Forming a new corporation requires some careful planning and a number of key steps. Here is a checklist of some of the important issues to address.
1. Choose a corporate name: This is not easy because many names are already taken and some names have trademark issues associated with them. Check out if the name is available from the Secretary of State of your state. Then do a Google search and trademark search online to make sure someone is not already using the name.
2. Decide in what state to incorporate: Delaware and Nevada tout their corporation-friendly state laws, but you will most likely decide that the state that you will reside in will be the place to incorporate.
3. Start preparing the incorporation documents: This will usually mean preparing the Certificate of Incorporation, the Bylaws, the Resolutions of the Board of Directors, the Stockholder Resolutions, the Stock Ledger, Stock Certificates, and more. You can see sample forms at the Forms & Agreements Center of AllBusiness.com. Incorporation services such as LegalZoom will also help you prepare the forms.
4. File the Certificate of Incorporation with the Secretary of State: Filing of the Certificate of Incorporation (sometimes called the Articles of Incorporation) is required for officially starting your corporation.
5. Determine the right capitalization for the corporation: You want to make sure that you have adequately capitalized the company to ensure its success. Consider the capital needs of the company through a well thought out business plan and financial projections.
6. Issue stock to the shareholders and comply with securities laws: When you sell stock to shareholders, you have to comply with state and federal securities laws. A good corporate lawyer can help you navigate through the stock issuance process.
7. If you have more than one shareholder, think about whether you should have a Shareholder Agreement or Buy-Sell Agreement: These types of agreements provide what the shareholders are required to do for the business and for rights of first refusal on transfer of their shares.
8. Make sure you have a Corporate Minute Book: Various corporate actions require proper documentation, such as minutes or consents of the Board of Directors and shareholders. You should set up a Corporate Minute Book and keep the records in that book.
9. Elect the Officers and Directors of the Corporation: Depending on your state law, you may need more than one director. Typically, one person can hold multiple officer positions, such as CEO and CFO.
10. Obtain your state and Federal Tax ID number: You will need these IDs for your business. You can get the federal form by going to the IRS Web site.
11. Determine if you need any special licenses for your business: State, federal or local rules may require your business to get a special business license or permit.
12. Set up a corporate bank account: You need to treat your corporation as a separate entity with its own bank accounts and records.
13. If you are going to hire employees, make sure that you have all the proper forms and agreements for them: These forms might include an employee “at will” employment letter (saying either the employer or the employee can terminate the relationship at any time), a Confidentiality and Invention Assignment Agreement (ensuring that whatever they develop in connection with their job is owned by the corporation), and an Employment Application (requiring the employee to give you relevant information as a condition to hiring them). Samples of these forms can be found at AllBusiness.com.
14. Decide if you should elect to be an S corporation: S corporations have certain tax advantages, but you have to follow certain rules and file an election with the IRS.
Of course, your particular business may require additional steps to be followed, and consultation with your lawyer and accountant may be appropriate. For additional information, check out the detailed “Checklist for Formation of a Corporation.”