The answer to ‘why you need to open a corporation’ is simple. Corporation is stand-alone entity and you are a shareholder. Your own assets get protected from debt collection, lawsuits, and possible business issues.
How to form corporation?
Choose company name
Specific state rules need to be followed, while selecting company name.
- Name should be unique
- End of the name needs to have corporate designator like ‘Limited’ [Ltd.], ‘Corporation’ [Corp.] or ‘Incorporated’[Inc.]
- Name must avoid specific words, which suggest association with federal government or banks or cooperatives or reserve
Besides naming rules ensure that the name chosen will not violate trademark of other company. Choose 2 to 3 names, so that you can get at least one approved by the state’s corporation office. You will need to pay small fee to reserve name for short time.
Corporation’s major financial decisions and policies are made by directors. The initial owner will appoint the directors, before opening the business. Owners can be directors but directors don’t have to be the owners. Many states permit corporation to appoint a single director regardless of number of owners.
File certificate of incorporation
It is crucial to file articles [certificate] of incorporation at the state’s secretary office to make the corporation official. You will need to fill a form [C-Corporation status], which will include few basic details of the corporation like name, office address, as well as name and contact information of director.
Drafting corporate bylaws
Each corporation needs to have bylaws and adhere to them stringently. Bylaws are internal rules, which govern the corporation’s daily operations like where and when to hold shareholders and directors meeting, what are voting requirements of shareholders and directors, etc.
Hold first meeting of BOD [Board of Directors]
Initial board meeting will deal with few corporate formalities as well as make crucial decisions.
- Appoint corporate officer
- Set fiscal year
- Adopt corporate bylaws
- Adopt stock certificate form and seal officially
- Authorize issuance of shares.
Directors need to approve ‘S’ corporation status, if necessary.
Obtain the needed permits and licenses to start your new business.