How to Incorporate a Business?
In today’s post, I’ll be going over everything you need to know about incorporating a business.
If you’re thinking about starting a business for the first time, or even if you already have a business and want to incorporate it, then this post is for you!
Incorporating a business sounds intimidating but it can be broken down into some easy steps. So today, I’m going to break down those steps so you can successfully incorporate your business.
Before I give you the step-by-step on how to incorporate your business, it’s important to first understand what incorporating means.
What is Incorporating a Business?
Incorporating your business is the process of registering your business as a corporation. Not to be confused with an LLC.
Corporations are controlled by three different parties- shareholders, board of directors, and officers.
- Shareholders own the corporation (by purchasing stock) and elect a board of directors.
- The board of directors decide matters of policy and management. The board also appoints officers such as CEO, CFO, secretary, and etc.
- Officers run the corporation on a daily basis.
S-corps and C-corps are the two main types of corporations.
For purposes of this post, I’ll be explaining the process of incorporating a C-Corporation.
C-corps are taxed once at the company level, and distributions of profits (aka dividends) to shareholders are taxed again on shareholders’ personal tax returns.
Make sense? Good. Now here are the steps on how you can incorporate a business.
Steps on How to Incorporate a Business
Step 1: Make sure you comply with licensing laws.
Not every business is required to have a business license. In fact, most businesses do not require it. But if you’re in more regulated industries like food service or child care, then there are definitely more licensing requirements.
Make sure to comply with your local licensing laws in the beginning of incorporating your business so you don’t find yourself in big trouble later on.
Step 2: Choosing a business name
Perhaps you’ve already thought of one. Good.
Or perhaps someone else already has that name. Bad.
You need to make sure that your business name is available. To do this, you need to go to your state’s secretary of state’s website and do a business search.
Here is what this process looks like for Georgia.
If your name is available, then great! You proceed with incorporating. But if it is taken, you’ll need to come up with a different name.
Step 3: Putting together your governing documents
For corporations, this is your bylaws.
Your corporate bylaws describe how your corporation is managed and operated. It contains information about shares, voting rights, board meetings, and other pertinent information such as:
- Information about board meetings and annual meetings that are required for every corporation.
- The number and type of shares that the corporation can issue, if issuing stock.
- Fiscal year of the corporation for tax and bookkeeping purposes
- Procedures for amending the articles of incorporation and bylaws
Your corporate bylaws are much more detailed than the articles of incorporation.
Most states don’t require you to file your bylaws but they are critical to have handy with your other corporate documents. You may be required to provide them in case you’re audited or applying for a business loan.
Most lawyers can help you with this process.
Step 4: File your paperwork with your state or the state you’re incorporating in.
Most states will allow you to file your articles of incorporation online on the state’s secretary of state website. Though you also have the option of filing by mail.
Every state is different, but in general, your articles of incorporation should include basic information about your company including:
- business name
- mailing address
- registered agent name and address
- business purpose
- names and addresses of your business’ officers
It’s very important to make sure you complete the articles of incorporation in its entirety so the state doesn’t automatically reject your filing.
If you find yourself stuck on a section, you can always call your state’s secretary of state’s office. Someone there will be able to help you complete the form. Just don’t expect tax or legal advice.
Oh and if you’re wondering what a registered agent is, let me explain.
A registered agent is an individual or business that accepts tax and legal documents on behalf of your business.
A registered agent can be you, a friend or family member, or you can hire a company to act as your registered agent. Whoever it is, they need to be available to accept important business documents on your behalf.
Step 5: Hold a meeting
After you filed your paperwork with the state, you need to hold your first meeting.
During the meeting, the board members should:
- Document the funding of the corporation. This includes who contributed money, assets or services for partial ownership and what ownership percentage each shareholder will own
- Authorize and issue shares of stock
- Elect your officers (CEO, CFO, etc.)
At some point during the meeting, each person should agree to and sign the bylaws.
With future board meetings, make sure to keep a record of the meeting minutes that describe what was discussed.
Step 6: Applying for your EIN (Employer Identification Number)
This is completely free to do on irs.gov
After you have your EIN, you’ll then be able to open a business bank account. This is critical and necessary for keeping your personal finances separate from the business.
How to Convert LLC to a Corporation?
Now assuming you already have a business such as an LLC and want to incorporate. Most states allow you to convert your LLC to a corporation.
A lot of states allow a simplified process known as a “statutory conversion.”
With a statutory conversion, you can automatically transfer your LLC’s assets and liabilities to a corporation without having to separately form a new corporation and dissolve the LLC.
You’ll need to file a certificate of conversion and any other required documents with the state and pay a filing fee.
These types of forms are normally accessible on your state’s secretary of state website.
If you completed the steps above, congratulations! You’ve incorporated your business.
I hope you found this post helpful and will use the steps outlined here to get you started. And if you need help with your business’ financial management, LYFE Accounting got your back. We can help you with your business taxes, accounting, bookkeeping and more. Simply click this link to get in touch with us today.