Launching a business isn’t one-size-fits-all. A corporation differs significantly from sole proprietorships, partnerships, and LLCs. Each business structure has its unique benefits and limitations.
If your goal is to start a corporation, it’s vital to understand these distinctions. This guide breaks down the essentials to help you navigate the process confidently.
In my nearly 30 years as an attorney, entrepreneur, and advisor, I’ve dived deep into the intricacies of various business structures, particularly the unique benefits and challenges of incorporating a business. I’ve written detailed guides on how to form an LLC and start a partnership, crafted countless corporate bylaws, and overseen the formation of many corporations. This guide serves as your compass, drawing from my direct experience. It offers practical advice, actionable tips, and best practices gathered from mentoring hundreds of entrepreneurs and aiding thousands in establishing and growing their businesses.
What is a corporation?
A corporation is a legally recognized entity, distinct from its owners, with the same rights and responsibilities as an individual. Established by charter or registration, it allows a group of people or a company to operate as a unified entity under the law.
How to Start a Corporation
Key takeaways
Whether setting up an e-commerce platform or opening a physical store, the corporate structure you choose influences numerous facets of your business. Here are some crucial takeaways to guide you in making an informed choice, ensuring your business thrives:
- Variety in functionality. Depending on whether you choose a C, S, or B corporation, your business will have different operational and tax implications. Online and offline businesses must understand these differences to ensure they make the best choice for their operations and tax strategies.
- State-specific requirements. Incorporating your business means adhering to the rules of the state you’re registering in. This holds whether you’re running a brick-and-mortar store or an e-commerce site.
- Professional assistance. Hiring a professional incorporation service can streamline the registration process. This benefits online and offline businesses, ensuring that all paperwork is accurate, complete, and submitted promptly.
- Liability protection. Corporations offer a layer of personal asset protection against business debts and liabilities. Whether selling products in a physical shop or online, this protection is vital for owners.
- Credibility boost. Being recognized as a corporation can enhance your business’s reputation. Online shoppers and offline patrons alike may see corporations as more trustworthy and established.
- Easier access to capital. Corporations have an easier time raising capital through the sale of stock. Both online startups seeking tech investments and traditional businesses looking to expand can benefit.
- Endurance beyond owners. Corporations continue to exist even if ownership changes or shareholders pass away. This ensures longevity for both e-commerce platforms and traditional enterprises.
- Transferable ownership. Shares of a corporation can be sold, granting ease of transferring ownership. This is relevant for online businesses planning an exit strategy or brick-and-mortar establishments aiming for seamless transitions.
- Centralized management. Corporations have a structured management system, with a board of directors overseeing major decisions. This organizational clarity can be advantageous for decision-making in an online or offline setting.
- Tax flexibility. While the specifics vary based on the type of corporation, there are potential tax benefits to incorporate. Online and offline businesses should consult with tax professionals to leverage potential savings.
Will your business idea succeed?
The four types of corporations
Understanding the four different corporate structures is vital, especially when the goal is to align the business’s objectives with the right form. Here are the four primary corporate structures:
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C Corporation (C Corp)
A C Corp is the standard business model characterized by separate taxation for the company and its owners. It’s the default type the Internal Revenue Service (IRS) assigns when you are for a for-profit corporation (unless you specify otherwise). C Corps pay corporate taxes at the federal and state levels and are taxed separately from its owners.
The C Corporation structure would be appropriate for a rapidly growing tech startup developing an AI-driven virtual shopping assistant. Given the potential for substantial growth and future public trading plans, a C Corp structure can provide flexibility regarding equity distribution and attracting venture capital.
This structure would also work for a new pharmaceutical company launching groundbreaking drugs. This business would require significant capital and may have multiple investors. The C Corp structure allows them to raise capital and offer shares easily.
S Corporation (S Corp)
An S Corp offers taxation benefits, where the corporation’s income, deductions, and credits flow through shareholders for federal tax purposes. The result is that each shareholder pays federal tax on their share of the corporation’s income based on the number of shares they own. You must meet the requirements and file IRS Form 2553 to register as an S corporation. States’ treatment of S corporations varies for state tax purposes, so consult an attorney or accountant.
