How to Create a Privately Held Corporation

A privately held corporation can help protect your personal assets and make stock shares more attractive to investors. Creating a privately held corporation involves filling out a series of forms to request an Employee Identification Number (EIN) from the IRS and corporation status from the state in which you will conduct the corporation's business. Here are the steps involved.

Instructions

Difficulty: Moderate

1. Choose a business name that is currently available in the state in which your corporation will be domiciled (housed). Each state has slightly different rules for naming a corporation, most of which include adding Corporation, Limited, or Incorporated after the name.
2. Verify that your name doesn't violate another company's trademark by checking it against names listed with the U.S. Patent and Trademark Office (see Resources below).
3. Determine the number of directors your state requires. Most states allow corporations to have only one director; others require that a corporation with two owners will need two directors, and so on.
4. Assemble a board of directors who will be in charge of major financial decisions regarding your corporation. As an initial owner, it is your duty to appoint a board of directors prior to doing business as a corporation. Although owners often become the directors of corporations, directors don't have to be owners.
5. Create your articles of incorporation and file them with your state's secretary of state. You may domicile your corporation in any state. If you need help drafting your articles of corporation, most state Web sites show examples. Corporate lawyers can help you draft your articles and guide you through the submission process. FindLaw.com offers basic information on what your articles should contain (see Resources below).
6. Create your corporate bylaws. These can be created with the help of a lawyer or with self-help publications. They should cover daily operations, shareholders' information and voting requirements.
7. Get the licenses or permits needed to do business in your area. This usually consists of a business license, a DBA (Doing Business As certification) and a seller's permit (if your corporation will be selling a product or service). Your secretary of state's office or county clerk can give you the necessary paperwork.
8. Have your first meeting with the board of directors and appoint corporate officers, authorize shares of stock to be issued and adopt a corporate seal for your privately held corporation.

Tips & Warnings

• For a small fee, you can reserve a corporation name with your states secretary of state's office. This is useful if you want to ensure no one registers that name between the time you select it and the time you are able to complete your corporation's registration.
• If you plan to sell products or services under another name, you'll need to file an "assumed name" statement in the state of your corporation's future domicile.
• If you're filing the necessary paperwork yourself, budget a week for preparation. The process can be shortened if you work with an attorney or use an incorporation service.
• Prepare to pay more in tax when you incorporate. "C corporations" in particular pay tax when they turn a profit, as well as when they pay out shareholder dividends.
• To avoid being associated with the federal government, avoid words in your name like "bank," "federal" or "national."