How to Start a Corporation

Learn how to form a corporation.

Forming a corporation is important if your startup or small business needs to attract investors. Corporations offer investor-friendly tax options and personal asset protection.

You can form a corporation yourself by following these steps:

  1. Name Your Corporation
  2. Choose a Registered Agent
  3. Choose Initial Directors and Share Structure
  4. File Formation Documents
  5. Get an EIN

Or, use a professional service:

four point seven out of five stars Northwest ($29 + state fee)

Starting a Corporation is Easy

Step 1: Name Your Corporation

Choosing a business name is the first step in starting a corporation. You should choose a unique name that complies with your state’s corporate name requirements.

General Corporate Name Guidelines:

  • Your name must contain the word “corporation,” “company,” “incorporated,” “limited” or an abbreviation of one of these terms.
  • Your name must be distinguishable from any existing business in your state.
  • Your name cannot use the words “bank,” “trust,” “trustee,” “credit union,” or related words without approval.
  • Your name cannot include words that could confuse your corporation with a government agency (FBI, Treasury, State Department, etc.).

Is my corporation name available?

Your corporation’s name should be unique and distinguishable from other business names. Visit our How to Start a Corporation state-specific guides for your state’s business name search portal.

Need help naming your business?

If you need help coming up with a catchy name, try our corporation name generator. You can use this tool to generate both business names and domain names.

Is the URL available?

Before you register your corporation, you should make sure a good URL is available for your business name. Even if you aren’t planning on creating a business website now, we advise buying a web domain right away to prevent other businesses from acquiring your domain name.

We recommend using GoDaddy to search for a web domain name.

Domain Name Search

After You Get Your Business Name and Web Domain

Once you find the perfect business name, your next step is getting a logo design. You can use our free small business logo maker to make a logo yourself.

FAQ: Name Your Corporation

How do I name my business?

Naming your business can be complicated. From naming guidelines to brainstorming your brand, we have it covered. To learn more about naming a business, visit our How to Name a Business guide and choose your state from the drop-down menu.

Do I need a DBA (Doing Business As) or trade name for my business?

You will need to set up a DBA to operate under a name other than your legal name. Some states also require certain business types to file a DBA and some states don’t allow DBAs at all.

To learn more about DBA guidelines in your state, visit our How to File a DBA guide and select your state from the drop-down menu.

Step 2: Choose a Registered Agent

You must appoint a registered agent when you register your corporation.

A registered agent is an individual or entity that has been appointed by an LLC or corporation to receive service of process, government correspondence, and compliance documents on a business’s behalf. To learn more, read our What is a Registered Agent guide.

Your registered agent can be an individual, business entity, or professional registered agent service. Any member of the corporation or individual can serve as your registered agent as long as the person:

  • is 18 years or older
  • has a physical address in the state where business activity is conducted
  • is available (in person) during normal business hours

Hiring a service to act as registered agent for your corporation has many benefits. To learn more about hiring a registered agent service for your corporation, read our Should I Use a Registered Agent Service guide. You can also check out our review of the best registered agent services.

FAQ: Choosing a Registered Agent

Is a registered agent service worth it?

Using a professional registered agent service is an affordable way to manage government filings and service of process for your corporation. For most businesses, the advantages of using a professional service significantly outweigh the annual costs.

For more information on how to set up a registered agent in your state, visit our What is a Registered Agent guide and choose your state from the drop-down menu.

What happens if I don’t have a registered agent?

If you don’t have a registered agent, there are negative consequences in almost every state. Your business could be penalized with lawsuits and fines, lose good standing with the state, and could eventually be dissolved.

Step 3: Choose Initial Directors and Share Structure

You will need to select your initial director(s) and determine your share structure before you file your formation documents.

Initial Directors

In most states, you must appoint at least one director who will oversee your corporation until the first shareholder’s meeting.

A corporate director is in charge of the adoption, amendment, and repeal of operational bylaws as well as the election, supervision, and removal of officers.