The S corporation structure would be appropriate for an e-commerce store specializing in artisanal goods. With fewer shareholders and a relatively stable income stream, the S Corp status allows profits and losses to pass directly to owners, avoiding double taxation.
It would also work well for a local coffee chain with multiple shareholders. The shareholders might opt for S Corp status to enjoy individual tax benefits based on profit and loss shares.
B Corporation (B Corp)
B Corps meld profit with purpose. They prioritize both societal and shareholder benefits. Remember, a B Corp certification reflects a commitment to societal impact but doesn’t define tax status. Depending on your tax election, a B Corp will also be a C or S Corp.
The B corporation structure works for an eco-friendly e-marketplace that donates a portion of its profits to environmental causes. The B Corp certification showcases their dedication to societal impact while they operate as either a C Corp or S Corp for taxation.
It’s also appropriate for a sustainable clothing store that sources only ethically-produced materials. Its mission-driven business aligns perfectly with B Corp values, thus earning trust from socially-conscious customers.
Nonprofit Corporation
Nonprofits champion specific causes without prioritizing profits. Any surplus funds are channeled back into the mission. Nonprofits with a charitable purpose can apply for tax-exempt status.
The nonprofit corporation structure would work well for an educational platform offering free courses to underprivileged students worldwide. Their primary goal isn’t profit but the upliftment and education of marginalized communities.
It would also work well for a community center providing free meals and workshops for local residents. The center, not driven by profit motives, funnels any extra funds into improving its services and expanding its reach.
Choosing the right corporate structure is a strategic decision that can shape a business’s future. Selecting a form that aligns with your goals, financial plans, and mission is essential.
Advantages of forming a corporation
Corporations, whether they’re C Corps, S Corps, or B Corps, offer unique advantages that differentiate them from other business structures. Online and offline businesses can leverage these benefits to safeguard their assets, foster growth, and ensure operational fluidity:
- Robust asset protection. Shareholders are typically not personally liable for the corporation’s debts or legal troubles, safeguarding personal assets like homes and savings. A brick-and-mortar retail store facing a lawsuit can ensure that the owner’s personal assets are shielded from any potential claims. An e-commerce website, if sued for a product fault, can protect the founder’s personal wealth from any legal actions. Important note: While corporations offer limited liability protection, lenders often ask shareholders of smaller, closely held corporations to provide personal guarantees for corporate loans. If the corporation defaults, you’d be personally responsible for repaying the loan.
- Stock issuance. Corporations can raise capital by issuing shares, offering the potential for business expansion. A physical bookstore looking to expand its chain can raise capital by selling shares. A tech startup with a new app can attract investors by issuing stock, fueling rapid growth.
- Tax flexibility. Depending on the type, corporations can avail of specific tax benefits, from avoiding double taxation (as in S Corps) to potential tax deductions. A manufacturing unit operating as an S Corp can pass its income directly to shareholders, ensuring they’re taxed at individual rates only. A digital marketing agency can strategically plan its finances to maximize tax deductions available to corporations.
- Durability. Unlike other structures, corporations continue indefinitely, irrespective of changes in ownership or management. A family-owned restaurant chain can remain operational even after the founding member retires. An online education platform can seamlessly transition management without affecting its courses or user base.
- Credibility boost. Being recognized as a corporation can heighten a business’s credibility among clients, partners, and investors. A corporation-tagged consultancy firm might find it easier to win contracts or projects. An online subscription service can instill more trust in its user base, driving customer retention.
- Defined management structure. Corporations have a clear hierarchy, with a board of directors overseeing major decisions and clarifying roles and responsibilities. Clear distinctions between the management and production line can streamline operations in a factory setup. For a SAAS company, a well-defined hierarchy ensures timely product updates and client communication.
- Enhanced ability to attract talent. With options to offer stock options or bonuses, corporations can attract and retain top-tier talent. A corporate hospital can hire top doctors with attractive compensation packages. A gaming platform corporation can attract ace developers by offering stock options.
- Clear transfer of ownership. Shares can be sold or transferred, making changes in ownership clear-cut and efficient. If an automobile dealership owner retires, they can easily transfer or sell their shares. Founders of a successful online magazine can liquidate their shares if they wish to exit the business.
- Global expansion potential. Corporations, with their structured setup and capital-raising ability, can explore international markets. A corporate fashion brand can launch outlets in various countries. A digital fitness application can expand its services to cater to international audiences.
