How to start a corporation: Your 9-step guide
You’ve weighed the different types of business structures and decided that a corporation has the right combination of advantages. After all, corporations offer an impressive array of personal asset protection, longevity, credibility, and operational control. For small business owners and startup founders, another big plus is the ability to secure investor funding by issuing stock.
That said, incorporating a new business — and maintaining your corporation status — is more complicated than forming a sole proprietorship or limited liability company (LLC). Corporations are highly regulated, and each state has its own laws and requirements for forming one. The incorporation process is tricky, but you can successfully navigate it without being a legal expert.
This guide gives you the basics of how to start a corporation.
How to start a corporation in 9 steps
Keep in mind that these are general guidelines. Find your state agency and confirm whether there are additional requirements in your state.
1. Choose your corporate name.
First, you’ll need to register your unique business name. We don’t mean “unique” in the creative sense, although a memorable name is best. Your corporation’s name can’t already be in use by another business, especially in your industry. It must have terms like “Corporation,” “Incorporated,” or “Limited,” or an abbreviated version, like “Inc.” or “Ltd.” You can always create a doing-business-as name (DBA) that’s easier on the eyes and ears, too.
As soon as you have a few ideas, check their availability. Most states provide a business registry database on the state's secretary website where you can see what is and isn’t available. Generally, your name is automatically registered when you form your corporation. It’s also a good idea to check that a similar domain name is available for your business website.
If you want to apply for a federal trademark for your name, logo, slogan, and more, visit the United States Patent and Trademark Office (USPTO) site to get started.
2. Appoint a board of directors.
A corporation’s board of directors is the group of leaders that are legally required to act in the company’s best interest. Each company will appoint corporate officers, set salaries, issue stock, and more.
Most states require that some board members hold standard positions like president, chief financial officer (CFO), and secretary. Alternatively, a state may permit a corporation to only have one director.
Corporation owners (known as “shareholders”) usually elect themselves as board members, but it’s common to include investors and trusted business mentors, too. You’ll need a finalized roster of directors in time for your first board meeting.
3. Complete and file your articles of incorporation.
This is the step most business owners think of when they’re learning how to start a corporation. The articles of incorporation are the official documents you’ll file with your state's office.
You can complete and file your documentation yourself, or you can outsource this process to a lawyer or online legal service like LegalZoom or Incorporate for a fee. Here’s a quick breakdown of the process:
Create your articles of incorporation.
Supply your business name, address, purpose, board member information, and duration of the corporation. Duration refers to how long your business will operate. Your state may not require this, but if it does, you can often write “perpetual.” It’s a smart move to have a legal consultant review your documents.
You may need to designate a “registered agent” and “incorporator.” A registered agent is the point of contact to receive correspondence, notice of a lawsuit, and other documentation. An incorporator manages and signs the articles of incorporation on behalf of the company. You can serve in both roles or designate another person or firm.
File the articles with your state’s office and pay any fees.
Corporations don’t have to be organized in the states where they’ll do business. Many shareholders choose Delaware or Nevada because of their pro-business laws. Nevada, for instance, has no corporate income tax, franchise, or personal income tax.
Whichever state you choose, the Secretary of State office typically processes applications. You’ll likely pay a $20 to $100 filing fee, at minimum. Once your articles are approved, you'll receive a certificate of incorporation.
4. Write your corporate bylaws.
Bylaws are the main governing document for your organization. They create the rules and procedures for how your corporation will conduct operations. Not all states require them, but they make transitions easier and offer guidance during disputes. Most bylaws include sections on:
- Mission and legal powers
- Member elections, roles, and compensation
- Policies on conflicts of interest
- Fund distribution
- Financial reporting
- Amendment of bylaws
Your board will draft and approve the first version of your bylaws, and can update them as your company evolves. You may need to report changes to the Internal Revenue Service (IRS) and your state when this happens.
5. Draft a shareholders’ agreement. (Optional)
Although a company’s bylaws and business formation articles cover a variety of scenarios, it may also be beneficial to create a shareholders’ agreement. The purpose of a shareholders' agreement is to establish a fair relationship between all shareholders, whether they’re majority and minority shareholders or equal partners.
