Corporations FAQ

Questions:

• What is a corporation?
• What is "limited liability" and why is it important?
• How are corporations different from partnerships, sole proprietorships, and LLCs?
• Who should form a corporation?
• How do I form a corporation?
• Does running a corporation involve more paperwork than running other types of businesses?
• How is corporate income taxed?
• What is double taxation? Does it mean that corporate income is taxed twice?
• What is a professional corporation?
• Do I need to worry about securities laws when I issue stock in my corporation?

Answer:

How do I form a corporation?

There are several steps required to legally create a corporation. The first is filing a short document called "articles of incorporation" with the corporations division of your state government. (Some states refer to this organizational document as a "certificate of incorporation," a "certificate of formation," or a "charter.") You'll have to pay a filing fee that ranges from about $100 to $800, depending on the rules of the state where you file. This document contains basic information such as:

• the name of your corporation
• the corporation's address
• the name and address of your "registered agent" (the person to be contacted by any member of the public who needs to speak to someone about the corporation), and
• in some states, the names of the corporation's directors.

When forming your corporation, you must also create "corporate bylaws," a longer document that sets out the rules that govern your corporation, including decision-making procedures and voting rights.

Finally, before you start doing business, you must hold an initial meeting of your board of directors to take care of some formalities, and you need to issue shares of stock to the initial owners (shareholders).

For more information, see Nolo's article How to Form a Corporation.