- Limited compliance. While corporations have reporting requirements, they’re less rigorous or frequent than public companies, making compliance manageable. A chain of fitness centers needn’t disclose its financial details as frequently as a public company. An online travel booking platform can focus on service enhancement rather than constant financial reporting.
Disadvantages of forming a corporation
While corporations offer numerous benefits and protections for business owners, the corporate structure also has inherent disadvantages:
- Cost implications. Establishing and maintaining a corporation often demands higher financial outlays due to incorporation, ongoing state fees, and potentially higher accounting costs. A physical gym initiating as a corporation might have a higher upfront cost due to the complex incorporation processes. An online retail store might face increased annual costs due to regulatory fees specific to corporate entities.
- Double taxation. C Corporations face double taxation, where the corporation pays taxes on its earnings, and shareholders are taxed again on dividends. A corporate-owned hotel chain, for instance, may experience reduced profits due to this double taxation. A streaming service operating as a C Corporation could find reduced dividends returned to investors due to this tax structure.
- Complexity in management. With the board of directors, officers, and shareholders involved, decision-making and operations can become intricate. A corporate-run series of cafes might struggle with bureaucracy in rolling out new menu items. A digital advertising platform might delay implementing new features due to extended decision-making processes.
- Inconsistent state regulations. Each state has unique regulations concerning corporation formation, operation, and taxation. This can be intricate, especially for corporations operating nationwide. A chain of bookstores operating in multiple states might need to navigate diverse licensing requirements. An online consultation service might struggle with varying service tax regulations across states.
- Potential dilution of control. Issuing more shares to raise capital might dilute the ownership percentage of initial shareholders. Founders of a corporate fashion brand might see their control diluted after multiple rounds of funding. After several investment rounds, an online gaming platform’s original creators might have reduced influence.
- Credibility challenges. Some industries might regard newer corporations as risky compared to established firms, posing credibility concerns. A newly incorporated pharmaceutical company might face trust issues in its initial years. A fresh e-learning platform could struggle to gain trust amidst established corporate competitors.
- Increased regulatory scrutiny. Corporations, particularly if public, can be under increased regulatory observation, necessitating meticulous record-keeping. A corporation in the automotive sector might undergo rigorous quality checks and audits. An e-commerce marketplace might face strict data protection regulations. Important note: For small, closely held corporations, upholding all corporate formalities diligently is crucial. Failing to do so might allow litigants to argue that the corporation isn’t distinct from its shareholders. In such cases, shareholders could become personally liable for the corporation’s obligations.
- Lesser flexibility. Unlike LLCs or sole proprietorships, corporations are bound by more rigid structures and rules. A corporate wellness center might find it hard to pivot its services quickly. An online news portal might struggle to change its content strategy quickly.
- Potential for conflicts. Multiple stakeholders can have conflicting visions for the company’s direction, leading to possible disputes. Shareholders of a corporate cinema chain might disagree over expansion plans. An online video streaming service’s stakeholders might conflict over content acquisition.
- Duration of existence issues. Some corporations have a predetermined lifespan in their charters, leading to concerns about long-term sustainability. A corporate-run art gallery might face uncertainties as it nears the end of its stipulated existence. An online auction site might face challenges in ensuring long-term user engagement if its charter has a limited lifespan.
Operating as a corporation requires a thorough understanding of the advantages and disadvantages. The pros might outweigh the cons for some businesses, but analyzing based on individual business goals and the industry landscape is crucial.
Hire an expert to form your company and save time. Our trusted partners can help: Northwest ($39 + state fee) or incfile ($199 + state fee).
We recommend Northwest. After evaluating the leading registration companies, Northwest stands out as our top choice due to its competitive pricing, exceptional customer support, and commitment to privacy.
Pay just $39 + state fees and you’ll get a free year of registered agent service, articles of organization, privacy, and client support from local experts.
How to start a corporation
Here’s an in-depth guide to help you form your corporation:
1. Select a business name for your corporation
Choosing the right business name is pivotal. It’s not just a label; it represents your brand’s essence, values, and mission. A distinct business name can protect your brand from copycats and offer legal dispute advantages.
