Establishing a new business can be an exciting process that involves making many decisions, including determining how to structure the new company. One of the most popular business types, even among smaller entities, is a corporation. Under the corporate classification, there are several subclasses, including an S corporation, a C corporation and a limited liability corporation (LLC). Each differs in the advantages it offers, and there are companies of all sizes operating in each subcategory. Once the decision has been made to incorporate, there are several essential steps that must be taken to finalize and legalize the new company.
Choosing a Name
Choosing a name can be a fun and energizing task, but it must be completed carefully to avoid any future legal issues. States have laws regarding the naming of businesses and traditionally have a department tasked with assisting company owners with this procedure. This office will also be able to aid you in your search for a distinctive name. In order to register your new title, it must be unique and include a corporate designation at the end. Using a word such as limited, incorporated or corporation usually fulfills this requirement, and some states even allow abbreviations (Ltd., Inc. or Corp.). Most states also have a regulation that disallows any wording that may indicate association with the federal government. Specific lists of unacceptable words usually include the following: •Reserve •Federal •National •United States •Bank Be sure to check registered trademarks before paying the fee to register your chosen name. If you know which title you would like to use but aren’t ready to register yet, some states allow you to hold the name for a short period of time in exchange for a small fee. For businesses that will be operating under another title or a fictitious name, most states require a separate “assumed name statement,” or DBA certification.
Filing Articles of Incorporation
Once you have chosen a name and appointed a board of directors, you are ready to officially register your business by filing the articles of incorporation. These may also be referred to as a charter or a certificate of incorporation, depending on state law. The secretary of state’s office can provide the necessary paperwork, which is usually quite simple, or direct you to the department that handles incorporation. All owners must sign the articles or agree on one owner to sign for the entire group. At least one owner must act as registered agent by providing contact information for public record, in case any legal issues arise.
Bylaws and Shareholder Agreements
Bylaws and shareholder agreements are essential documents that lay out the rules regarding the operation of the new company. It is usually wise to consult with an attorney when drafting bylaws. Be prepared to provide information about corporate hierarchy and decision-making powers, the frequency of shareholder meetings and voting rights. The shareholder’s agreement is a separate document designed to spell out rules regarding share transfers. All shareholders must agree to the guidelines set forth in the document.
Holding a Board Meeting
Holding the first official board meeting can be enlivening and is a tangible indication that the new corporation is beginning to take shape. In addition to approving the bylaws, the board of directors should complete several essential actions during this discussion: •Select corporate officers •Authorize and issue stock shares •Select the official stock certificate form and approve a corporate seal •Choose the entity’s fiscal accounting year •Approve an S corporation designation, if one is desired
Prior to the commencement of business, all shares of stock must be issued. This indicates that the ownership of the corporation has been distributed and that all state and federal regulations have been followed. For large corporations, registration with the Securities Exchange Commission is a necessary step in issuing stock. Smaller businesses with private stock offerings or owner/operator structures are traditionally exempt from this federal filing. Once the stock is issued, you are free to apply for business licenses and open your doors to the world of commerce.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.