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How to Start a Corporation

How to start a corporation like those you find in impressive downtown buildings

Believe it or not, everything you need to start a corporation can be found online and for free. The document you need to file with your state agency is just a form. You fill it out, attach the filing fee, and file it with your state. When the state accepts the paperwork and gives you a filing date, you’ve got yourself a corporation.

But we DO NOT recommend you start a corporation this way.

It’s too easy for you to make a mistake, especially if you’ve never owned a corporation before. You’re better off going through a lawyer or an incorporation service. Not only will they file the paperwork for you, they will help you draft your bylaws and maybe a shareholders’ agreement if needed.

We explain the process below. If you haven’t read the first part of our series on corporations, we encourage you to read it first. This way, you can be familiar with some of the corporate-specific vocabulary we use below.

To Start a Corporation, First File the Articles of Incorporation with Your State

That form that you can fill out yourself and file with your state is called the Articles of Incorporation. It is the formal document that brings your corporation into being.

In the US, you file the Articles with a state agency (typically the Office of the Secretary of State). The state does not necessarily have to be the state you live in, but most smaller businesses do go with their home state. Many large corporations are formed in Delaware but headquartered in another state for complicated tax and legal reasons.

Below, we list most of the information you’ll need for the Articles. Always verify with your state because some states require a little more, some a little less. Just search the internet with “[your state] Articles of Incorporation” and go to the website with the .gov ending. This way, you get your information from the most reliable source.

The Name of the Corporation

You need to have settled on a name for your corporation. The name has to be different from a name already used by another corporation in your state. Different, though, can sometimes mean adding a comma between the name and “Inc.,” “Corp.” or similar.

Some states will let you check availability of a name and reserve the name if you wish. Check the website of the agency where you file your incorporation papers for how. Again, pick the website with the .gov ending to be sure you’re at the actual government website instead of a commercial website.

We have articles on how to find a great name for your business, if you need help finding a name.

List a Registered Agent and Their Address

A registered agent for service of process is the person/agency to be formally contacted for important notices such as official notices from your state or notices about lawsuits filed against your business.

You can be your own agent, but you’ll have to provide a physical address that can be looked up by the public. If you used a lawyer to set up your corporation, your lawyer might agree to be the agent. You can also hire a company whose business is to be the agent for other companies.

Using an agent for service of process company makes sense if you run a home or internet-based business. This way, you won’t have people knocking on your home’s door to notify you of lawsuits. The least expensive of these services cost around $100/year.

If you use an incorporation service to set up your corporation, they often also provide agent for service of process services.

Have at Least One Director on the Board of Directors

Some states require you to put down the name of at least one director on the Board of Directors. If you’re the sole shareholder, then you’re that director. You might also need to provide an address for the director. This address becomes public information, so be careful if you have privacy concerns.

If you run a home or internet-based business and wish for privacy, some states will let you use a PO Box address. Double-check the official filing instructions to be sure. Some filing services won’t let you use a PO Box, but they’re wrong if your state’s official filing instructions allow it.

Disclose the Number of Issued Shares

You have to decide how many shares the corporation will issue initially. Try a nice round number like 1,000 or 10,000 or 1,000,000. You may or may not have to disclose the initial price (called face value or par value) of these shares. The face value is also any number you set, like $1, $0.01, or even $0.001.

Don’t worry too much on the number and value you have to put down on the form. They are not set in stone. The corporation can issue more shares with a different face value at any time in the future by following the rules in its bylaws.

Give the Name of the Organizer/Incorporator

The organizer or incorporator is the person filing the incorporation paperwork for you. It can be you, your lawyer, or the service you used.

The organizer/incorporator officially resigns from the corporation (there’s paperwork for that) after the corporation is formed. At the same time, they also name an initial Board of Directors and turn full control of the corporation over to the Board.

Pay the Filing Fee

The amount of filing fee for starting a corporation varies by state. A quick internet search shows they’re between about $35-$300 as of this writing.

File the Paperwork and Wait

Once the Articles of Incorporation is filled out, you file the paperwork with the state you want your corporation to be formed. It usually takes a week or two for the state to approve the paperwork, unless you pay extra to speed things up.

Once you get an official filing date for filing the Articles of Incorporation, then you’ve officially formed your corporation.

To Start a Corporation, You Have to Adopt a Set of Bylaws

While, technically, filing the Articles of Incorporation with the appropriate state agency is all you need to start a corporation, there are other important documents you must prepare. The most important of these documents are the bylaws.

What Are Bylaws?

The bylaws are an internal document setting out the rules on how to run your corporation. You won’t have to file it with any government agency, but you do have to have this document.