Here’s a detailed guide on naming your business:
Your business name is the first point of interaction with your audience. It helps build recognition and drives the first impression.
For example, “Wholesome Bakes, Inc.” for a bakery might indicate fresh, organic ingredients. “TechGizmo Corp.” for an e-commerce platform immediately informs visitors they’re in a tech gadget space.
Don’t overcomplicate this step. Remember that changing your corporation’s name is always an option later on. Furthermore, your business operations don’t need to be conducted under your registered corporate name. By filing a ‘doing business as’ (DBA) certificate, you can use a fictitious trade name for your business endeavors.
For instance, suppose you establish a corporation for your cleaning enterprise and call it Residential Cleaning Champions Corp. Over time, as your venture grows, you venture into commercial cleaning, diversifying your services to encompass residential and commercial domains.
The initial name – Residential Cleaning Champions Corp. – may not fully resonate with the broader scope of your services and could potentially puzzle prospective commercial clients.
You can either rename your corporation or, more conveniently, file a DBA and operate under the more encompassing pseudonym ‘Cleaning Champions Corp.’.
Factors to consider:
- Relevance. Ensure the name resonates with the products/services you offer. “MountainGear Corp.” works well for an adventure equipment store. “GreenNest.com, Inc.” is appropriate for an online eco-friendly home goods store.
- Simplicity. The name should be easy to pronounce, spell, and remember.
- Adaptability. Can the name grow with your business if you expand your services or areas of operation?
- Domain availability. Online businesses must check if the name or a close variation is available as a domain.
Research & Legality
- State-specific rules. Some states might require certain words or have restricted terms. Ensure you’re compliant. Physical businesses often use their city or state in their names for local recognition. Avoid names that could be limiting, as the internet has a global reach. For instance, avoid “Local” or “Nearby.”
- Uniqueness. It’s essential to ensure no other business operates under your chosen name or a confusingly similar one. Use your Secretary of State’s database to check name availability.
- Trademark checks. Before finalizing, check the U.S. Patent and Trademark Office to see if your chosen name, or a variation, is trademarked.
Finalizing your name:
- Feedback. Once you’ve shortlisted a few names, get feedback. This can be from potential customers, stakeholders, or friends and family.
- Reserve the name. If you’re not ready to incorporate immediately, many states allow you to reserve your chosen name for a limited period (typically 60 to 120 days).
Action steps:
- Brainstorm a list of potential names.
- Shortlist by checking domain availability if you plan to have an online presence.
- Use state databases for name availability checks.
- Conduct a trademark search.
- Seek feedback on shortlisted names.
- Reserve the name or proceed with incorporation.
- File a DBA if you want to operate using a different name or in different industries with unique names.
Remember, your corporation’s name sets the tone for all future interactions and perceptions. Take the time to choose wisely and ensure it’s legally safeguarded.
2. Appoint a board of directors for your corporation
Appointing a board of directors is a vital step in establishing a corporation. The board holds fiduciary duties to make decisions in the corporation’s and its shareholders’ best interest. Here’s an in-depth look:
Why is the board important?
- Decision-making authority. The board plays a crucial role in setting the strategic direction, ensuring corporate governance, and overseeing the corporation’s management. A brick-and-mortar retail chain’s board might decide on store locations, expansions, or partnerships with local suppliers. An e-commerce platform’s board could decide on technology partnerships, global market expansion, or introducing new product categories.
- Shareholder representation. They represent shareholders’ interests, ensuring that the business remains profitable and that shareholders receive a return on their investment.
Factors to consider:
- Expertise. Consider the skills and expertise you need on your board to guide your corporation. Aim for a mix of industry veterans, financial experts, and maybe a legal counsel. Having someone with food industry experience can be invaluable for a restaurant chain. Someone with I.T. infrastructure or digital marketing expertise can be crucial for a tech startup.
- Diversity. Diverse boards often result in better decision-making. Consider diversity in terms of gender, ethnicity, background, and thought.
- Commitment. Ensure your board members are committed to your corporation’s mission and have the time to dedicate to board duties.
Legal requirements & formalities:
- State-specific rules. Understand how many directors your state requires. Some might mandate a minimum based on the number of shareholders.
- Initial directors. These directors serve from the company’s incorporation until the first annual meeting. You can change or expand your board post this period.
