The Process of Forming a Corporation

You are ready to start your new business and you have done your research into various forms of business organization. You have decided that your business needs to be a corporation. Here is the information you need to form a corporation.

• What is a Corporation?
  A corporation is a business entity that is separate from its owners. Each of the owners invests in the corporation by purchasing shares. The corporation may be public (with shares being sold to the general public) or private (with shares being distributed among a few individuals and not sold publicly).
  
  
• Where Do I Incorporate?
  Your corporation is set up in a specific state where the major business of the corporation takes place or where the corporate headquarters are located.
  
  
• What are the steps in forming a corporation?
  The steps are:
  
  1. Decide on a name for your corporation and check to see that the name is available in your state.
     
     
  2. Determine who will own shares in the corporation and how many shares each shareholder will own. If you are the owner, be sure you have one more share than anyone else.
     
     
  3. Choose the Board of Directors for the corporation. You may choose shareholders or advisers, like your CPA or attorney, or individuals with experience in the type of business you are starting.
     
     
  4. Create and sign the Articles of Incorporation or corporate charter. This document includes the important information about the corporation, like its name and purpose, the Registered Agent, and the names and shares of each shareholder. This document is filed with the Secretary of State of the state in which you are incorporating.
     
     
  5. Create corporate by-laws, describing how the corporation will be run, when the annual meeting and other meetings will be held, and how the by-laws can be amended. This document doesn't need to be filed with the state, but it should be kept in a safe place for review.
  
  
• Do I Need an Attorney?
  Although it is possible to incorporate without an attorney, each state has specific requirements, and if you miss something, you can be penalized. It is usually a good idea to have an attorney help you with the incorporation documents and the recordkeeping setup, so you can be certain everything is done properly.
  
  
• After the Corporation is Formed, What are the Recordkeeping Requirements?
  You will need to set up a corporate minute book and keep records of all Board of Directors meetings, as well as actions taken by the Board.
  
  
• Since the Corporation has Shares, Must It Register with the Securities and Exchange Commission (SEC)?
  If you have a private corporation with only a few shareholders, you do not have to register with the SEC. But check with your attorney to be certain.
  
  
• What is the Cost of Forming a Corporation?
  You will need to pay a fee for filing your Articles of Incorporation, usually between $50 and $200. In some states you will also need to pay to register shares. In addition, you must pay the attorney fees for preparation of the corporate documents. This cost can range from $200 to $2000, depending upon the complexity of the corporation.
  
  
• How Do I Form an S-Corporation?
  A Sub-chapter S Corporation is a special kind of corporation. After you have formed your corporation, you can elect Sub-chapter S Corporation status .