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Incorporating Your Business On Your Own

By Aaron Larson

Law Offices of Aaron Larson

August, 2004

Contents

Choose Your Business Entity

Before you choose to become a corporation, you should consider the relative benefits of selecting a different form for your business, particularly the possibility of forming as a limited liability company. Many of the benefits extended to a corporation, including limited liability, are also enjoyed by an LLC, but typically at a lower cost and without the accounting and procedural requirements imposed on corporations.

Choose Your Corporate Name

When you name your corporation, you should check to see if there are any other businesses which have registered your preferred name with the state. If another active business has registered the same name you desire, you will not be permitted to use that name. There will also be some state law restrictions on the name you select, and you will not be permitted to register a name which violates those restrictions.

Form A Corporation

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Even if no other business has registered the name with the state, you should still take additional steps before attempting to register under that name. Check with the counties in which you intend to do business, to see if any d/b/a's (additional "fictitious" names under which businesses operate) have been filed under that same name. Also, check with any state trademark registries and search the federal trademark database offered by the United States Patent and Trademark Office (USPTO) to see if anybody has registered a trademark or service mark which would be infringed by your chosen name.

A corporation's name must conform to state laws requiring that it reflect the corporate status of the business organization. Most of the time, this is done by including words or abbreviations such as "Corporation", "Corp", or "Inc", in the business name.

Consider Purchasing A Corporate Kit

As you proceed toward incorporating your own business, you should consider purchasing a "corporate kit", which will assist you in getting your corporation started. A typical corporate kit includes a set of standard bylaws which you can use as a model when you draft your corporation's bylaws, blank stock certificates and a stock transfer ledger, a corporate seal, forms for keeping records of meetings of the Board of Directors and minutes from those meetings.

Choose Your Directors

A corporation's directors typically engage in action including the election of corporate officers, the issuance of stock, oversight and approval of major financial transactions, and approving compensation packages for executives and officers of the corporation.

Depending upon the laws of your state, your corporation will require at least one director, and possibly more than one director. Most people who are starting corporations make themselves directors. Where a single person is starting a corporation and a second director is required, many people name their spouse.

In most states, the names and addresses of the directors must be included in the articles of incorporation.

Choose a Registered Agent

The registered agent is the person designated to receive service of process and certain important documents on behalf of the corporation. You will have to declare a registered agent when you file your articles of incorporation. It is important to choose a responsible person with a stable address, to help ensure that any documents served on the corporation are in fact properly received. Often, the registered agent is a principal or officer of the corporation. There are also commercial services which will act as the registered agent for an annual fee.

Prepare The Articles of Incorporation

When you wish to form a corporation, the first step is to file "articles of incorporation" with the state in which you desire to incorporate, along with the required filing fee. Most states offer approved "fill in the blank" forms for completing and submitting articles of incorporation. Typically, states require the articles to include:

  • The name of the corporation;

  • The address of the corporation;

  • The identity of the corporation's "registered agent" (the person designated to receive service of process and certain important documents on behalf of the corporation); and possibly

  • The names of the directors of the corporation.

You may also have to declare a "par value", or minimum sale price, for your stock. In some states, you can declare a value of $0.

Publication of Incorporation

In some states you will be required to publish an announcement or copy of your approved articles of incorporation in a newspaper qualified to publish legal notices, and to file proof of publication with the state. You can usually find out if your local newspaper qualifies to publish your notice by inquiring with the state or with the paper itself.

Draft Your Corporate Bylaws

A corporation's bylaws govern its operation, including the rights of each class of shareholders, rules on the issuance of stock, the location and terms for inspection of the corporate books, and the powers of the corporation's officers and directors. They usually define the time and place for the corporation's meetings, including the annual meeting, the corporation's fiscal year, the manner in which directors and officers are to be selected and compensated, and the manner in which the bylaws themselves can be amended.

You can obtain sample bylaws from a wide variety of sources, often including "how to incorporate" books at a local library or book store, corporate kits, office supply stores, and possibly from the state or a state website. Many new corporations will benefit from havnig an attorney draft their initial bylaws, or review their draft bylaws for their legality and completeness before they are formally adopted by the corporation.

Hold the First Meeting of the Board of Directors

At the first meeting of the Board of Directors, the directors will ordinarily formally adopt the corporation's bylaws.

The directors will also elect the corporate officers. The officers of a corporation oversee its daily operations and activities. Most states require that a corporation have a President (and possibly a Vice President), Secretary, and Treasurer. In simple terms, the President has authority to direct the business, the Secretary has authority over corporate records, and the Treasurer has authority over corporate finances. Most states permit corporations to appoint one person to all three positions.

Also, the directors will authorize the initial distribution of stock to the corporation's shareholders.

Remember Securities Laws

While many new corporations will be exempt from state and federal securities laws, the possibility exists that state and federal securities laws will apply to the corporation and its conduct. If shares are to be sold or distributed to more than a limited set of shareholders (usually about thirty-five shareholders), the corporation may have to register the sale with the securities authorities of the state and federal governments before it can issue the shares. Securities laws can also be implicated by issuance of stock options to employees. Corporations should take care to know how securities laws apply to their situation in advance of taking action which might implicate those laws..

Check Licensing Requirements

Although not technically part of forming a corporation, it is important that you determine the state and local licensing requirements for your business, and obtain any required licenses or permits for the new corporation.

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