How To Form A New Business Entity

Forming a Corporation

You can think about the bylaws as a constitution for your corporation. Before you register your corporation, you should make sure a good URL is available for your business name. Even if you aren’t planning on creating a business website now, we advise buying a web domain right away to prevent other businesses from acquiring your domain name. Your name must contain the word “corporation,” “company,” “incorporated,” “limited” or an abbreviation of one of these terms.

Forming a Corporation

Save time and effort by determining whether the proposed corporate name is available before filing the incorporation documents. A corporation must follow certain formalities dictated by law to maintain its corporate status. Professional corporations that require licensed individuals may need certain permits and licenses to operate their businesses. You can read more details about how to name your business in our step-by-step guide. This is because of the difference in the way the two business entities are taxed.

Decide On Your Business Location

Filing as a C corporation is a legal procedure that allows corporations to profit and be taxed accordingly. Although C corporations protect their owners from personal liability, they need extensive record-keeping, reporting, and operational processes. There are significant disadvantages to creating a corporation regarding the amount of complexity involved. It requires a great deal more paperwork, meeting many more guidelines, electing a board of directors, adopting bylaws, having annual meetings, and creating formal financial statements.

Many states require corporations to file an annual report or other annual corporation paperwork, but requirements can vary. New corporations should list a high number of authorized shares on their formation documents. Most legal and business professionals recommend 10 million shares be authorized when a corporation is formed.

  • Check with your state’s office of business and corporations to determine if a corporate name is available for use.
  • These legally binding documents must be signed and issued to all of the stockholders.
  • A limited liability company can be managed by managers or by its members.
  • The incorporation of your business happens as soon as your articles of incorporation are filed with the secretary of state.
  • In the above example, if 4,000 shares are issued at $2 par value, each stakeholder pays the company $2,000 for a total of $8,000 starting cash in the company’s account.

They generally have more burdensome record-keeping requirements than LLCs. A https://www.bookstime.com/ corporation is a legal entity that is separate and distinct from its owners.

Forming A Corporation: Where To Incorporate

If you are ready to open a business in Florida, one of the first things you should consider is the type of business structure you want. Contact your Secretary of State office to get the right incorporation paperwork to fill out and file. Include designation words such as “Limited,” “Incorporated,” “Corporation” or abbreviated versions in your corporation name. Check your state’s list of restricted words such as “national” or “reserve” and contact your state’s office to ensure your name complies with all other rules. A domestic entity is one that is being created for the first time in Georgia. A foreign entity is one that already exists outside of the State of Georgia – whether that is another country or simply another U.S. state.

  • Some states require you to designate the type of corporation (e.g., C corp, S corp).
  • Most states require that out-of-state corporations pay a filing fee in order to register as a foreign corporation.
  • Once you’ve decided on a corporation, you’ll need to follow these steps to form your business.
  • There are dozens of different companies that offer incorporation services these days, and it can be difficult to discern which of them is your best option.
  • If not, you can send a name availability inquiry letter to your state’s Secretary of State office yourself.
  • The cost of filing ranges between $100 up to $800 or so, depending on your state and type of entity.

If the registered agent is not around when they should be, the corporation will run the risk of a lawsuit. To avoid this, a company would need all-day, year-round availability, which is why many corporations choose a registered agent service. A corporation is a legal entity that removes the legal liability of a stockholder from being personally liable for corporate debts. Each state has individual laws regarding corporations; however, many states follow the Model Business Corporation Act. Corporations offer more flexibility when it comes to their excess profits. Whereas all income in an LLC flows through to the members, an S corporation is allowed to pass income and losses to its shareholders, who report taxes on an individual tax return at ordinary levels. As such, an S corporation does not have to pay a corporate tax, thereby saving money, as corporate taxes are higher than ordinary taxes.

How Much Does It Cost To Incorporate?

Delaware is the most popular state for corporations because the Delaware General Corporation Law has been considered to be so favorable to corporate bodies. With other states recently adopting laws modeled after Delaware’s, however, Delaware has lost some of its competitive edge in recent years. The additional cost and time required to do so will likely negate any benefit that your small business might gain from incorporating in Delaware. Hiring a service to act as registered agent for your corporation has many benefits. To learn more about hiring a registered agent service for your corporation, read our Should I Use a Registered Agent Service guide. You can also check out our review of the best registered agent services. Forming a corporation is important if your startup or small business needs to attract investors.

