How do I incorporate a business in the US? This is a great question, We always hear from our clients, should I incorporate my business? If my answer is “yes”, then the next question is, how will I incorporate it? Well! it is a little complicated process and we are here to help you. Trust us, you can also do it yourself if you know what is relevant information to consider and the process of doing it. In this blog, we are going to share with you the information and the process.
All the information you need to know to incorporate your business
Incorporation is a separate legal entity. That means that you have a corporate name, who can be sued by an individual or the corporation can sue somebody. Similarly, a corporation can sue someone or can be sued in court. In this scenario, the corporation assets and liabilities are separated from your personal assets and liabilities.
The process of incorporation starts when you file incorporation/formation documents with the state government in the USA to incorporate a business or form a company. It is different from a general partnership or a sole proprietorship. To form a general partnership or a sole proprietorship you just need to simply start running your business. In the case of a sole proprietorship, unless you want to conduct your business in a name that is different than your personal name, you can start your business without any formalities. Only if your business name is different than your personal name then you need to register that name in the state. This registration is simple and available at a small fee. In case if you want to form a general partnership, you can start your business as soon as you have a verbal agreement/understanding with your partner/partners. However, we always suggest having the terms and conditions written on a piece of paper and signed by the partners.
A Corporation or a Limited Liability Company (LLC) must be created as per the state’s law. All states in the USA have their own incorporation requirements. In this blog, we will discuss the most common requirements or the steps that you need to take to form/create a Company or a Limited Liability Company in the United States of America.
You have the options of many different types of business entities in the United States to choose from. Each entity has its advantages and disadvantages. To learn more about the available types of entities in the United States, please visit our blog “Business Structures in the United States.”
Articles of incorporation
The most important filing document to form a corporation is the “Articles of Incorporation.” Whether you are forming a C corporation or an S corporation or an LLC, you must first file the company incorporation/formation document with the state and pay the required filing fees. This document is called “the Articles of Incorporation.”, The state registrar reviews this document for legal compliance, and once assured, the registrar issues the Certificate of Incorporation.
The article of incorporation is a public document, and anyone can request a copy from the state’s registrar. This document includes all the basics and legal information to form a corporation in the state.
To prepare an article of incorporation, you need to go through the following steps or understand the process:
The steps outlined below are the information you may need to gather, discuss, and decide to be included in your articles of incorporation. We are trying to present here the most common information as applicable to most of the states. However, it may differ from one state to another.
Corporate name – You need to find if the desired name of the corporation that you intend to form is available in the state or not. If someone has already registered a corporation with a similar name, the registrar will not allow you to use that name as it can be confusing in a public place. Once you ensure that the name you want might be available you can proceed with preparing the articles of incorporation. You must include at the end of the proposed name an identifier. An identifier at the end of the name of the company shows to the public that this is a separate legal entity and artificially created by the law of the state. The corporate identifier would be such as “Corporation,” “Incorporated,” “Company,” or an abbreviation, as “Inc,” is to be included at the end of the desired name.
Business purpose – You may need to define the nature of the business that your corporation intends to be doing. Depending on the states, you may need to be specific in this regard. In some states, you may define the nature of your business as “General.” That means the company is formed to conduct “all lawful businesses.” While in some states, you may need to be very specific. In this situation, you are required to provide a complete description of the products and/or services your company will be providing to the public or businesses.
Registered agent – All states in the USA typically require that a corporation must appoint a registered agent in the state in which it is incorporated. It is required that the registered agent must have a physical address mailing address (not a PO box) in the state and be available to accept mail or communication during the usual business hours. There are many agents available in almost all the states who provide these services on monthly or annual fees. However, if your business already has an office where a person can receive a legal mailing document, you need not appoint an external registered agent.
Incorporator – It can be a person or another legal entity who intends to incorporate a new business in the state. You need to include the name of this person or entity in the articles of incorporation with his physical address. In the case of an entity, this person or a duly authorized signatory must sign the application.
A number of authorized shares of stock – In all corporations, the ownership is indicated by the number and the type of shares you own. Your corporation must state the number and the kind of shares they want to issue or authorize. There could be voting shares, non-voting shares, or special shares that you may want to include in your articles of incorporation. These shares are also known as common shares or preferred shares. After the incorporation is done, the corporation may or may not issue the number of shares that it is authorized to issue. However, if the corporation wants to issue more shares than the number of shares authorized in the articles of incorporation, the corporation may need to amend its articles of incorporation. Please note that franchise taxes are based on the number of outstanding shares of the corporation in some states.
Share par value – The par value of a share is its book value or minimum book value and generally doesn’t reflect the real market value. The actual market value of a share may be different, and normally it’s the fair market value or what someone is willing to pay to buy it. However, for private companies, the actual value is generally determined by the company’s overall performance, profitability, and net assets. The actual value of a public company’s share is determined by the price that an investor is willing to pay for each share where this stock is listed.
Board of Directors – They are responsible for managing the corporation’s affairs and they are responsible to make all major corporate decisions. They are elected in a meeting of the shareholders. Generally, the directors appoint the officers of the corporation. You may need to include the names of the directors and their residential addresses in the articles of incorporation.
Officers — Officers are appointed by the Board of Directors. Usually, they hold the positions in the corporation as president, vice president, secretary, and treasurer of the corporation. These officers manage the day-to-day activities of the corporation. Only some of the states require that you include the officer information in the articles of the incorporation.
The legal address of the company – Only some states require this information. Some of the states also allow you to incorporate with a foreign address.
Incorporation tips from RKB Accounting:
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information