How to Become a Corporation, Step by Step

If the corporation gets sued or owes money to lenders or vendors, your liabilities are limited to your investment in the company. As noted in RCW 23B.02.060, there are certain default provisions if not otherwise spelled out in the bylaws. Under Washington law, a corporation must have at least one director. A director need not be a resident of Washington or a shareholder of the corporation, unless the articles of incorporation or bylaws require these qualifications.

Delaware is a very popular state to incorporate in, and boasts the highest number of incorporated entities in America. Think of the entity formation process like doing your personal taxes—you must submit everything correctly, but you don’t need to understand every detail of the laws and codes surrounding the process. It can take a long time to incorporate your business, and maintaining your corporate status can be a challenge. But countless other businesses have done it time and again, and so can yours.

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Owners can also save from having to pay Social Security, Medicare, and Workers Compensation taxes, which corporate income is not subject to. Furthermore, as mentioned, S corps allow owners to opt in to pass-through taxation. At the time of incorporation, the earliest shareholders of a company are often its founders, and in smaller companies, the founders may be the only shareholders.

Most states also require an annual filing fee, along with an annual report. This is another cost that varies depending on the location of your corporation. But California imposes a minimum $800 franchise tax due each year. When you’re going through the formation process, you have the opportunity to choose between a C corporation or an S corporation. Both have advantages depending on how you plan to operate and scale the business down the road.

What Is a Corporation vs. a Business?

Once you are confident that your name is unique and acceptable, you’re ready to file it as part of the incorporation papers. On the upside, the three biggest advantages of becoming a corporation are limited liability, business continuity, and access to funding. You might structure your business as a closed corporation if you run a partnership and want the liability protections of a corporation without any major business restructuring. You might also choose a closed corporation to avoid mandatory shareholder meetings and reporting obligations. There are several corporation types, including C corporation, S corporation, B corporation, closed corporation and nonprofit corporation. Each corporation type has its own benefits, disadvantages and legal requirements.

• A business may seek to incorporate existing as a legal entity separate from its owners.
• To date, we have helped form over 1 million businesses using our quick, affordable process.
• Each state has its own set of requirements and deadlines to consider, and meeting those deadlines is a requirement in order to prevent your business from falling out of good standing.
• But while they may be the most difficult entity to create, they also offer the greatest liability protection for owners and shareholders.

Corporations possess many of the same legal rights and responsibilities as individuals. The limited liability nature of a corporation means that its shareholders are not personally responsible for the company’s debts. A business may seek to incorporate existing as a legal entity separate from its owners. This means that the owners cannot be held responsible for the debts of the corporation. It also means that the corporation can own assets, sue or be sued, and borrow money.

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Either choice is good, and the online services are reliable and inexpensive. If you’re working with a lawyer, they might offer to file for you. Your business name must not be currently used by another corporation, particularly in your industry. A nonprofit designation is typically reserved for companies benefiting the public or working to effect a specific cause. Nonprofit organizations may structurally resemble C corporations, but they must handle their profits differently.

Because each state sets their own rules regarding corporations, this also makes it tricky to learn how to open a corporation, as well as to operate as one. Most states do require corporations to file an Articles Of Incorporation, which defines the company’s policies and guidelines and acts as a document of creation for the corporation. After filing this document and paying a fee, the corporation can then receive an official certificate of incorporation from the state. Not all states require your corporation to have corporate bylaws, but it’s important you check with your local secretary of state’s office in which you plan to do business. If you’re forming the corporation on your own without assistance from an online formation service, this process tends to be a bit difficult.

Operating a corporation

Overall setup costs for a corporation also depend on your state as well as the type of corporation you need. The law observes a corporation as an entity separate and distinct from its shareholders (i.e., owners). A corporation has its own assets, liabilities and legal rights that protect its shareholders from personal liability. One of the first steps of starting a business is choosing the best legal structure. You can choose to operate as a sole proprietorship, partnership, limited liability company (LLC), corporation or cooperative. A corporation may be formed by an individual or group with a shared goal and can be a for-profit or not-for-profit entity.

In some cases, corporate profits are taxed twice — first, when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns. Corporate minutes document the meetings of shareholders and the board of directors. Minutes must be used to record actions during all board and shareholder meetings. This is a business structure where the business is a separate entity from the individuals that run the business. Because the company is a separate entity, the shareholders enjoy limited liability. This means that they generally can’t be held individually liable for the corporation’s responsibilities, such as business debts, taxes, liabilities and other obligations.

It’s also easier to transfer ownership and raise capital as a corporation because capital and ownership are raised and managed through stocks. Members of a corporation include shareholders, directors, employees, and management. Directors and management are responsible for operation and decision-making.

If you’re using Incfile to form your corporation, they’ll handle this for you when you’re registering the business. Generally speaking, you have three different corporate entity types to choose from—C corporation, S corporation, or nonprofit corporation. The first thing you need to do is choose a business name for your corporate entity. But before you do that, you must verify that another business hasn’t registered the name in your state.

There is no simple answer to this question, as it depends on your business circumstances. Typically, they are not solely profit-driven but focus on social and environmental good. To create a corporation, you’ll need to go through a number of important steps. It’s recommended to hire a lawyer to assist you in the process, as it can be rather difficult to do on your own.

• The documents needed to file for a corporation include various business documents and the articles of incorporation.
• However, there is no requirement that a lawyer prepare the documents when forming a corporation.
• C Corps must pay taxes on their profits, and shareholders must pay income taxes on the money they receive from the corporation.
• The Department of State cannot provide legal advice regarding the preparation of these documents.
• Unlike other business entity types, a corporation protects each owner’s personal assets.

Bylaws are written rules that determine how your corporation will be governed. Whether it’s to save money on taxes, attract investors, protect yourself, or boost reputability, starting a corporation might be the best next step for you and the business. A corporation is a legal entity that is separate from its owners, which can protect you from any business liabilities and help get your business off the ground.

Under the law, corporations possess many of the same rights and responsibilities as individuals. They can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay Forming a corporation taxes. You should also check out our list of the best online legal services. This resource is crucial if your corporation needs to quickly access legal forms or contracts during board meetings.

Issuing stock to the shareholders is one of the first formal corporate actions after forming a corporation. Make a record of the shares issued to each shareholder and the price paid. The legal and tax structure of your corporation can have a major impact on the way you run your business and the taxes you’ll pay.