- Bylaws. Your corporation’s bylaws, a set of internal rules, will detail each board member’s tenure, roles, and responsibilities. It will also outline how and when board meetings occur.
Appointing your board:
- Identify needs. Understand what skills and experiences are vital for your corporation’s growth and oversight.
- Recruit candidates. Approach potential candidates, discuss the role, and understand their interests and availability.
- Vetting process. Check prospective board members’ backgrounds, references, and potential conflicts of interest.
- Formal appointment. Once vetted and agreed upon, formalize their roles through written agreements specifying their roles, compensation (if any), and tenure.
- Onboarding. Ensure they understand your corporation, its mission, and its strategic goals. Please provide them with the necessary materials and access to understand their role better.
Action steps:
- List the expertise and skills your corporation requires in its board.
- Shortlist potential candidates based on these needs.
- Understand state-specific requirements regarding board composition.
- Vet and interview potential board members.
- Draft and finalize bylaws specifying board roles and responsibilities.
- Officially appoint and onboard your board members.
3. File Articles of Incorporation
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The Articles of Incorporation is a foundational document that formally establishes the existence of your corporation within the state of its incorporation. Whether establishing a physical store or launching an online business, this document is an essential step in the process. Here’s a detailed guide to assist both offline and online businesses:
Purpose of the Articles of Incorporation:
- Legal recognition. The Articles of Incorporation legally recognize your corporation and define its fundamental attributes.
- Protection. It serves as a shield, protecting the corporation’s owners/shareholders from personal liability.
Typical content:
While the content can vary by state, here are common components:
- Corporate name. The legal name under which the corporation will operate.
- Principal office address. This is where the primary executive offices are located. For online businesses, this might be the headquarters or primary operational address.
- Purpose. A brief description of the business’s main activity or objective. Example: “To operate a chain of grocery stores.” Another example: “To provide an e-commerce platform for electronics.”
- Registered agent. An individual or business entity designated to receive official papers and legal documents. This agent should have a physical address in the state of incorporation.
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- Initial directors. Names and addresses of the initial board of directors who will serve until the first shareholders’ meeting.
- Incorporators. The person or persons responsible for executing the articles. They sign the document and might include their addresses.
- Duration. Whether the corporation has a perpetual existence or a set end date.
- Stock details. Information about the corporation’s stock, such as the number of shares it’s authorized to issue and their value.
Filing process:
- Drafting. Create the document including all the relevant details. Many states offer templates or forms to simplify this process.
- Review state-specific requirements. Each state may have unique provisions or requirements. Ensure you’re compliant with state-specific guidelines. Get help from experts to form your corporation quickly and get one year of registered agent service for free. Our unique partnerships with two of the best in the business ensure you’re in capable hands. Register any entity with our premier partner, Northwest Registered Agent, and pay just $39 plus state fees (includes one year of registered agent service, a business address, mail forwarding, privacy, and much more). Register any entity with our premier partner incfile and pay just $199 plus state fees (includes one year of registered agent service, compliance alerts, EIN business tax number, and much more).
- Filing fees. Filing fees can range between $50-$300. Check with your state’s Secretary of State or equivalent office for exact fees.
- Submission. Submit the drafted Articles of Incorporation to the appropriate state agency, often the Secretary of State’s office. This can typically be done online, by mail, or in person.
- Wait for approval. Once filed, wait for the state’s approval. You’ll receive a Certificate of Incorporation or a similar document confirming your corporation’s official status upon approval.
Action steps:
- Gather all necessary information, including details about your business, directors, and registered agent.
- Draft the Articles of Incorporation using state templates if available.
- Review for accuracy and completeness.
- Pay the required filing fee and submit the document to the appropriate state agency.
- Keep a copy for your records once the state approves and returns the finalized document.
Remember, the Articles of Incorporation serve as the birth certificate for your corporation. It’s a declaration of your corporation’s existence and provides a foundational framework for your business. Whether you’re an offline retail store or an online service provider, this is a mandatory step that gives your business its legal standing.
4. Write corporate bylaws and a shareholder agreement
Crafting corporate bylaws and a shareholder agreement is essential in setting the foundation for how your corporation will function and how shareholders will interact with each other and the company.