While bylaws cover company operations, this agreement specifies shareholders’ rights and duties, how future shareholders will be selected, how dividends will be paid out, and more. It provides an extra measure of protection for everyone.
6. Hold your first board meeting.
A corporation’s first board meeting is a crucial step in the formation process. After you’ve completed the previous tasks, arrange a meeting that 100% of board members can attend.
Before the meeting:
- Send a draft of bylaws to board members for review.
- Create a corporate record book to store your meeting minutes, business records, bylaws, stock certificates, and other documents. (This is legally required.)
At the meeting:
- Call the meeting to order and record meeting minutes. (Minutes must be used to document decisions and actions during director and shareholder meetings.)
- Name all initial board members, appoint any new directors or corporate officers, and outline roles and salaries.
- Vote to adopt your corporate bylaws.
- Authorize any issuances of shares of stock.
- Vote to adopt a corporate seal and stock certificate form.
- Add any new documents to your corporate record book.
7. Authorize and issue shares.
When you incorporate your business, you’ll need to decide how many shares you’ll create or “authorize.” This number can be increased or decreased later, and many corporations start with a nice, round number like 10,000,000 shares.
Later on, you’ll actually give out, or “issue,” shares. At this stage, you’re formalizing how much ownership stake each shareholder has in the corporation. For example, if you issue 2,000 shares and divide it equally among four people, each person has 500 shares and a 25% ownership stake.
You’ll also need to determine the dollar value and the classes of stock you’ll issue. Start with this guide to issuing shares for corporations.
8. Apply for licenses and permits.
Depending on your industry and business type, you may need to obtain a collection of federal, state, and local licenses before you start operating. We’ve demystified this process in our article about applying for business licenses.
At this stage, you’ll also want to apply for an Employer Identification Number (EIN). It’s essentially a Social Security number for your business. With it, you can get your business licenses, receive tax exemptions, open a business bank account, get a business credit card, and hire staff. Apply for free through the IRS website.
9. Elect your tax status. (Optional)
There are multiple kinds of corporations, each with unique qualities. C corporations are the default option, while S corporations have tax advantages but strict requirements. In both cases, the corporation is treated as a separate legal entity, which shields shareholders from personal liability. But C corps and S corps diverge greatly at tax time.
- C corporation: C corp shareholders face double taxation. They have to pay personal income tax as well as corporate income tax on their earnings as a shareholder or employee.
- S corporation: S corp shareholders enjoy pass-through taxation. They report corporate income on their personal tax return and pay according to their personal tax rate.
If you remain a C corporation, you don’t have an extra step here. If you want to apply for S corp tax status, you’ll file Form 2553 with the IRS and verify that your state recognizes S corps.
Final tips before you incorporate
Now that you’ve learned how to start a corporation, it probably comes as no surprise that there are some pitfalls you’ll need to avoid as you’re launching. Prevent costly or time-consuming errors with these last few tips:
Consult a certified public accountant (CPA), tax professional, or corporate lawyer.
A corporation is a complex business entity — there’s a diverse set of laws and codes at the federal, state, and even local level. Make sure you’re compliant by working with a CPA, tax advisor, or legal professional. One-on-one financial and legal advice will also go a long way to create peace of mind.
Make a plan for proper bookkeeping, accounting, and reporting.
Corporations have significant recordkeeping and tax filing requirements. You can outsource these tasks to a CPA or an accounting firm. But when you’re first starting up, you may be handling your business books, accounts, and annual reports for a short period. Our accounting guide covers the tools and resources you’ll need to get organized.
Have a detailed financial strategy in place so you don’t lose protections.
Personal liability protection is one of the biggest corporate benefits, but it’s not infallible. A court can “pierce the corporate veil,” or go after your personal assets, if you fail to follow corporate protocols.
One of the main scenarios where this happens is when your company wasn’t sufficiently capitalized before formation. In other words, a corporation didn’t have enough revenue, assets, or insurance to pay its costs, debts, and liabilities.