- [Presenter] A corporation is a type of formal
business structure that is more complicated than an LLC,
but offers benefits that LLCs do not.
Corporations are great if you are looking to raise money
from venture capital or looking to list on a stock exchange.
Corporations are also able to more efficiently
carry money over between tax years.
If you are starting a business and not sure
which business structure is best for you,
check out our other video "Choosing The Right
Business Structure for your Business" linked below.
There are two ways to form a corporation.
You can form one yourself,
or you can hire a service to do it for you.
In this video, we will look at both options
and help you decide how to go about forming
your own corporation.
Remember, this video is not legal advice.
If you're unsure of whether your company should be a
corporation consult with an accountant or an attorney.
By forming a corporation on your own,
you can save yourself some money.
Let's start by looking at the steps
to form a corporation on your own.
Every state has slightly different requirements for forming
a corporation, but in general, you'll follow these steps.
One, choose and secure your corporation's name.
The name you select for your corporation will establish
its brand.
It's the first thing most people will learn
about your organization.
It's important to pick a name that both aligns
with your brand and follows the rules
of naming guidelines in your state.
You'll need to check your state specific naming
requirements, but you should follow these general rules
when choosing a name:
your name must contain the word corporation, company,
incorporated, limited,
or an abbreviation of one of these terms.
Your name cannot use the words, bank, trust,
trustee, credit union,
or other related words without approval.
Your name cannot include words that could confuse your
corporation with a government agency, such as FBI,
treasury, state department, et cetera.
The name must be distinct from that of any other corporation
in your state.
For more information on what makes a name distinct,
check out our other video,
How to Name Your Business linked below.
Once you have a name selected,
do a name search to make sure it's available in your state.
After doing a state name search,
you'll want to do a domain search to see if your name is
available as a URL.
Even if you don't plan on making a website today,
you may want to secure the URL so someone else
doesn't take it.
Two, choose a registered agent.
You must appoint a registered agent when you register
your corporation with the state.
Some States refer to registered agents as statutory agents,
resident agents, or agents for service of process.
The registered agent can be an individual in the company,
including yourself.
Or you can hire a professional service authorized to do
business in your state.
They will send and receive legal papers on your behalf.
These documents include official correspondence like legal
summons and document filings,
which your registered agent will receive and forward to you.
Your registered agent will also help remind you
to file the necessary reports.
Failure to properly maintain your corporation can result in
fines and disillusion so this assistance is valuable.
Designating someone else to serve as a registered agent
for your corporation has its benefits.
To learn more about hiring a registered agent service
for your corporation, read our
"Should I Use a Registered Agent Service Guide?"
linked below.
Three, hold an organizational meeting.
Before you officially file the formation documents
in step four, you'll need to hold
an organizational meeting to complete the following tasks:
create an approved bylaws,
select your initial directors,
determine your share structure
and execute an incorporator statement.
Let's break down each of these.
Create and approve bylaws.
Bylaws are the rules that determine how your organization
will be governed and run.
You can think about the bylaws as a constitution
for your corporation.
It makes the rules and priorities clear
for everyone involved.
A corporation's bylaws will supplement any rules set forth
by the federal government or the state.
In your bylaws, be sure to include how the corporation
will be governed, including the role of
directors and officers, how meetings are held,
voting procedures and how officers and directors
are elected, how records will be kept and managed,
how disputes will be handled,
how bylaws will be added and amended in the future,
the date of the annual shareholder meeting,
how to negotiate contracts,
fiduciary duties to the corporation,
such as acting in the best interest of the corporation,
and what constitutes a quorum for voting purposes.
Appoint initial directors.
You must appoint the state's required number of directors
until the first shareholders meeting.
A corporate director is in charge of the adoption,
amendment, and repeal of the operational bylaws,
as well as the election, supervision,
and removal of officers.
After forming the corporation,
the incorporators or initial directors,
if named on the formation documents
should call an organizational meeting.
During this initial meeting,
either the incorporators will elect the board of directors
or the initial directors will appoint the officers.
Choose a share structure and strategy.
A share of stock is the unit of ownership of a corporation.
Each share of stock represents a percentage
of ownership of the company.
For example, if a corporation issues
only one share of stock,
the shareholder or a stock owner would then own
100% of the corporation.
Shares can be structured into classes.
Each class termed as a share class,
holds different rights and privileges.
You can have multiple classes
and each class can hold any number of shares.
Some States only allow corporations to list
one class of shares on their provided formation document.
In these cases, you must either complete
an additional provision
or draft your own formation documents.
Check with your state for further instructions.
We recommend starting with a high number
of authorized shares.
Many attorneys suggest 10 million.
By starting with a high number,
you have the flexibility to issue shares as needed
without paying legal fees
to increase your initial authorized shares amount.
Create an executed incorporator statement.
The incorporators should sign an incorporator statement with
complete names and addresses of each initial director
and store it in the corporate records book.
This document names the initial directors
that will serve until the board of directors is elected
during the first shareholders meeting.
It should be stored with the rest of your corporate records.
Four, file formation documents.
You will need to file formation documents with your state.
Once the documents are approved,
you will have officially formed a corporation.
Most States provide the formation documents online,
while others require you to draft
your own formation documents.
The formation documents will cover
the basics of your corporation,
including your corporate name and principal address,
your registered agent's name and street address.
And the number of authorized shares
your corporation is allowed to issue.
As mentioned in the previous section,
some States only allow corporations to list one class of
shares in their provided formation document.
In these cases,
you must either complete an additional provision or draft
your own formation documents,
check with your state for further instructions.
- Five, get an EIN.
Lastly, you'll need to get
an employer identification number, or EIN from the IRS.
Also known as a federal tax identification number,
Your EIN is like a social security number
for your corporation.
An EIN is how the IRS tracks your business for tax purposes,
but it's also necessary to open a business bank account and
legally hire employees.
The good news is that EIN's are free and can be quickly
obtained by visiting the irs.gov website.
For more information on EINs,
check out our other video linked below.
Now that you know all the steps
to forming a corporation on your own,
maybe you don't want to go through the process by yourself.
Let's take a look at the other way to form a corporation.
Hiring a professional service to file your forms
and act as your registered agent for the corporation
will cost you an additional 50 to $150.
However, there are several benefits
to working with a pro.
A hired registered agent helps with
getting your reports filed on time,
helps you stay organized by keeping your business mail
separate and it's available at all regular business hours
to accept official mail and legal papers
on your corporation's behalf.
A final and important additional benefit
to using a service is privacy.
A professional service will provide a level of privacy
by withholding your personal name
from the corporation's contact information.
There are many reasons why you might not want your personal
information easily accessible
and associated with your business.
Hiring a professional corporation formation service
is an easy way to accomplish this.
If you want to form a company that can issue stock,
raise money through investors or efficiently carry money
over between tax years.
Then a corporation is the right business structure for you.
Now you know all the steps to form a corporation.
For a more detailed guide, visit our site at
howtostartanllc.com.
Give the video a like if you found it useful,
and subscribe if you'd like to see more.
If you have questions or encounter any roadblocks,
leave a comment below.
Good luck with starting your corporation.