These documents provide the roadmap for the internal management and procedures of the corporation. Clearly outlined roles, responsibilities, and processes can reduce misunderstandings and conflicts significantly.
Corporate bylaws typically include the following sections:
- Organization’s purpose. Defines the corporation’s objectives and goals.
- Board of Directors. Details on how many directors there will be, their terms of service, powers, how they are elected, and how vacancies are filled.
- Officers. Descriptions of executive roles (e.g., President, Treasurer), their duties, and processes for election or removal.
- Meetings. Specifies the frequency, location, and notice requirements for annual and special meetings.
- Committees. Explanation of committees (like Audit or Executive committees), their roles, and formation process.
- Voting procedures. Criteria for quorum, how votes are counted, and what constitutes a majority.
- Record keeping. Guidelines on maintaining corporate records, including meeting minutes and financial reports.
- Amending bylaws. Process to change or amend the bylaws in the future.
For a brick-and-mortar retail chain, bylaws might detail how regional managers can provide feedback to the board or how often financial audits should occur across different branches. An e-commerce platform may outline in the bylaws how digital security concerns are addressed or how feedback from online user communities is integrated into decision-making.
Shareholder agreement typically includes the following sections:
- Share ownership. Details about share classes, rights attached to each class, and initial distribution of shares.
- Transfer of shares. Provisions detailing restrictions or rights of first refusal if a shareholder wishes to sell their shares.
- Dividend distribution. Explanation of how and when dividends are paid out to shareholders.
- Rights and responsibilities. Outline each shareholder’s rights, including voting and access to financial records.
- Conflict resolution. Provisions for mediation or arbitration in case of disputes between shareholders.
- Exit strategy. Procedures for the dissolution of the company or the exit of individual shareholders.
A family-owned restaurant chain might have a shareholder agreement detailing how ownership is passed down through generations and what happens if a family member wants to sell their share. A digital marketing agency’s shareholder agreement might discuss how profits from online ad campaigns are distributed among shareholders or what happens if a partner wants to start a competing online venture.
Action steps:
- Consult with stakeholders. Engage with initial shareholders, directors, and potential officers to gather input for both documents.
- Draft the documents. Use templates as a starting point, but ensure they are tailored to your business’s needs.
- Review with legal counsel. Ensure compliance with state regulations and that all potential pitfalls are addressed.
- Approval. Typically, the board of directors or the shareholders must formally approve the bylaws and the shareholder agreement.
- Store safely. Once finalized and approved, keep copies in a safe place, like the company’s official records book, and ensure all relevant parties have copies.
While these documents may seem like administrative hurdles, they are foundational to the corporation’s success. They provide the roadmap for navigating challenges and ensure all stakeholders are on the same page, whether you’re selling products in a physical store or providing services online.
5. Obtain an Employer Identification Number
An Employer Identification Number (EIN) is a critical identifier for your corporation. Much like an individual’s Social Security Number, an EIN provides a unique identity to your business in the eyes of the federal government. Offline and online businesses need an EIN for tax reporting and other business activities.
Purpose and use of an EIN:
- Tax reporting. It facilitates filing federal taxes and allows the IRS to identify your business.
- Financial transactions. Banks typically require an EIN to open a business bank account, apply for business loans, or set up credit.
- Employee hiring. Essential for reporting employee taxes and for setting up payroll.
- Licenses and permits. Some local jurisdictions and state agencies may require an EIN to issue business-related licenses or permits.
Steps to obtain an EIN:
- Determine eligibility. Ensure the corporation authorizes you to obtain the EIN. Typically, this person is known as the “responsible party.”
- Prepare information. Before starting, gather necessary information, including the corporation’s legal name, trade name (if different), address, and details about the responsible party.
- Apply online. The quickest method is directly through the IRS. This tool walks you through the process, and upon completion, you’ll receive your EIN immediately.
- Alternative application methods. If preferred, you can also apply by phone for international applicants by fax, mail, or phone. However, these methods are slower than the online process.
- Store your EIN safely. After receiving your EIN, document it securely. Avoid sharing it unnecessarily to prevent potential fraud.
A physical bookstore looking to expand and hire staff will need an EIN not just for tax reporting purposes but also to set up payroll systems for new employees. Additionally, if the bookstore decides to open another branch and needs a loan, having an EIN is essential for the bank loan application.
