Starting a business isn’t as simple as coming up with an idea and starting to make money. To conduct legitimate business, you’ll need to register the business, which includes deciding which type of business to form. And to do that, you’ll need to create and compile the proper incorporation documents.
Most small businesses begin as sole proprietorships rather than corporations, meaning the owners basically operate as individuals with no separation between personal and business finances. Taking the next step by filing incorporation documents has several major advantages you need to be aware of.
Under a corporation or limited liability company, commonly referred to as an LLC, you can separate and protect your personal assets from your business assets. Adding an “Inc.” or “LLC” to your company name also gives it more credibility in the eyes of customers and vendors — plus, it carries certain tax advantages, too.
Looking for a startup business loan to launch or grow your business? Contact us today to see how we can get you the money you are looking for.
Forming a Business as a Corporation
Before you get to the process of sorting through all your incorporation papers and business formation documents, there are several steps you need to take first to ensure your corporation starts off on the right foot.
Types of Corporations You Can Form
A good initial step is to decide what kind of corporation you want to form. Here are the most common types of corporations you can form for new businesses:
- LLC: An LLC is formed by one or more individuals or entities through a written agreement that outlines the company’s organization, including management provisions and distribution of profits and losses. An LLC is a “pass-through” entity, meaning profits and losses pass through to the owners.
- C-Corporation: C-Corps can have an unlimited number of shareholders, who are protected from the corporation’s liabilities. C-Corporations are taxed on their profits and shareholders are taxed on the distributions they receive.
- S-Corporation: An S-Corp can’t have more than 100 shareholders and must have only a single class of stock. Profits and losses are distributed to shareholders based on each shareholder’s interest in the business. To qualify for S-Corp status, you must file Form 2553 with the IRS.
Related: What Is an LLC?
The Next Steps to Incorporating Your Business
Once you’ve settled on the type of corporation, you’ll typically take some or all of the following steps:
- Choose an available business name in compliance with your state’s corporation.
- Appoint directors or members.
- File articles of incorporation or organization.
- Establish bylaws that detail the corporation’s operating rules.
- Issue stock certificates to the initial shareholders.
- Obtain relevant licenses and permits.
If you are looking for small business loans to take your company to the next level, contact Seek Capital.
What Incorporation Documents Do You Need to Form a Corporation or LLC?
One thing you can plan on when forming your own corporation is a lot of paperwork. In addition to various corporate formation documents or LLC incorporation documents, you’ll need to create financial documents and partner agreements. Requirements vary from one state to the next, but as a general rule you can expect to create the following corporate documents:
1. Name Reservation Document (Corps and LLCs)
This form is called different things in different states, but it serves the same purpose everywhere: to establish a unique name for your corporation or LLC in the state where you’re incorporating or organizing. In California, for example, it’s called the Name Reservation Request, whereas in Vermont it’s called the Application to Reserve a Specified Business Name.
Fees and procedures vary depending on where you live. In California, you must complete the Name Reservation Request form, attach a $10 check payable to the Secretary of State and either mail it or drop it off to the appropriate office. These forms are usually available online at the state website.
Check with your state’s Secretary of State office to find out how to obtain and file the name reservation document, the requirements for picking a name and which names are available. You might have to choose more than one name, ranked in order of preference, just in case your first choice is unavailable or deemed inappropriate.
2. Articles of Organization (LLCs)
These documents are required for LLCs and serve to establish your business with your Secretary of State’s office. Most states will require the same type of information. In Colorado, for example, this is some of the information you’ll need to provide when filling out the Articles of Organization:
- Entity name
- Principal office street address
- Principal office mailing address
- Registered agent name and street address. This is the individual or business responsible for accepting service of process and doesn’t necessarily have to be an owner or director. The registered agent must also provide a statement of consent to being appointed as the registered agent.
- Name and address of the person or persons forming the LLC
- A management statement declaring whether the LLC is managed by managers or members
Some states, such as Minnesota, will ask you to provide information on the LLC’s number of employees, type of business and annual revenue. These forms can be filed with the state’s business filing office. Depending on your state, you can expect to pay a processing fee of $100 to $800 to the Secretary of State.
3. Articles of Incorporation (Corps)
These are similar to the articles of organization, only they are intended for corporations rather than LLCs. In some states, this document might be called the Certificate of Formation. You’ll typically have to pay a processing fee and file these documents with the Secretary of State’s office. Exceptions include:
- Maryland: File with the State Department of Assessments and Taxation
- Arizona: File with the Arizona Corporation Commission
Here’s the information you’ll typically have to provide:
- Corporation name
- Principal place of business. In some cases, you’ll need to provide a street address here, but always.
