Starting a corporation not only helps take your business to the next level, but it can offer liability protection for owners, the opportunity to issue stock, and more. Depending on your business needs, incorporating might just take your company where it needs to go. Below, we’ve answered some common questions to help no matter your corporation needs.
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A corporation is a type of business entity formed at the state level. Corporations can be either for-profit or not-for-profit (although most corporations are for-profit). In the eyes of the law, corporations are seen as individuals, with the right to sue, be sued, and hold assets. Different from individual people, however, corporations can theoretically live forever.
A corporation’s owners are called shareholders, and corporate ownership is divided into shares of stock. The percentage of shares a shareholder owns is usually proportionate to how much of the business they own—50% of the shares equals 50% of the business.
Corporations provide limited liability protection for shareholders. This means that if creditors come to collect a corporation’s unpaid debts, or if a corporation is sued, shareholder assets will be off the table.
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There are several steps involved when it comes to incorporating a business and setting it up for business success.
Incorporating a business is how a corporation is formed. As it relates to corporations, “incorporate” is simply a fancy way of saying “form” or “start.”
Incorporation occurs after your Articles of Incorporation are filed with the state in which you conduct business.
Starting a corporation involves numerous important steps. We’ve broken down the essentials below:
Before your business can become a corporation, it must be registered with the state by filing Articles of Incorporation. While you may have a legitimate business prior to filing Articles of Incorporation, the limited liability gleaned from corporation-status will not apply.
Each state has their own rules regarding what information needs to be included in Articles of Incorporation. Below, we’ve outlined some of the most common pieces of information articles ask for.
It depends on the state. Many states have you file with their Secretary of State’s office. Some states have designated a different filing location, such as Michigan’s Department of Licensing and Regulatory Affairs.
The Articles of Incorporation fee tends to hover around $100, though it varies by state.
In Pennsylvania, for example, Articles of Incorporation cost $125 to file. In Oklahoma, it’s $50 to file if you have up to $50,000 in authorized capital. Tack on an extra $1 for every additional $1,000 in authorized capital.
Once the state files your Articles of Incorporation, your corporation is officially created. But maintaining your corporation requires more paperwork and fees.
An annual report is an informational document you file with the state, usually submitted to the same office where your sent your Articles of Incorporation. Annual reports update or confirm business information, such as your registered agent’s address or other contact information.
Nearly all states require corporations to submit some form of regular state report, though they may come in the form of annual, biennial, periodic, or decennial reports. Reporting requirements vary widely—some forms can be easily completed in minutes while states like Alabama and Arkansas combine their reports with state tax forms.
Along with your report, payment will be due. Amounts vary by state. In Oregon, for example, domestic corporations will owe $100 each year while foreign corporations will owe $275. In New York, the annual report payment is just $9.
Yes. Corporations currently pay federal income tax at 21%. States can impose their own taxes on corporations, as well. The highest state corporate income tax rate is found in New Jersey at 11.5%. Corporations may also be subject to sales taxes, property taxes, and other state and local taxes.
There is no tried and true “right” time to form a corporation. But as a general rule, the more profit and risk you’re dealing with, the more you should considering filing articles with the state. You should also consider incorporating if you want to bring in investors. Since corporations are divided into shares of stock that can be sold, they tend to be a more attractive investment to outside parties than other business entities might be.
How long it takes for your corporation to form depends on your how long your state takes to file Articles of Incorporation. Some online filings are processed immediately. Many states offer expediting options that take a few hours. Unexpedited filings in states like Maine and Pennsylvania can take weeks to process.
Most states charge in the neighborhood of $100 to file Articles of Incorporation. Of course, actually getting your business off the ground can cost many thousands of dollars (or more).
Shares are units of ownership in a corporation. They are what a corporation is divided into to determine ownership percentage. A corporation’s owners are called shareholders—as such, they hold shares.
Corporate bylaws are the guiding rules and principles that help your corporation run. Bylaws might speak to everything from how often meetings will be held to how to handle a shareholder’s departure.
A board of directors is a group of people who meet regularly to help operate a corporation with shareholder interests in mind. Boards are elected by shareholders, and nearly all corporations must have one in place. Unless explicitly banned in the bylaws, board members can also be shareholders (though they do not have to be).
Corporations and LLCs are both business entities formed at the state level that provide limited liability to owners, but they differ in several important ways. LLCs and corporations are taxed differently by default, divide ownership differently, and have differing management structures. To learn more, visit our Start an LLC page.
A foreign corporation is one that operates in a state other than where it first incorporated. For example, if a business incorporates in Oregon, and later files articles in Washington and California, it would be a domestic corporation in Oregon and a foreign corporation in WA and CA.
Yes. Your Articles of Incorporation is a public filing, meaning the information you provide is available to the public.