Consider a digital freelancer platform that connects writers with clients. As the platform grows, the company decides to hire customer support representatives. They would set up a payroll system requiring an EIN to pay these new employees. Moreover, when integrating a payment gateway on the website to facilitate transactions, the financial institution behind the gateway might require the EIN for verification.
Launching your corporation
Successfully launching your corporation means addressing the next stages after incorporation. It is about setting strong foundations to operate legally, maintaining transparency with shareholders, and fulfilling compliance requirements.
1. Hold a Board of Directors meeting
This initial meeting sets the groundwork for the corporation’s management, including appointing key officers and approving corporate bylaws. As outlined in the bylaws, regular board meetings ensure that the corporation remains compliant and addresses important business matters consistently.
Steps and actionable insights:
- Set the agenda. Prioritize items that need immediate attention: officer appointments, bylaws approval, and fiscal year designation.
- Documentation. Document everything discussed and decided during the meeting. These minutes serve as an official record.
- Regular updates. Use this meeting as a blueprint for future meetings. Review progress, address new challenges, and make strategic decisions.
A restaurant chain’s board might meet to appoint a new COO responsible for overseeing new branch openings and approving a marketing budget for a new advertising campaign. For a digital marketing firm, the board might discuss strategies for capturing a larger online clientele or addressing a data breach issue.
2. Obtain business licenses and permits
Licenses and permits ensure the corporation can operate without legal hindrances. Some sectors have stringent regulations, and possessing the right licenses demonstrates compliance.
Steps and actionable insights:
- Research. Understand state and local requirements. Certain online platforms might help you identify necessary licenses.
- Application. Apply for licenses promptly. Some may take longer to process.
- Renewal. Keep track of expiration dates to ensure timely renewals.
A fitness center would need health and safety permits, possibly music licensing if they play copyrighted music, and perhaps even specific licenses if they serve food and beverages. An e-commerce platform might require a digital sales license, especially if they operate internationally.
3. Issue stock
Shares denote ownership percentages in the corporation. Issuing stock can bring in essential capital for business operations and expansion.
Steps and actionable insights:
- Determine stock value. Before issuing, determine each stock’s value, possibly with financial experts’ help.
- Follow regulations. Understand the constraints of your Articles of Incorporation and ensure compliance, especially with the number and type of shares.
- Document. Every stock issuance should be documented for transparency and future reference.
A hardware store chain deciding to expand might issue additional shares to raise funds for new store openings. A growing tech startup might issue shares to attract tech talents, offering them as part of their compensation packages.
4. Set up corporate banking and financial systems
Separate corporate finances from personal funds to maintain clear financial boundaries. A corporate account enables streamlined financial tracking and reporting.
Steps and actionable insights:
- Choose a bank. Opt for a bank with good corporate facilities, especially online banking functionalities for digital businesses.
- Open corporate accounts. This might include checking, savings, and even credit accounts.
- Implement accounting systems. Use accounting software tailored to your business size and needs. For online businesses, ensure they can handle digital transactions efficiently.
A retail boutique would need a point-of-sale system integrated with its bank for smooth daily operations. An online marketplace would need payment gateways and digital wallets integrated with its corporate account.
5. Develop an operational plan
An operational plan establishes day-to-day operational procedures and policies. It streamlines processes, minimizing waste and improving productivity.
Steps and actionable insights:
- Assess needs. Identify the corporation’s operational requirements.
- Draft procedures. Develop SOPs (Standard Operating Procedures) for critical processes.
- Implement and train. Ensure every team member understands and adheres to these procedures.
A bakery would have SOPs for baking, hygiene, customer service, and inventory management. A digital news portal would develop procedures for content creation, publication schedules, and digital marketing.
6. Develop a marketing and branding strategy
A marketing and branding strategy will help you establish a strong brand presence in the market. It will also help drive customers to the business through targeted marketing strategies. Among other things, invest in a high-quality company logo and a strong, unique website design.
Steps and actionable insights:
- Identify the target audience. Understand who your potential customers are.
- Invest in a memorable logo and website design.
- Choose marketing channels. This could be print media, radio, or local events for offline. For online, social media, SEO, and email marketing are crucial.