After the corporation is formed, an organizational meeting should be called by the incorporators or by a director if one was named on the formation documents. During this initial meeting, the incorporators will name all of the initial directors.

An Incorporator Statement with complete names and addresses of each director, and meeting minutes, will be signed after the meeting and should be stored in your corporate records book.

Share Structure and Classes

A share of stock is the unit of ownership of a corporation. Each share of stock represents a percentage of ownership in the company. For example, if a corporation issues one share of stock, the shareholder (stock owner) would then own 100% of the corporation.

Shares can be structured into classes. Each class, termed a share class, holds different rights and privileges. You can have multiple classes and each class can hold any number of shares.

Authorized Shares refers to the number of shares the corporation is allowed to issue
Issued Shares refers to the total number of shares actually issued by the directors to shareholders

FAQ: Initial Directors and Share Structure

What is a Corporate Director?

A corporate director is in charge of the adoption, amendment, and repeal of operational bylaws as well as the election, supervision, and removal of officers.

What is a Share Class?

A share class is a group of shares that have a unique set of rights and privileges compared to other shares of the same corporation.

Step 4: File the Formation Documents

You will need to file formation documents with your state. Once the documents are approved, you will have officially formed a corporation. Most states provide fillable formation documents online.

The formation documents will cover the basics of your corporation, including:

  • Corporate name and principal address
  • Corporate service of process agent name and street address
  • The number of authorized shares the corporation is allowed to issue

We recommend starting with a high number of authorized shares. Many attorneys and business professionals suggest 10 million. By starting with a high number, you have the flexibility to issue shares as needed without paying legal fees to increase your initial authorized shares amount.

FAQ: Corporate Formation

What is an S corporation?

An S corporation is a tax designation that can be used by corporations and LLCs alike. S corporations are taxed as pass-through entities. This means that S corps do not pay federal taxes on their business income. Instead, the profits of the business “pass-through” to the owners of the S corp, who are also known as shareholders. Read our What is an S Corporation article to learn more.

What is a C corporation?

A C Corporation is the default structure of an incorporated company. It’s a separate legal entity from its owners with a basic operational structure consisting of shareholders, officers, directors, and employees. Read our What is a C Corp article to learn more.

LLC vs Corporation: Which Should I Choose?

LLCs and Corporations have limited liability protection in common. But after that, there are many differences.

To learn more, read our LLC vs Corporation: Which is Right for You? guide.

What is an authorized share vs an issued share?

Authorized shares are the number of shares that a corporation is allowed to issue. This number is initially set by the incorporator on the corporation’s formation documents and can be increased later by going through a legal process. Issued shares are the shares that have actually been distributed to shareholders.

Step 5: Get an EIN

The Employer Identification Number (EIN), or Federal Tax Identification Number, is used to identify a business entity. It is essentially a social security number for the company.

An EIN is required for the following:

  • To open a business bank account for the company
  • For Federal and State tax purposes
  • To hire employees for the company

Where do I get an EIN? An EIN is obtained from the IRS (free of charge) by the business owner after forming the company. This can be done online or by mail.

To learn more about EINs, read our What is an EIN guide.

Considering Using an Incorporation Service?

We reviewed and ranked the top incorporation services. Find out which is right for your business.

Learn More

How to Run A Corporation

Create Your Corporation’s Bylaws

Bylaws are the rules that determine how your organization will be governed and run. You can think about the bylaws as a constitution for your corporation. It makes the rules and priorities clear for everyone.

A corporation’s bylaws supplement any rules set forth by the federal government or the state.

In your bylaws, be sure to include:

  • How the corporation will be governed, including the role of directors and officers
  • How meetings are held, voting procedures, and how officers or directors are elected
  • How records will be managed and kept
  • How disputes will be handled
  • How bylaws will be added/amended in the future
  • The date of the annual board of directors meeting

Ready to get started? These bylaws templates can be customized to suit the needs of your incorporated business.

