6 Steps to Creating a Corporation

Lia Kopin-Green
January 8, 2023

There are few things more exciting than embarking on the journey of entrepreneurship. Nonetheless, starting your own business can be complicated and involves overcoming various legal hurdles. Learn more about how to create your corporation with this step-by-step guide.

1. Choose Your Corporation Name

Selecting a business name is a crucial first step in the process of forming a corporation. Corporation name requirements vary from state to state, but generally it is required that the name is not already in use by another company. It is typically recommended to conduct a thorough name search in order to make sure your potential business name is still available for use. Moreover, your corporation name should contain an entity identifier such as “Incorporated,” “Limited” or abbreviations of entity identifiers such as “Inc.” or “Ltd.”

At this stage, you may want to consider whether you want to use a trademark or logo to identify your company. Having a trademarked business name can help establish your brand and make it more recognizable to consumers.

2. File Articles of Association and Incorporation

The next step is to file articles of association and incorporation with the state in which you plan to operate your business. These legal documents outline basic information about your company such as the name of the corporation, its purpose and name(s) of the corporation’s director(s). Further, the documents include details about how certain tasks should be handled in the company. In other words, they serve as a “user’s manual” for a corporation’s operations and management. 

Since articles of association and incorporation lead to government recognition of your company or business, these documents serve as the primary source government authorities need in order to separate a company’s legal identity from its stakeholders.

3. Appoint Directors

It is common for the owners to appoint directors when forming a corporation. A director is a person appointed or elected by shareholders to sit on the board of directors in a corporation. Directors have a number of important responsibilities, including implementing corporate policies and making decisions regarding the management and administration of a company. It should also be noted that in some cases, directors can be held legally responsible for actions committed by agents, officers, employees, and subsidiaries of the corporation.

State regulations tend to vary when it comes to the operation of directors in a corporation. Thus, it is vital to review the state's specific laws when appointing directors to a new corporation.

4. Issue Stock

In many corporations, stock is issued to help finance the business. The board of directors typically authorizes the issuance of stock, which is later distributed to investors in proportion to their contribution.  The number of stocks that can be issued is calculated by determining the number of authorized shares of a company. This information can usually be found in a company’s articles of incorporation. Once the stock is issued, it may be traded on a public stock exchange or over-the-counter market.

There are two main types of stock that may be issued: common stock and preferred stock. Common stock shareholders are typically entitled to receive dividends and vote on important matters that affect the corporation, such as the appointment of directors. On the other hand, preferred stock does not give voting rights to shareholders. Nonetheless, preferred stock shareholders may be paid dividends prior to common shareholders.

5. Obtain Licenses and Permits

You may need to obtain various business licenses and permits, depending on the nature of your business and the location in which it will be operating. Common permits and licenses include:

  • Business license: In most cases, a business license is required by the city or county where you are operating your business. You may need to obtain a specialized license from a state or federal regulatory agency in order to engage in certain business activities, such as agriculture or medicine.
  • Sales tax permit: If you plan on selling goods and services that are subject to sales tax, you will need to file for a sales tax permit from your local department of revenue.
  • Zoning permit: You may need to obtain a zoning permit to ensure that your business location is appropriate for the type of business you are operating. Zoning permits are generally issued by the local government agency responsible for building and planning in your state.

6. Open a Corporate Bank Account

Setting up a corporate bank account that is separate from the bank account of its owners is a crucial step in establishing a corporation. Doing so will help protect your personal funds from any business liabilities or debts.

To find the best bank for your corporation, it is recommended to research various banks and select the one that best meets the unique needs and requirements of your business. Once you have chosen a bank,  you will typically need to provide basic information about your corporation in order to officially open an account. The bank may ask for your Employer Identification Number (EIN) which can be obtained from the Internal Revenue Service (IRS).

Bottom Line

Once you have completed all of the necessary steps to create your corporation, it’s time to start focusing on the day-to-day operations of running your own company. However, it is essential to keep in mind that even after you have completed the process of establishing your corporation, you have ongoing legal obligations as a business owner. This includes tasks such as renewing licenses and paying taxes on a regular basis. 

Looking for legal support to help launch your corporation? Get in touch with one of our specialized business attorneys as soon as possible.

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