U.S.) or the relevant tax authority in your country to identify your corporation for tax purposes. It is necessary for opening a business bank account, filing taxes, and hiring employees.
- What You Should Do:
- Apply for an EIN through the IRS website (in the U.S.) or your local tax authority.
- This is free to obtain and can be done quickly online.
8. Register for State and Local Taxes
In addition to federal taxes, your corporation may be required to register for state and local taxes, such as sales tax, employment tax, or state income tax, depending on the nature of your business and where you are located.
- What You Should Do:
- Register with your state’s Department of Revenue or the appropriate local tax authority.
- Ensure you are complying with any state-specific business licenses or permits that may be required.
9. Comply with Employment Laws
If you plan to hire employees, you will need to comply with employment laws, including workers’ compensation insurance, unemployment insurance, and payroll taxes. You may also need to provide certain benefits, such as health insurance, depending on the size of your business.
- What You Should Do:
- Set up a payroll system and register with the appropriate employment tax agencies.
- Ensure compliance with labor laws, including workplace safety and minimum wage requirements.
10. Maintain Corporate Compliance and Keep Records
Once your corporation is established, it’s important to maintain compliance with ongoing corporate formalities. This includes:
Holding annual meetings of shareholders and directors,
Filing annual reports with the state (if required),
Keeping accurate corporate records (e.g., meeting minutes, stock ledgers, financial records).
What You Should Do:
