How to become a corporation

 

How to become a corporation

Kelly DuFord Williams, founder and managing partner of Slate Law Group, outlined six general steps a small business must take to become a corporation. However, every state has specific guidelines, so your process may vary. Check the specific corporation requirements for the state where your business will operate.

1. Hire a transactional attorney. An attorney can walk you through the business formation process. Corporate formation and governance laws vary by state and are constantly changing, so an experienced attorney will be invaluable in managing the formation process and avoiding problems.
2. Appoint a registered agent and file the articles of incorporation. Every corporation must have a registered agent in the state where it files the articles of incorporation. A registered agent is an individual or company (i.e., a registered corporate agent) who will accept the required notice, also known as the service of process, if your corporation becomes a party to legal action. This agent must be a resident of the state where you filed.
3. Create the corporate bylaws and appoint directors. Bylaws are the rules and internal regulations under which the corporation will operate (similar to an operating agreement for an LLC). Some states do not require corporations to have bylaws. However, it is prudent to adopt corporate bylaws, as they delineate the rights and responsibilities of your business’s shareholders, directors and officers, eliminating confusion and maintaining corporate formalities. Additionally, banks and creditors may ask to see your corporate bylaws to establish the corporation’s legitimacy before they extend loans or allow your corporation to open a business bank account.
4. Issue stock. Shareholders who have contributed cash, services or other property to the business are entitled to stock (ownership interest) in the corporation in proportion to their contribution. A share of stock is classified as a security and generally falls under the requirements of state and federal securities laws.
5. File any other necessary documents with your local secretary of state. Other documents may be required in your state. For example, when running a business in California, every corporation must file a statement of information within 90 days of incorporation and every year during the corporation’s filing period. Some states refer to this as the annual report. Filing requirements vary by state; some states do not require a statement or report to be filed until the following calendar year.
6. File any necessary IRS forms. Every corporation must apply for an employer identification number (EIN). This is like a Social Security number for the corporation, so you’ll use it when your corporation applies for bank accounts and when you file corporate taxes. Filing by mail usually takes 30 days, but you can apply for an EIN online and receive one almost immediately.

If you can’t afford to hire an attorney, you can still file your applications and forms online or use third-party agents that offer direct services. However, Wendy Barlin, CEO of About Profit and author of Never Budget Again, warns business owners to be careful with these services, because a mistake as simple as checking the wrong box can have very expensive consequences.