  • The purpose of an LLC is to protect its members from any liability.
  • Many attorneys and business professionals suggest 10 million.
  • A member has to pay taxes themselves on the profits of the LLC as opposed to the LLC paying the taxes.
  • Note that if you are working with a lawyer or online incorporation service, you might name an “incorporator,” who is responsible for managing the articles of incorporation.

The Small Business Administration offers a helpful resource that you can consult for more information on licensing. Forming a corporation grants a few important legal protections. Most importantly, the corporation is an individual entity and is legally separate from the members which comprise it. Work with your business advisor, lawyer, and accountant to determine whether it’s right for you and your business. It is usually best to form your corporation in the state where your business is located. Unless the specifics of your business indicate otherwise, there are ordinarily no great advantages to forming your corporation in any other state. Corporations also come with a rigid management system, which means they will be made up of shareholders and a board of directors that will call the shots.

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This means the business itself will not be taxed and you will only be taxed on the business’s net income on your individual tax return. Corporations are more complex organizations compared to LLCs, with increased administrative overhead, more paperwork, and complex compliance requirements. Managing a corporation may require help from an attorney or accountant which can increase overall business costs. If the benefits of managing a complex business structure outweigh the costs, starting a corporation could make sense for your small business. An investor in a corporation pays taxes on dividends only when they receive them whereas an investor in an LLC would have to pay taxes regardless of whether they received a distribution or not. The LLC investor might never see a return on their investment but might have to pay taxes every year regardless. That said, a business owner who anticipates needing to carry profit into the next tax year should look closely at the financial benefits of forming a corporation.

Forming a Corporation

Thanks to the corporate veil, only your business assets are at risk in a lawsuit. However, if you fail to form or maintain your corporation in compliance with state laws, your corporate veil could be “pierced” and you will lose your limited liability protection.

What Is The Difference Between A C Corporation And An S Corporation?

There are several types of corporations, including C corporation, S corporation, B corporation, closed corporation and nonprofit corporation. Each corporation type has its own benefits, disadvantages and legal requirements. Once you’ve gone through the incorporation process, it’s time to appoint a board of directors and hold your first board meeting. This first meeting should cover topics like appointing officers, determining your tax status, and other important subjects. If you’re forming the corporation on your own without assistance from an online formation service, this process tends to be a bit difficult. You’ll need to search through your state database, which isn’t always user-friendly. If you end up missing something and try to incorporate a name that’s been taken, you’ll have to start over from scratch, and you’ll likely lose your initial application fee.

Forming a Corporation

Once you’ve decided on a business name, you will need to appoint a board of directors. The board of directors is a group of elected individuals in your company. They essentially establish corporate governance and oversee organizational strategies, investments, profits, and more. Your business entity name is how you and the state will identify your business. Some states may have rules limiting how you can choose your entity name, including the usage of company suffixes.

What Are The Steps To Form A Corporation?

You can read more details about How to Name Your Business in our step-by-step guide. Unlike a C corps, an S corp can pass through income to their shareholders for tax purposes. In the content that follows our goal is to address common concerns of average folks interested in founding one, or in switching from another business entity into a conventional corporation.

The answer to this question varies considerably based on your state of formation. There are some states that have online incorporation portals where you can form a corporation immediately. Meanwhile, some states require you to mail in paper forms that can take a matter of weeks. Additionally, many states offer some sort of expedited service that can dramatically speed up your formation process. For more details, ask your incorporation service or your state’s Secretary of State office.

Name Your Registered Agent

Later, when the corporation is legally formed, the corporation is considered as having assented to those contracts that were formed to benefit it prior to its official birth. Each state has its own legal requirements and registration procedures for new businesses wishing to incorporate. To learn more about incorporating in your state, see FindLaw’s Business Formation Resources section, which includes a state guide to incorporation laws. An S corporation is a tax designation that can be used by corporations and LLCs alike. This means that S corps do not pay federal taxes on their business income.

Registering In Other States: ‘foreign’ Corporations

For more information, check out our What Is an S Corporation page. The Forming a Corporation best type of corporation for your business depends on many factors.

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