Get a Bank Account for Your Corporation

A business bank account helps separate personal expenses and company expenses, which is required to maintain your corporation’s corporate veil. A corporate veil protects your personal assets from creditors in potential lawsuits against your corporation.

We recommend checking out our review of the best business bank accounts to find the optimum financial solutions for your corporation.

Get Insurance for Your Corporation

The next step is to protect your corporation by getting business insurance. Depending on the type of corporation you’re operating, your insurance requirements and needs may vary.

So, what is business insurance exactly? Business insurance protects your corporation’s assets from losses that can happen naturally while doing business, such as property damage or lawsuits.

To learn more about the exact type of business insurance your corporation will need, visit our When to Get Insurance for Your New Business guide.

Protect Your Startup’s Future

Secure comprehensive insurance coverage tailored for your business with Next Insurance’s flexible plans.

Learn More

Set up a Corporate Records Book

You can think of this as the hard-copy record book where all critical corporate documents are kept, like your formation documents, bylaws, meeting minutes, stock certificate ledger, stock transfer documents, etc.

We advise that you keep the corporate records book at your principal location. Corporate records book kits can be purchased online, or you can use a large generic binder to store your records.

Hold Periodic Board Meetings and Record Minutes

An annual shareholder meeting must be held once a year in most states. During this meeting, the shareholders elect the board of directors. The date for this meeting should be set forth in your corporate bylaws. Other board of director meetings should be held regularly and minutes should be recorded.

Meeting minutes are not legally required in some states but they are necessary. Well recorded minutes are valuable during disputes and court actions. Several companies offer corporate minutes templates. To learn more, read our review on the Best Corporate Meeting Minutes Templates.

Research Corporate Licenses and Permits

Do I need business licenses and permits?

You must comply with federal, state, and local government regulations when operating your corporation. For example, restaurants likely need health permits, building permits, signage permits, etc.

The details of business licenses and permits vary from state to state. Make sure you read carefully. Don’t be surprised if there are short classes required as well.

Fees for business licenses and permits will vary depending on what sort of license you are seeking to obtain.

Obtain the correct business licenses and permits for your corporation, or have a professional licensing service do it for you:

  • Federal: Use the U.S. Small Business Administration (SBA) guide to federal business licenses and permits.
  • State: Visit our How to Start a Corporation state guides for links to your state’s licensing requirements.
  • Local: Contact your local county clerk and ask about local business licenses and permits.

What is a Corporation?

Okay, so things get rather complex quickly when trying to clearly identify what a corporation is, can be, and how it’s viewed/treated under U.S. law along with taxing authorities.

In the content that follows our goal is to address common concerns of average folks interested in founding one, or in switching from another business entity (like an LLC) into a conventional corporation.

If you’re planning on forming a corporation, it’s highly recommended you do your homework or consult with a lawyer, have a CPA on hand, and know what you’re in for. There are many resources online to assist you, but please bear in mind not all websites contain accurate information. An article you read online isn’t a substitute for actual legal advice from an in-person or telephone lawyer consultation.

Core Characteristics of Corporations

An independent business entity legally separate from management including founders, owners, officers, and directors. It’s registered with the Secretary of State and has an independent tax identification number. In the eyes of the law, a corporation is a separate legal entity with “corporate personhood”.

  • Owners of corporations have what’s called Limited Liability, in most cases. Part of whether an individual corporate director can be liable for the acts of a corporation depends on the acts involved. For example, if a corporation is involved in shady business practices and engages in a lot of self-dealing, those individuals could be personally and criminally liable for intentional acts. These are usually reserved for situations in which individuals try to shield themselves from liability using the corporation as just a ruse. This is why it’s important a corporation is properly capitalized and observes corporate formalities.
  • A corporation will continue to exist despite new owners or new shareholders and deemed to have a legal existence until it’s formally dissolved. Changes in personnel, directors, and shareholders doesn’t usually affect a corporation’s legal status.

There are two formal types of corporations, but keep in mind it can be far more complex (especially if and when you talk to a lawyer). Where they differ primarily is in taxation and corporate ownership, but some similarities include the following.