Be sure to follow the rules set out in the document when running your corporation. This is a part of the corporate formalities you must follow in order for your business to be treated as a corporation under the law.

What do Bylaws Usually Cover?

The bylaws usually cover:

  • Type of business/purpose of the corporation
  • How to hold stockholder meetings, including the minimum number of stockholders needed for a quorum, how to call for a meeting, whether special meetings can be called, and the minimum number of meetings per year. You’ll need to hold an annual meeting every year.
  • The number of directors to the Board of Directors, how they’re elected, and what to do about vacancies
  • How often the Board should meet, and how to call special meetings
  • Type and names of corporate officers and their job duties
  • How directors and officers are selected and removed
  • The procedure for keeping corporate records
  • Rules on how to vote the shares (e.g., proxy allowed?) and when to vote
  • How the corporation issues stock (classes and number of shares)
  • Procedures on how to amend the Articles and bylaws

Do You Need a Lawyer to Draft the Bylaws?

You don’t always need a lawyer to draft your bylaws. If you used a service to file your Articles, some packages include the bylaws. You’ll typically get a generic template. Look through it and fill out the relevant information.

If you are the sole shareholder, this genetic form might be OK. Because you’re going to have to follow all the rules in the bylaws, you’ll need to look through it, understand it, and be OK with everything in there.

If you have more than one shareholder, you’re better off hiring a lawyer to draft the bylaws for you. You will very likely need a little more customization of the bylaws to make all the shareholders happy.

You Might Need to Adopt a Shareholders’ Agreement

If you are a closed corporation and have or plan to bring in one or more shareholders, you might need a shareholder’s agreement. The agreement often protects minority shareholders’ rights.

A shareholder’s agreement typically covers:

Additional Details on How to Elect Directors to the Board

Shareholders elect the Board of Directors. But, if you own more than 50% of the shares, then you basically get to appoint all the Directors. Since you appointed them, they’ll tend to do what you tell them to do.

So, some shareholder agreements help the minority shareholders by specifying that they’ll get to appoint one or more directors.

The agreement can also cover vote percentages needed for the Board to pass various types of decisions (simple majority? two-thirds? a mixture?).

What to Do If a Shareholder Wants to Sell

Because the corporation is closely held, it can sometimes be tricky to decide the value of each share. Most stocks have a face value of $0.01, but if the corporation had $10M in profits the year before and there are only three shareholders, the market value of each share would be greater. The agreement can define ways to decide the “real” value of each share.

As well, if you only have three shareholders, you probably won’t want the selling shareholder to sell to just anyone off the street. The shareholder agreement can have, for example, a right of first refusal for the remaining shareholders. This way, the remaining shareholders can buy out the leaving shareholder before the leaving shareholder sells to someone the remaining shareholders do not like.

Anti-Dilution Provisions

Typically, this provision protects minority shareholders. Maybe your corporation has three shareholders where two own 10% each and one owns 80% of the shares. If the 80% owner wants to issue more shares to bring in a fourth investor, the voting rights of the two 10% owners just got a little bit smaller.

This is called vote dilution. There are ways to prevent this, and the shareholder’s agreement can spell out the procedure.

Other Minority Shareholder Provisions

If the majority shareholder (80%) decides to sell all their shares, this basically means the entire company is sold. What happens to the shares owned by the minority shareholders?  

Some shareholder agreements will require the minority shareholders to sell as well. Other agreements will specify that the minority shareholders have the option to sell at the same price but are not required to sell.

It’s Better to Use a Lawyer to Draft Your Shareholders’ Agreement

Because a shareholders’ agreement can be fairly detailed and tailored, it’s best to work with a lawyer on the agreement. The lawyer can also explain to you what the provisions in the agreement means if you have questions.

The agreement doesn’t have to be drafted and entered into at the same time the corporation is formed. It can be drafted later.

The shareholders’ agreement is kept internally, just like the bylaws.

Some states have default laws covering the same issues as a shareholders’ agreement, but often these laws are a headache to follow. You can override the default with a customized shareholder’s agreement.

Every New Corporation Has to Hold an Initial Shareholder Meeting

Right after the corporation is formed, you’ll need to hold your first shareholders’ meeting. This meeting is a formality and the minutes of this meeting should come as a part of corporate formation papers from whoever helped you set up your corporation.

It’s pretty standard what every initial shareholders’ meeting should cover. These include:

  • Adoption of the Articles and bylaws
  • Issuance of corporate stock
  • Approval of the initial Board of Directors (which were named when the Organizer/Incorporator resigned)
  • Election of officers of the corporation

This is typically a simple one-pager document. You can find plenty of free templates online if your incorporation services didn’t include it in a package. Don’t forget to sign the document to make it official. Then, keep it in a safe place with your other important corporate formation documents.

