How to Form a Corporation..........

Edited by Judithavory, Maluniu....wikihow

Starting your own business can be a very rewarding step. Learn how to form a corporation and your business will gain some important tax advantages. A corporation is a separate legal entity able to open a bank account, own assets, do business and be taxed separately at corporate rates under its own name. Incorporating provides liability protection to investors and shareholders as well, by shielding their personal assets.

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• Steps

•  Choose a corporate name.

• This name should be original and not infringe another company's trademark.
• The name must comply with your state's corporation guidelines and end with a corporative designator such as Inc., Corp. or Ltd. In no way should a name have words that would imply it is associated with the federal government such as Cooperative, National, Federal, Bank or Reserve.

•  Select a board of directors for your corporation.

• The board of directors is the decision-making body of a corporation. Directors make the financial decisions and determine major corporate policies. They're the ones who choose the officers, approve the issuance of stock and set the salaries.
• The directors can be people appointed by the owners or the owners can appoint themselves as the directing board. Most states require at least one director to be on the board no matter how many owners there are. There is some variance on this from state to state, so check your state's policy.
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  Complete the formal paperwork required to form a corporation, typically known as "articles of incorporation."
  • The articles of incorporation can be found in your state's corporate filing office. In some states, these incorporation articles are known as a charter or certificate of incorporation. The form is relatively simple and requires basic information such as the corporate name, address of the main office and, in some states, the names of the directors and the name and address of one person who will be a contact for the public.
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  File the articles of incorporation with the department or secretary of the state's office. Usually, your state's corporate filing office will be found in one of these places.
  • Pay the filing fees. They can range from $100 to $800 depending on the state where you choose to incorporate.
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  Write your corporate "bylaws," setting the rules as to how your corporation operates.
  • The bylaws can be drafted by a lawyer or you can write them yourself by following any number of helpful guides for such matters.
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  Convene with the board of directors for the first time.
  • The first meeting of the board of directors is a corporate formality and is the time when the first important decisions are made.
  • This is when the officers are chosen, the bylaws are adopted, stock is authorized and issued, the official stock form and corporate seal are adopted and it is decided whether the corporation should operate as a C or S corporation.
  • C corporations are taxed at two levels. This is also known as double taxation. The income that the corporation makes is taxed at a corporate rate then the income is distributed among the shareholders and they have to pay income tax on those profits. The tax advantage is shifting the income between the corporation and the shareholders so that both pay taxes in a lower tax bracket.
  • S corporations circumvent double taxation, because the profits "pass through" the corporation to the shareholders. The shareholders are then taxed in their own individual tax brackets.
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  Distribute stock certificates to the corporate shareholders (owners).
  • Issuing shares is a formal requirement for corporations. This divides up the ownership interests of the business.
  • If the corporation is large it must register its stock with the federal Securities and Exchange Commission as well as the state's security agency. Registration is time consuming and usually results in extra accounting and legal fees.
  • In most cases, small corporations (less than 10 owners,) where the owners are actively involved in running the business, should qualify for exemptions from registering with the securities agencies.

• Procure all the required permits and licenses that are necessary to run your business.
  • You'll need to obtain a business license and an employment identification number before doing any business.
  • Other permits or licenses that may be required could include a seller's permit or a zoning permit. Check the federal, state and local requirements to find out what your business will need.