  • Both have Limited Liability protection, in most situations.
  • Both require formal Articles of Incorporation and that each corporation observes the proper formation requirements as set forth by the Secretary of State. The laws may differ depending upon which state you form in.
  • Both have a board of directors, shareholders, officers, and directors.
  • Both have a registered agent for service of process.

These are some examples of corporations and their various forms.

  • C-Corporation: The most common form of a corporation, unlimited growth, unlimited shareholders, sells stock, better access to funding, double-taxation (but can deduct business expenses), no restriction on ownership, etc.
  • S-Corporation: Typically for smaller platforms, 100 shareholder limit, pass-through taxation (no double-taxation, instead taxation passes through corp to owners who file individually), ownership restrictions – can’t be owned by a c-corp, another s-corp, an LLC/Partnership, or many trusts.

Primary Advantages of Forming a Corporation

Oh, there are so many, but we’re going to streamline them down into the core-five which are easy to understand.

Limited Liability Protection: This means owners and shareholders enjoy “limited” liability protection so they aren’t personally responsible for debts or being sued. The corporation is. However, this protection can be taken away very easily if there’s been unethical, illegal, or irresponsible behavior some of which are described above.

Unlimited Capital Generation: Corporations can generate and issue stock, so their ability to raise capital is unlimited far beyond that of much smaller organizations and business entities.

Corporate Taxation Benefits: Because corporations are separate from their owners, they pay taxes separately. Owners only have to pay taxes on profits paid (salaries, bonuses, and dividends), then everything else is filed under the corporate tax rate which is often going to be better than individual income tax rates.

Attractive to Potential Employees/Investors: Because of their growth and income potential (stock options), as well as certain tax benefits, it’s typically going to be much easier for a corporation to attract talent and acquire investor funds. This, of course, depends on the nature and size of the corporation.

Management: Corporations are known for more dependable structures thanks to the formalities of maintaining a board of directors, elected officers and committees, bylaws, articles, meeting minutes, etc.

How About Disadvantages?

Now, if we had to narrow down the field of disadvantages into three, this is how we’d wrap them up but keep in mind these aren’t disadvantageous in all circumstances.

Resource Demands: Unlike an LLC or partnership, corporations can cost a fair amount in terms of both man-hours and money. It takes time to go through the motions, assemble a board, set up bylaws, and everything else involved. When choosing to start a corporation, as with any business, you have to ask yourself whether this makes economic sense and whether your corporation will realistically be profitable this year, next year, five years from now and ten years from now.

Double-Taxation: First when the company makes a profit, and again when dividends are paid to shareholders.

Formalities & Paperwork: Corporations are highly regulated entities on all levels – federal, state, and sometimes locally – so that’s also a lot more paperwork, documents to be filed, forms, record keeping burdens, etc. If you’re not good at record keeping, then you need to find someone who is.

When’s The Right Time to Form a Corporation?

An odd question, though common nonetheless. But this needs to be said:

In an ideal world, no one should attempt to form a corporation in any state without first consulting with trained legal and accounting professionals! That’s the truth.

There’s a smorgasbord of expenses and formalities to consider and founders can get in trouble quick if they don’t have help or know what they’re doing. If all you’re trying to do is set up a business entity for limited liability protection, consider other less complex options like an LLC. That being said, here are some realistic situations in which forming a corporation might be a better idea.

  • Your platform has reached a point where the issuance of stock options makes sense to attract the best talent in your industry and bring in much larger amounts of investment capital.
  • The tax year has ended. It sounds unusual but some states, such as California, do have an alternative minimum tax for corporations. So, for example, if it’s November or December and you want to form a corporation, you might be better off waiting until the following tax year (just a few months away) to avoid paying the alternative minimum tax for that year. Consult with your accountant or lawyer on this issue. Your state’s tax website ought to give some guidance on this issue as well.
  • Your company profits have reached a point where it makes financial sense to leverage corporate tax benefits.
  • Forming a corporation provides you and your founding team with the ownership control you need. For example, to keep the company “in the family” as part of an estate plan, or to give shares to people without having to pay gift taxes (with the help of a good attorney of course).
  • You intend on forming a non-profit corporation, which means you form the corporation first and then apply for 501(c)(3) tax-exempt status.
  • You may be getting pressure from clients, family, friends, and your professional network to incorporate. Bear in mind that well-meaning people giving their input may not fully understand the implications of forming a corporation, all that it entails, and whether it’s the best business choice for you. Just be sure to think it through and really balance the positive and less positive impacts this decision may have on you, your business, and your relationships.