- Monitor and adjust. Continually assess the effectiveness of your strategies and adjust as needed.
A local cafe might host community events or distribute flyers in nearby neighborhoods. An e-commerce website would invest in online ads, influencer partnerships, and email campaigns.
7. Ensure data protection and cybersecurity (especially crucial for online businesses)
Data protection and cybersecurity safeguard customer and business data. Many jurisdictions mandate data protection measures.
Steps and actionable insights:
- Identify vulnerabilities. Understand where your data resides and its security.
- Implement protective measures. This might include firewalls, encryption, and regular cybersecurity training.
- Stay updated. Cyber threats evolve; always stay updated on the latest threats and protective measures.
A clinic would secure patient records and ensure only authorized personnel access them. A digital service provider would have stringent data protection protocols, especially for customer payment details.
Hire an expert to form your company and save time. Our trusted partners can help: Northwest ($39 + state fee) or incfile ($199 + state fee).
We recommend Northwest. After evaluating the leading registration companies, Northwest stands out as our top choice due to its competitive pricing, exceptional customer support, and commitment to privacy.
Frequently asked questions about corporations
What forms are required to start a corporation?
Wondering what forms you need to launch your corporation? The starting point is your Articles of Incorporation. This key document must be thoughtfully prepared and submitted to your state to establish your corporation. In addition to the Articles, you’ll navigate through paying filing fees and any upfront franchise taxes or additional initial fees required in your state.
Is owning a corporation worth it?
Deciding on the corporate structure requires you to weigh its advantages. The benefits of a corporation include liability protection, potential tax benefits, the ability to raise capital through the issuance of shares, and the perpetuity of the business, among others.
How much does it cost to form a corporation?
Typically, forming a corporation costs around $300, including formation services. Most states charge $100-$200 in filing fees. Expect to pay $100-$200 for services that assist you in registering your corporation. Attorney fees might be substantially higher.
How long will it take to form a corporation?
The duration to form a corporation can be as swift as a few days. However, depending on the state and other external factors, the process might stretch to a few weeks. Registration services often offer expedited options.
Do I need a lawyer to form a corporation?
Not necessarily. You can establish a corporation independently or leverage incorporation services.
What are the drawbacks of a corporation?
Operating a corporation might entail more paperwork and formalities than other business structures. Additionally, double taxation, where the corporation is taxed on profits and shareholders are taxed on dividends, can be a concern for some.
Which state is best for corporations?
Many choose to incorporate it in their home state. However, states like Delaware, Nevada, and Wyoming are often touted as corporate-friendly due to their legal frameworks and tax structures. Consult with a legal or financial expert to make an informed decision.
When is the best time to start a corporation?
Forming a corporation should align with your business plans and objectives. Starting early can offer personal liability protection. If considering the end of a fiscal year, some opt to delay to streamline tax reporting.
What is the easiest way to start a corporation?
Many find it convenient to use corporation formation services, ensuring a straightforward and cost-effective process with expert guidance.
Can I start a corporation without having a business idea?
Absolutely. Many entrepreneurs establish corporations in anticipation of future ventures or to maintain assets.
What should I name my corporation?
Select a name that resonates with your business vision and appeals to your target audience. Legally, ensure the name is unique in your state and typically includes identifiers like ‘Inc.’ or ‘Corp.’
Who can form a corporation?
Anyone can establish a corporation, although specific states might have age or residency requirements.
How are corporations taxed?
Corporations generally encounter ‘double taxation.’ The corporation pays taxes on profits, and shareholders are taxed on dividends. However, S corporations, a special designation, allow pass-through taxation to avoid this.
Can I form an anonymous corporation?
A few states, like Delaware and Nevada, offer more privacy concerning corporate ownership. However, compliance with local transparency requirements is necessary when operating in other jurisdictions.
What do I need to start a corporation?
Registering a corporation typically requires details like the corporation’s name, primary business address, purpose, management details, registered agent information, and details about stock issuance.
Can I start a corporation with bad credit?
Your credit history does not impede the formation of a corporation.
Conclusion
While the formation of your corporation is a significant milestone, launching it with a clear direction, legal compliance, and a strategy for growth is equally critical. Always be proactive, anticipating needs, addressing potential risks, and seizing opportunities as they arise.