File an Assumed Name Certificate (If Necessary)

Sometimes, and for various reasons such as the corporate name had been taken by another company, you’ll want to file an assumed name certificate. This way, you can do business under your preferred name.

To keep with corporate formalities, you should have a corporate resolution to approve the assumed name/trade name. To see a sample resolution, just search the internet using “corporate resolution to adopt trade name” or similar wording.

The assumed name certificate itself is an easy form to fill out, and the filing fee typically doesn’t cost much. For example, in Texas, as of this writing, it’s $25 to file with the Texas Secretary of State.

Some states require corporations to file their assumed name certificates with the state. Other states require you to file in each county where the corporation intends to do business. Yes, this means you might have to file in several counties in that state.

Double check your state’s rules to make sure of the details. Just do an internet search for “[insert state] assumed name certificate for corporations” and look for a page from the state’s website (which will end in .gov)

Get an Employer Identification Number (EIN)

Once your incorporation paperwork comes down from your state, you’ll need to get an Employer Identification Number (EIN) from the IRS. You can do this yourself for free by going to the IRS website and filling out the appropriate information.

It takes just a few seconds to get the EIN. If you had an EIN before, for your sole proprietorship, partnership, or LLC, you’ll need to apply for a different one for your corporation.

Some incorporation services will try to upsell you by offering you a more expensive package where they get the EIN for you. Don’t be fooled. You can get this yourself for free and in just a few seconds.

Open a Corporate Bank Account

Once you have your Articles, assumed name certificate (if necessary), and EIN, you can use them to open a business bank account. You can open the account in your corporation’s name, under the assumed name, or both.

For a corporation, you’ll need a resolution by the Board to open the bank account. Like the EIN, sometimes this resolution is a part of the upgraded package an incorporation service will try to sell you.

But the resolution is just a simple form you can fill out. You can find free templates on the internet. In fact, your bank will probably have its own template that it will send to you to sign.

The resolution basically appoints a person—you—to act on the corporation’s behalf to open a bank account in the corporate name and to sign paperwork and checks for the corporation in the future.

How to Sign Documents on Behalf of the Corporation

Often, small corporations have just one shareholder. In that case, the shareholder also holds the office of the President/CEO, the Treasurer, and the Secretary. These three officers are the minimally required to run a corporation.

You may sign documents in your official capacity as either of the three. But most people go with President or CEO. The format is typically something like:

[Signed Name]
Aspen A. Shepherd
Chief Executive Officer
Kibbles Shack, Inc.

Hold Shareholder Meetings at Least Once a Year

To make sure the law continues to treat your business as a corporation, you have to keep up with corporate formalities. One of the most important corporate formalities is to hold a shareholders’ meeting at least once a year.

For a small corporation with one or just a handful of shareholders, the meeting is often just a formality. This is why some small corporations forget to hold these meetings and end up with their corporate veils pierced.

But the meeting—as well as meeting minutes—really do not have to be complicated. In fact, it’s probably just a one or two pager document with a few items to fill out. Usually, the gist of the minutes will be something like, “Great work. Keep doing what you’re doing.” (But in more formal wording, of course.)

You can use the same template year-after-year with minor adjustments.

If you used a lawyer or an incorporation service to start your corporation, they’ll typically remind you to hold your annual meeting (and help you draft the minutes, for a fee). You might pay them to see how things are done the first year or two.

Once you have a little confidence on how to draft the minutes, you can handle them yourself. Set up a recurring reminder on your calendar to hold the meeting—i.e. draft the meeting minutes—same time, once a year, and you should do fine.

Starting a Corporation Can Get Complicated, so be Sure to Hire Good Help

Yes, you can technically start a corporation yourself by filing the Articles of Incorporation with your state. But, as you can see from above, the complete process can actually be complicated. While filing of the Articles is the minimum requirement, there are plenty of other things you have to do to start a corporation.

By using a filing service or a lawyer, they’ll help you with all the internal and external paperwork. You’ll still have to do some legwork yourself like opening a bank account. But if you follow all the steps in this article to the end, you’ll have formally set up a corporation and you’ll be ready to do business as a corporation.

Interested in starting and running a small business? Here’s the beginning of our step-by-step guide: What to do right after getting that great business idea.

DISCLAIMER: This article does not constitute legal advice. Instead, it contains general information. The information gives you the background you’ll need to hit the ground running when you do go get advice from a lawyer. Only lawyers properly licensed in your state/country are qualified to give you legal advice.

Questions? Comments?