How to Form a Corporation: A Step-by-Step Guide for Entrepreneurs

Forming a corporation is a powerful way to build a legitimate, professional business structure that provides liability protection, tax benefits, and an established foundation for future growth. Whether you’re launching a new venture or formalizing an existing business, forming a corporation requires careful planning and adherence to state and federal regulations. Here’s a step-by-step guide on how to form a corporation.

1. Understand What a Corporation Is and Its Benefits

A corporation is a legal entity that is separate from its owners (shareholders), offering several key advantages:

• Limited Liability Protection: Shareholders are not personally responsible for the corporation’s debts or legal obligations.
• Access to Funding: Corporations can raise capital by issuing stock, making them the preferred structure for venture capitalists (VCs) and other investors.
• Scalability: A corporation’s structured management system is ideal for growth and expansion.
• Longevity: Corporations continue to exist even if the founders leave or sell their shares.
• Credibility: Incorporation adds professionalism and trustworthiness, enhancing your brand’s reputation.

The two main types of corporations are C Corporations (C Corps) and S Corporations (S Corps):

C Corps are taxed separately from their owners and can have unlimited shareholders, making them ideal for larger or growth-focused businesses.

S Corps pass income, losses, and credits through to shareholders for tax purposes, avoiding double taxation but limiting the number of shareholders.

Tip: If you aim to secure VC funding or take your company public through an IPO, a C Corporation (C Corp) is the standard structure. It allows for unlimited shareholders and multiple classes of stock, which are critical for attracting investors.

2. Choose a Name for Your Corporation

Selecting a unique name for your corporation is essential. It should reflect your brand, be easy for clients to remember, and meet the following criteria:

Uniqueness: Your name must be distinguishable from other registered business names in your state.

Compliance: Include a corporate designation like “Corporation,” “Incorporated,” “Company,” or an abbreviation such as “Corp.” or “Inc.”

Avoid Restricted Words: Many states restrict words like “bank” or “insurance,” which may require special approval.

To make sure your desired name is available, check your state’s business name database. Additionally, consider securing the domain name to support your online presence.

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3. Appoint a Registered Agent

A registered agent is a person or service responsible for receiving legal documents, such as court summonses or tax notices, on behalf of your corporation. Many business owners hire a registered agent service to protect their personal information and ensure important documents are handled professionally.

Interested in privacy? Read our 8 Essential Tips to Keep Your Personal Life Private from Your Business.

4. Draft and File the Articles of Incorporation

The Articles of Incorporation (sometimes called a Certificate of Incorporation) is a legal document filed with your state’s business registration office to officially create your corporation. This document typically includes:

• The corporation’s name and address

• The registered agent’s name and address

• Purpose of the corporation

• Information on authorized shares (number and types of shares the corporation can issue)

• Initial directors and officers, if required

Legal Fees

The primary cost for drafting articles of incorporation is usually legal fees. According to ContractsCounsel's marketplace data, the average cost for drafting articles of incorporation is $662.50 across all states and industries. This covers the legal work of preparing the document.

Filing Fees

In addition to legal fees, there are state filing fees to submit the articles of incorporation:

Most states charge between $50 and $200 to file the articles with the state government.

The exact amount varies by state. For example, as of 2024:

- California charges $150

- Delaware charges $109

- New York charges $125

Total Costs

When factoring in both legal fees and filing fees, the total cost typically ranges from about $700 to $900 for most simple incorporations. However, more complex situations may result in higher legal fees.

In reality, many law firms will offer a flat rate for incorporating a firm, usually between $500 and $700, but some attorneys fees can accumulate to as much as $5,000.

LawHax Tip: We found a free articles of incorporation template you can download here.

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5. Create Corporate Bylaws

Corporate bylaws outline the internal rules and procedures of the corporation, including:

• Structure of the Board of Directors: Details about director roles, duties, and election process.

• Shareholder Meetings and Voting Procedures: Guidelines for holding meetings and voting on corporate matters.

• Management and Officer Roles: Description of officers’ roles and responsibilities.

• Conflict Resolution Procedures: Policies for resolving disputes between directors, shareholders, or officers.

Bylaws are essential for maintaining order, ensuring all members understand their roles, and demonstrating to authorities that the corporation is properly organized.

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6. Appoint Directors and Hold an Initial Board Meeting

Your corporation’s initial board of directors should be appointed once the Articles of Incorporation are filed. The board is responsible for overseeing the corporation’s management and making high-level decisions.

The first board meeting is often used to address key organizational matters, such as:

• Approving bylaws

• Issuing initial shares of stock

• Electing officers (such as CEO, CFO, etc.)

• Approving a corporate bank account

Ensure that meeting minutes are taken and kept on record as part of your corporation’s official documentation.

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7. Issue Stock to Shareholders

One of the defining characteristics of a corporation is its ability to issue stock. In the initial board meeting, the board of directors typically approves the issuance of stock to shareholders. You’ll need to:

• Record the amount and type of shares each shareholder receives.

• Comply with any securities regulations that may apply to your corporation.

Issuing stock formalizes ownership in the corporation and allows for the potential to raise additional capital.

Did you know? Most startups initially authorize between 10,000 and 10,000,000 shares of common stock. This range provides flexibility for:

1. Initial founder grants

2. Future employee and consultant grants

3. Potential investor allocations

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8. Obtain an EIN (Employer Identification Number)

An Employer Identification Number (EIN) is necessary for tax purposes and is used to identify your corporation with the IRS. You can apply for an EIN on the IRS website for free, and it only takes a few minutes. You’ll need this number for tax filings, opening a business bank account, and hiring employees.

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9. Register for State and Local Taxes

Depending on your corporation’s location and business activities, you may need to register for additional state and local taxes. Common tax registrations include:

Sales tax: Required if your business sells taxable products or services.

Employment taxes: Necessary if your corporation has employees.

State income tax: Applicable in most states, though some may offer corporate tax benefits.

Each state has different tax requirements, so check with your state’s tax agency to ensure you’re in compliance.

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10. Comply with Ongoing Corporate Requirements

Corporations have annual or ongoing requirements to remain in good standing, including:

Annual Reports: Most states require corporations to file annual reports, which include updates on your corporation’s directors, officers, and address.

Franchise Taxes: Some states impose franchise taxes on corporations, based on revenue or equity.

Shareholder and Board Meetings: Regular meetings and recorded minutes are essential for maintaining corporate status and credibility.

Failure to meet these requirements can lead to fines or even dissolution of your corporation.

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11. Open a Business Bank Account

To keep personal and business finances separate and protect your liability protection, open a business bank account in your corporation’s name. This will simplify tax reporting, make it easier to manage finances, and demonstrate that your corporation operates as a distinct legal entity.

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12. Consider Professional Assistance

Forming a corporation can be complex, especially with varying requirements across states. Hiring a lawyer, accountant, or using a reputable registered agent service like Northwest Registered Agent can make the process easier, ensuring all paperwork is filed correctly and helping you stay in compliance.

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Start Your Corporation Today

Forming a corporation is an exciting step for entrepreneurs looking to build a strong business foundation. With personal liability protection, growth potential, and credibility, a corporation is a smart choice for many businesses. By following these steps and staying compliant with regulations, you’ll be on your way to establishing a successful, legitimate corporation.

Ready to form your corporation? Begin with these steps or consider using professional services like Northwest Registered Agent to incorporate for just $39, protect your privacy, and ensure everything is done right.

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