For anyone about to start a new corporation, it is essential to know all the legal requirements. There are multiple crucial steps that one should follow to form a Corporation. Depending upon the state in which one lives, the legal requirements may change. Also, whether the business is a sole proprietorship or partnership can change the requirements. Anyone willing to know about the legal requirements should start by reading how to become a corporation.
What is a Corporation?
According to law, a corporation is an entity separate and distinct from its shareholders. A corporation may have its legal rights, assets, and liabilities that can save the shareholders or owners from personal liabilities. A corporation can sell or buy property via stocks. As corporations manage capital and ownership through stocks, it is easier to raise capital by transferring ownership as a corporation. To succeed as a corporation, every company has to follow the proper legal proceedings applicable to their state. The most common five types of a corporation are:
· C Corporation
· S Corporation
· B Corporation
· Closed Corporation
· Nonprofit Corporation
Each type of corporation has its own set of legal requirements.
How to Start a New Corporation
Each state has its guidelines that are applicable for specific types of corporations. Hence, depending upon the state the corporation will be established in and the type of the corporation, each process may look slightly different than the other. To start with, one should check the specific requirements for the state where the business will operate. However, below are the basic steps that apply to most businesses in general.
Consulting a Transactional Attorney
As mentioned above, corporate laws vary by state, and therefore, it is essential to consult a transactional attorney, who knows the process in and out. One should look for an experienced attorney, who will be an expert in managing the formation process of business and avoid any issues.
Appointing a Registered Agent
Every corporation requires a registered agent for filing the articles of incorporation. The agent can be either an individual or a company. The role of an agent is to accept the required notice and follow certain steps if a corporation becomes a party to legal action. The agent must live in the same state where the articles of incorporation are filed.
Adopting Corporate Bylaws
A business should protect the rights and responsibilities of its shareholders, directors, and officers. It must also try to create an environment where the confusion is eliminated, and corporate formalities are maintained. To achieve such an environment, corporate bylaws are essential. Another reason for creating bylaws is that sometimes the banks may ask to see the corporate bylaws. One requires it to establish the legitimacy of a corporation before extending loans or even opening business accounts.
Share of Stock
Shareholders who contribute cash and other properties to a business are the stockholders. It is decided usually in proportion to their contribution. Share of stock is essential for security purposes. Usually, it falls under the requirements of state and federal securities laws.
Filing Other Documents
Many states in the US require annual reports from corporations. In California, the companies need to submit the first report within 90 days of incorporation. As the law varies from state to state, one should know the state requirements to form a Corporation. Filing these reports on time is an essential part of starting a new corporation.
Filing IRS Forms:
Corporations are entitled to an employer identification number. It is a social security number for corporations in the USA. It is required in every step, starting from opening bank accounts to showing annual reports. Every corporation needs to apply for this number by filing a form.
Though a corporation is an entity separate from its shareholders, it can save the shareholders or owners from personal liabilities as the state law and corporation structure vary, one should consult a corporate attorney or transactional attorney and discuss the same before starting a new corporation. The steps mentioned above highlight the question- how to form a Corporation and attempt to provide relevant information about it. Anyone looking for more knowledge regarding corporation formation can either search online or ask a lawyer about the legal requirements.