How to Incorporate a Business

How to Start a Corporation or S Corporation

Are you ready to start a new business? The phrase "incorporating a business" has both a general and a specific meaning. Some people use the term "incorporate" to refer to the process of starting a business by registering the business with a state. But "incorporate" specifically means the process of starting a corporation in the U.S. The specific meaning is the one used in this article. 

Before You Decide to Start a Corporation

As you start your business, you should be thinking about what business legal type to select. Before you decide to form a corporation, do your research on the characteristics of the different business legal types - corporations, partnerships, S corporations, LLC's, and more. Talk to your tax professional about which business type might be best for your tax situation.

The Process of Incorporating a Business

If you want to start a corporation, you should know the process so you can make decisions and take care of many of the details. You will probably still need an attorney for the legal filings, but your participation can save you money and time during this process. 

Corporations are businesses that are entirely separate from their owners. Corporations are formed by registering and filing documents in a specific state. You can find information about starting a corporation in your state by going to your state's business division (usually part of the secretary of state's office). If you plan on doing business in more than one state, you will probably have to incorporate in each state. 

Starting an S Corporation

If you decide you want to ​start an S corporation, you will first need to set up your corporation, then elect S corporation status. The process of electing this status is included in this article. 

Reasons to Incorporate a Business

Before you decide to incorporate a business (that is, to start a corporation), think about why you are incorporating. Make sure you are incorporating for , not just because your attorney or your friends say it's a good idea.

Should You Incorporate in Delaware or Nevada?

You may have received advice to "Incorporate in Delaware" or "Incorporate in Nevada to save on taxes. But before you take this step, here are some drawbacks to incorporating in a state where your business is not located.

In an interview with attorney Susan Dawson, she pointed out these drawbacks:

Dual Registration. If you are only doing business in one state, but choose to incorporate elsewhere, you will have to register in both states initially, and each year you will need to prepare two annual reports - requiring two filing fees each year instead of only one - to keep both registrations active.

Registered Agents. You will be required to maintain a registered agent in both states, again adding more fees and costs.

Legal Costs. If your business becomes involved in litigation, the laws of both states may need to be applied depending on the various underlying issues. Your attorney (typically licensed in the state where you are doing business) will have to learn the laws of the other state to advise you on certain matters - this "learning" time may be charged to you.

Obtain the Services of an Attorney for Your Incorporation Process

Although there are many books telling you that you can incorporate on your own without the services of an attorney, you will probably want to use an attorney to guarantee that the process goes smoothly and that your incorporation is completed satisfactorily. Here are some suggestions for finding an attorney to help you incorporate.

Select an Incorporator to Do Preliminary Work

Before a corporation has been officially formed, an incorporator works to prepare documents, file the Articles of Incorporation, and select the board of directors. 

Decide What Type of Corporation You are Forming

Is your corporation public or is it privately held? Is it a stock corporation or a non-stock corporation? If the corporation's shares are publicly traded, will they be closely held or widely traded? A discussion of these different corporate types will help you make decisions as you start your corporation.

Select Your Corporate Name, Check Availability, Register and Protect Your Name

You probably have a name you want to use for your corporation. Before you can incorporate, you will need to check to be sure the name is available and it is not being used by another corporation or other business entity. After you have registered your business name, you may want to protect it by applying for a trademark.

Obtain Incorporation Information and Materials from Your State

You will be incorporating in a specific state (or states), so you will need to check that state's requirements for incorporation, including specifics of the Articles of Incorporation, what to include in your by-laws, and other requirements.

Select the Board of Directors for Your Corporation

Your corporation's board of directors is an important part of your business. Learn about selecting board members, compensating directors, conflict of interest and liability issues for your board of directors.

Apply for an Employer ID Number for Your Corporation

Here are the steps in the process of applying for an Employer ID Number (EIN) for your corporation. You can apply online by completing Form SS-4 online. You will receive your EIN immediately. 

Obtain Your Corporate Checking Account

Since the corporation is a separate entity from you personally, you will need a separate business checking account for the corporation. Establish the business checking account for your corporation and decide what other banking services you will need.

Prepare and File Your Articles of Incorporation

Your Articles of Incorporation must be filed with the state in which you are incorporating. This document establishes your corporation, names the incorporator, and sets out your business purpose. Learn where to file the Articles with your state.

Set Up Your Corporate Records Book

Every corporation needs a corporate records book, to authenticate the fact that the corporation is operating as a separate entity from its owners. The specific format for a corporate records book is detailed in this section.

Create Your Corporate By-Laws

The by-laws for your corporation define the purpose of the corporation, list the officers and directors, set their compensation, and define the meetings of the board of directors. The by-laws also set the duties of officers and other corporate policies. Here is a list of Articles that should be included in your corporate by-laws.

Electing S Corporation Status

An S corporation is a type of corporation with advantages for small businesses. To qualify as an S corporation, there are specific requirements that must be met. When you have your corporation set up and running, you can then apply to the IRS for S corporation status.

There is also a deadline for applying for this status.  The IRS requires that the Sub-chapter S Election be filed no more than two months and 15 days after the beginning of the tax year the election is to take effect. For a startup, this means the first year of the business.