Corporation FAQ

Why form a corporation?

There are a number of good reasons to form a corporation.

Advantages of a corporation:

  • limited liability protection
  • unlimited capital generation
  • corporate tax benefits
  • a more formal management structure
  • appeal to investors

To fully realize the benefits of incorporating, you will want to consider your company’s capital needs, profits, and management and ownership structure to make sure forming a corporation is the best business structure for you.

To learn more about what business structure is best for you, read our How to Choose a Business Structure guide.

What type of corporation should I form?

The best type of corporation for your business depends on many factors. Here are some different types of corporations.

  • Regular C Corporation – Owned by stockholders, has a board of directors, holds an annual meeting
  • Professional Corporation – Generally for corporations that require certain licensed individuals (e.g., doctors, attorneys, etc.)
  • Non-Profit Corporation – Use profits to advance the company’s mission rather than distributing them to shareholders
  • S Corporation – An S corp is a type of tax classification. Unlike a C corps, an S corp can pass through income to their shareholders for tax purposes. S corps are limited to 100 shareholders.

You should carefully consider your business structure, goals, and financial situation before selecting your corporate structure.

Corporation vs LLC: Which is better?

Deciding which is better, a corporation or an LLC, depends on your business’ specific situation. Your company’s size, structure, goals, and more will determine if it is better to form a corporation or form an LLC.

To learn more about what business structure is best for you, read our How to Choose a Business Structure guide.

Which is the best state to start a business in?

While several states have laws designed to make them more attractive for corporations, the best state to incorporate in is generally the one where you are located and do the majority of your business. Certain corporate tax benefits or other laws may look appealing, but you may end up complicating things and paying taxes and meeting compliance regulations in multiple states.

How do I choose a business name?

There are many things to consider when choosing a business name, including your brand, name availability, and the naming laws in the state you are incorporating in. You can read more details about How to Name Your Business in our step-by-step guide.

How much does it cost to incorporate?

The cost of incorporating (filing formation documents such as articles of incorporation, a certificate of formation, etc.) is between about $45 and $300, depending on your state. There may also be attorney’s fees and a registered agent fee, among others.

What is a registered agent?

A registered agent accepts tax and legal documents on behalf of your business. Most states require your corporation to have a registered agent. The agent can be a professional service, yourself, or a colleague given they meet the state’s criteria.

For more information, check out our What Is a Registered Agent? page.

What forms do I need to start a corporation?

The forms you need to start a corporation depend on the state where you are incorporating, but they will at least include a formation document. The name of this document varies from state to state (e.g., articles of incorporation, certificate of formation, certificate of incorporation, etc.).

Some states may require additional documents, so it is best to check our one of our state-by-state guides.

Do corporations have yearly filings?

Many states require corporations to file an annual report and/or other annual corporation paperwork, but requirements can vary. It is best to check our one of our state-by-state guides.

How are corporations taxed?

Owners of C Corps pay taxes on profits paid (salaries, bonuses, and dividends), then everything else is filed under the corporate tax rate. Because of this, corporations are said to be “double taxed.” First when the company makes a profit, and again when dividends are paid to shareholders.

S Corps are taxed differently, with profits passing through to the owners’ individual tax return. For more information, check out our What Is an S Corporation page.

What is the corporate tax rate?

The U.S. federal corporate tax rate is 21%. Corporations might also have to pay additional state corporate taxes depending on the states they do business in.

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