How to Form a Corporation

To form your own corporation, you must take these essential steps.

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If you've sorted through the many types of business structures and decided to create a corporation, you're facing a list of important -- but manageable -- tasks. Here's what you must do:

  1. Choose an available business name that complies with your state's corporation rules.
  2. Appoint the initial directors of your corporation.
  3. File formal paperwork, usually called "articles of incorporation," and pay a filing fee that ranges from $100 to $800, depending on the state where you incorporate.
  4. Create corporate "bylaws," which lay out the operating rules for your corporation.
  5. Hold the first meeting of the board of directors.
  6. Issue stock certificates to the initial owners (shareholders) of the corporation.
  7. Obtain any licenses and permits that are required for your business.

For each state's specific rules on forming a corporation, see 50-State Guide to Forming a Corporation

Choosing a Corporate Name

The name of your corporation must comply with the rules of your state's corporation division. You should contact your state's office for specific rules, but the following guidelines usually apply:

  • The name cannot be the same as the name of another corporation on file with the corporations office.
  • The name must end with a corporate designator, such as "Corporation," "Incorporated," "Limited," or an abbreviation of one of these words (Corp., Inc., or Ltd.).
  • The name cannot contain certain words that suggest an association with the federal government or restricted type of business, such as Bank, Cooperative, Federal, National, United States, or Reserve.

Your state's corporations office can tell you how to find out whether your proposed name is available for your use. Often, for a small fee, you can reserve your corporate name for a short period of time until you file your articles of incorporation.

Besides following your state's corporate naming rules, you must make sure your name won't violate another company's trademark. For information about trademark law and general advice on picking the right business name, see Nolo's article Pick a Winning Name for Your Business.

Once you've found a legal and available name, you usually don't need to file the name of your business with your state. When you file your articles of incorporation, your business name will be automatically registered.

However, if you will sell your products or services under a different name, you must file a "fictitious" or "assumed" name statement with the state or county where your business is headquartered. For more information, see Nolo's article Registering Your Business Name.

Appointing Directors

Directors make major policy and financial decisions for the corporation. For example, the directors authorize the issuance of stock, appoint the corporate officers and set their salaries, and approve loans to and from the corporation. Directors are typically appointed by the initial owners (shareholders) of the corporation before the business opens. Often, the owners simply appoint themselves to be the directors, but directors do not have to be owners.

Most states permit a corporation to have just one director, regardless of the number of owners. In other states, a corporation may have one director only if it has one owner; a corporation with two owners must have at least two directors, and a corporation with three or more owners must have three or more directors.

Filing Articles of Incorporation

After you've chosen a name for your business and appointed your directors, you must prepare and file "articles of incorporation" with your state's corporate filing office. Typically, this is the department or secretary of state's office, located in your state's capital city. While most states use the term "articles of incorporation" to refer to the basic document creating the corporation, some states use other terms, such as "certificate of incorporation" or "charter."

No state requires a corporation to have more than one owner. For single-owner corporations, the sole owner simply prepares, signs, and files the articles of incorporation himself. For co-owned corporations, the owners may either all sign the articles or appoint just one person to sign them. Whoever signs the articles is called the "incorporator" or "promoter."

Articles of incorporation don't have to be lengthy or complex. In fact, you can usually prepare articles of incorporation in just a few minutes by filling out a form provided by your state's corporate filing office. Typically, the articles of incorporation must specify just a few basic details about your corporation, such as its name, principal office address, and sometimes the names of its directors.

You will probably also have to list the name and address of one person -- usually one of your directors -- who will act as your corporation's "registered agent" or "agent for service of process." This person is on file so that members of the public know how to contact the corporation -- for example, if they want to sue or otherwise involve the corporation in a lawsuit.

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by: , J.D.

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