- Name and address of the registered agent
- Statement of purpose. You don’t have to be specific about what type of business your corporation will be engaged in. In fact, some states have this statement preprinted on the incorporation form. Unless you’re asked to be more specific, the Nolo legal website advises issuing a general statement along the lines of, “The purpose of the corporation is to engage in any lawful activity for which corporations may be incorporated in this state.”
- The corporation’s duration. Although the purpose of this section is to say how long your corporation will operate, the most common answer will be “perpetual” since it’s difficult to provide a specific length of duration.
- Number of shares and classes of stock the corporation is authorized to issue
- Names and addresses of incorporators, initial officers or directors
4. Operating Agreement (LLCs)
An operating agreement is used by LLCs to establish rules for the ownership and operation of the business. Most states don’t require one, but it’s still a good idea to create one to serve as a guideline. These can be created on word processing programs and stored either digitally or in paper files. Most operating agreements include the following, according to Nolo:
- Members’ percentage interests in the LLC
- Members’ rights and responsibilities
- Members’ voting power
- How profits/losses will be allocated
- How the business will be managed
- How members will be added
- How to amend rules
- Rules for holding meetings and taking votes
- Provisions for buying and selling interests in the event that a member wants to sell, dies or becomes disabled
5. Non-Disclosure Agreement (Corps and LLCs)
These agreements, commonly known as NDAs, are designed to protect private information such as financial records and client lists. An NDA is a legal contract between two or more parties — typically your company and its contractors, employees or business partners—signifying that a confidential relationship exists between them.
NDAs can be created and filed in digital or paper form. They should be signed and distributed to all concerned parties at the start of the business relationship such as upon hiring.
6. Company Bylaws (Corps)
In most states, corporations are required to maintain a written record of bylaws. These bylaws document how the corporation’s shareholders, officers and directors will oversee the organization and manage its daily operations. Bylaws also detail the company’s structure and governance.
Bylaws are typically written by the incorporator shortly after filing the articles of incorporation. They are printed out and sent as part of a packet to the Secretary of State’s office. Exact bylaws will vary according to the size and type the company, but here are a few basic details and provisions you should include:
- The corporation’s name, address and principal place of business
- List and types of officers and directors
- The process for amending and adding to the bylaws or articles of incorporation
- Procedures for shareholder, board and annual meetings
- Procedures for keeping and managing corporate records
- Types and number of stock classes that will be offered
7. Shareholders’ Agreement (Stock-issuing Corps)
For corporations that issue stock to multiple parties, the shareholders’ agreement (or stockholders’ agreement) serves as a legal document that lays out the rights of shareholders as well as the duties and powers of company management and the Board of Directors. This should come in written form and be distributed to shareholders. A typical shareholders’ agreement will address the following:
- Shareholder rights and responsibilities
- Share ownership and valuation
- Rules for issuing new shares and restrictions on share transfers
- Actions to take when a shareholder dies or becomes incapacitated
- Rules governing conflicts of interest (e.g. non-compete clauses)
- How disputes will be resolved
Related: The Best States to Start a Business
8. Meeting Minutes (Corps)
Most states require corporations to document formal shareholder, director and officer meetings so they’ll have a record in the event of audits or other legal matters. These minutes provide an official record of what was said and done at meetings, including actions taken or decisions made. Although LLCs are not required to record minutes, they should do so anyway to prevent legal disputes down the road. Minutes should include the following:
- Type of meeting (e.g. shareholder, officer or director)
- Time and place of meeting
- Names and positions of all in attendance
- Actions taken, such as any new elections, purchases, loans or stock transactions
- Record of votes, including how everyone voted and who abstained
9. Stock Certificates (Stock-issuing Corps)
Companies that issue stock must provide stock certificates that record the sale and purchase of shares in the corporation. These are almost always issued in digital form nowadays, though some companies might still issue paper certificates.
Stock certificates should include the corporation’s name, the date shares were issued, the signature of the authorizing and the company seal.
10. Annual Report (Corps and LLCs)
If you’ve incorporated as an LLC, S-Corp or C-Corp, most states require you to file an annual report with the Secretary of State’s office. This can usually be done online on the state’s website. You’ll likely have to pay a fee that ranges from $50 to $400, depending on the state. Requirements on what to include vary by state and might include some or all of the following:
- Company name and address
- Names and addresses of directors and officers for a corporation and owners and managers for an LLC
- Tax ID and other important identification numbers
- The purpose of your business
- Authorized signatories and registered agents
- Number of stock shares issued
More From Seek
- 10 Tips For Female Entrepreneurs From Women Who Founded Their Own Companies
- Best Truck Financing Options to Choose From
- How to Flip a House
- Seek on Forbes: How Many Credit Cards Should a Small Business Owner Utilize?
Photo credit: Wright Studio/Shutterstock.com