How Do You Incorporate a Small Buissnes?
For a small business, incorporating has many legal and tax implications. Corporations appear as a separate legal entity from the owners (shareholders) of the business. Protecting personal assets is one motivation for small business owners to incorporate. Shareholders of an incorporated small business have limited liability for debts and legal obligations of the company. Business creditors of an incorporated small business may not recover business debts by pursuing the personal assets of the shareholders.
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Instructions
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Choose a state in which to incorporate the business. Nevada and Delaware are popular states for corporate formation due to favorable tax treatment of businesses. In many cases, small businesses decide to incorporate in the state where the business will operate. This prevents filing documents in two states, paying two annual fees and filing two annual reports.
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Create a name for the corporation. All states require corporations to use a business name that is unique when compared to other active business names registered in the same state. Two registered businesses of a state may not share the same corporate name. Corporate business names must contain words such as "corporation," "incorporated," "limited" or the appropriate abbreviation, as explained on the Citizen Media Law Project website. Furthermore, corporate names may not contain words such as "bank," "credit union" or other words that indicate association with a government agency. Most states have a state website where corporate name availability can be confirmed.
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Appoint directors for the small business corporation. Since many states allow corporate formation with a single business owner, a single person may act as director of a corporation. However, some states such as California require corporations to have at least 3 directors. The exception to this rule occurs if a corporation has fewer than 3 shareholders, in which case the number of directors must equal the number of shareholders.
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File articles of incorporation. In general, corporations file articles of incorporation with the Secretary of State's office in the county where the business operates. Articles of incorporation must include the name and address of the corporation. Corporations must name a registered agent in the articles of incorporation. Resident agents may be a business, or an individual 18 years of age or older. Resident agents are required to maintain a physical address in the state where the business resides. Resident agents must agree to accept service of process and other legal documents on behalf of the small business corporation. Articles of incorporation must include the number of shares issued by the corporation and the price per share. Directors may or may not be required to list their name and address in the articles of incorporation, depending on the state of incorporation. Many states have fill-in the blank articles of incorporation that may be submitted online, by fax or mail. The state filing fee for articles of incorporation varies from state to state.
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Create written corporate bylaws. Many states require corporations to create written corporate bylaws, but most states don't require corporations to file corporate bylaws with the state. Corporate bylaws are usually kept at the physical location of the small business corporation. Written bylaws enable a small business corporation to function more smoothly, by providing the company with rules and regulations that'll govern the company. As indicated on the Citizen Media Law Project website, corporate bylaws offer when and by whom corporate decisions will be made.
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Issue stock certificates to shareholders of the small business. The initial corporate meeting for a small business provides the time when initial stock holders receive their stock certificates. The directors of the small business corporation must set the stock price per share. Shares of a small business corporation can be given to shareholders in exchange for services rendered, property and cash, as stated on the Citizen Media Law Project website.
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Request an employer identification number (EIN) from the IRS. The IRS acts as the issuing body for receiving an EIN. Small business corporations may apply for an EIN on the IRS website or by phone. These methods of application allow a small business corporation to receive an EIN for immediate use. Faxing Form SS-4 may cause a small business corporation to wait up to 4 business days to receive an EIN. Small business corporations that mail Form SS-4 may wait up to 4 weeks to receive an EIN.
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Apply for licenses and permits needed to operate the small business corporation. The licenses and permits needed to operate a small business corporation depend on the nature of the business. For example, a home-based corporation that provides business-to-business consulting services may only need a business license to operate. On the other hand, a small business corporation that serves food to the public may require health permits and certification, a general business license, sales and use tax permit, as well as zoning permits based on the location of the business. Small business corporations will require a business license to operate in the county where the business resides. Small business corporations must contact the city or county clerk's office to ensure the company has all licenses and permits needed for legal compliance.
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