The thought of forming a small business can be extremely exciting but also very overwhelming. The truth of the matter is that the American dream of growing a business from the ground up doesn't have to remain a fantasy--it can become reality. Of course, it's going to take a lot of hard work and, most importantly, research. If you handle it correctly from the onset, your foundation will be made for a very successful business.
Your very first decision should be figuring out exactly what type of business you want to form. Many entrepreneurs decide to form corporations, which exist as a separate legal entity from their owners and provide a layer of protection for owners when it comes to their personal assets. The following ten tips should help get you started as you consider the logistics of forming a corporation.
Choose a Business Name. You'll need to research the specific regulations governing corporate names in your state, and check whether your desired name is available. Make sure you choose one that is professional, but appealing to consumers. It's a good idea to have a few alternatives in mind, just in case your top pick is taken.
Appoint Corporate Directors. Directors play a crucial role in corporations. They're responsible for making major policy and financial decisions for the business. Examples of decisions directors typically make include authorizing stock issuance, appointing corporate officers (and setting out their salaries), and approving loans to and from the corporation. Make sure to select trustworthy people to take on this role!
File Articles of Incorporation. Once you choose a business name and decide on which directors to appoint, your next step will be to file Articles of Incorporation (or whatever your state calls them) with your state's corporate filing office. For most states, this responsibility lies with the Secretary of State's office in the state's capital city. Articles of Incorporation do not have to be complicated or overly involved. They must, however, specify a few vital details such as your corporation's name, principal office address, the names of its directors, and the name and address of one person who will serve as the company's "registered agent." Typically, that individual functions as the person who can be contacted in the event someone wishes to serve a lawsuit against the corporation.
Draft Corporate Bylaws. Bylaws are the internal rules and regulations that will govern the daily operations of a corporation. Examples include when and where the corporation will hold directors' and shareholders' meetings, and what the voting requirements for directors and shareholders will be. The corporation's directors typically adopt the company's bylaws at their first board meeting.
Hold First Board Meeting. Speaking of which, the next step for forming a corporation is holding the first meeting of the Board of Directors. The purpose for this initial meeting is to handle a few items of official corporate business like setting the corporation's fiscal year, appointing corporate officers, adopting the corporate bylaws, authorizing the issuance of any shares of stock, and adopting an official stock certificate form and corporate seal. Also, if the corporation is intended to be an S corporation, the Board will approve the election of S corporation status.
Issue Shares of Stock. Corporations should not conduct any business until they issue shares of stock, which formally divides up the ownership interests in the company. Simply put, if the corporation wants to be treated as its own legal entity, then it must behave that way, doing business as a corporate entity rather than just an extension of its owners. The formal requirements must be met in order to qualify for the legal protections offered by forming a corporation.
Securities Registration. It's crucial that the corporations follow all securities laws when issuing stock. Fortunately, most small corporations are eligible for exemptions from securities registration. Typically, those corporations who issue shares to a small number of people (generally ten or less) who will actively participate in running that business will qualify for exemptions to securities registration. Be sure to research the specific requirements in your jurisdiction, however.
Obtain Necessary Licenses and Permits. If you've filed your articles, approved the corporate bylaws, held the first Board of Directors' meeting, and issued stock, you're almost there! Now you need to obtain all required licenses and permits that all new businesses must acquire (like a business license), along with any extras like obtaining an employer identification number from the IRS, a state seller's permit, or a zoning permit from your local planning board.
Sounds like a lot but it's really not as overwhelming as it seems. Once you've had your attorney (whether internal or external) give the corporation the legal thumbs up, it's official. Your corporation can open for business and the only thing left to do is have fun growing your company.
