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It is a crucial decision to form a legal entity for your company. A corporation is a popular choice for business partners and entrepreneurs because it offers tax benefits, liability protection, and flexibility to shareholders.

Although the process of incorporating a corporation may seem daunting, it is possible to use a business formation service to simplify everything.

Why it is worth forming a corporation

Business owners often choose to incorporate to protect their assets. Your liability is limited to the amount you invested in the corporation if the company is sued or owes money to lenders or vendors.

Investors also love corporations. The corporate entity structure is advantageous if you want to grow your company and raise capital from investors.

You have two options when you go through the formation process: a C or S corporation. Each has its advantages, depending on how you intend to run the business and scale it down.

C corps, for example, are ideal for anyone wanting to make their company public through an IPO. Although S corps cannot be publicly traded, this structure provides tax benefits for stakeholders who wish to avoid double taxation.

Multiple stakeholders can go into business together with the corporate management structure. A corporation has a board, officers, shareholders, and directors. Each has their own roles and responsibilities. This helps to keep everyone under control and limits each shareholder’s power. One person cannot always decide without the approval and consent of others.

How Much Investment is Required to Form a Corporation

You can legally form a company for as low as $500, with no overhead or operating costs. The only one mandatory cost is the state filing fee. The fee is usually between $50 and $300, but it varies from one state to the next.

A majority of states require an annual filing fee and an annual report. This cost varies depending on where your company is located. The annual report filing fee in Hawaii is only $15 California, however, imposes an annual franchise tax of $800.

You will only have to pay the state’s fees if you do the formation process yourself. You’ll still need to manage things such as corporate name searches, corporate resolutions, bank resolutions, obtaining an EIN, and filling out IRS form 2253 for the Scorp election. This process is made easier by using a business formation service such as Incfile.

While these services may add some cost to your initial startup costs, they make the process much easier. Answer a few questions online and Incfile will prepare the articles of incorporation and file them directly with your state. Incfile can also be used to search for business names, get an EIN, create corporate meeting minutes, and many other things.

Online filing services can be used to speed up the incorporation process. Although the exact time frame varies from one state to another, you can often get your company formed in ten business days rather than four or six weeks.

6 Steps to Forming a Corporation

This step-by-step guide will help you form a corporation with Incfile. The same steps can be applied to any other form of service.

Step 1 – Start a business name search

First, choose a business name to represent your corporation. Before you can do this, verify that no other business has registered the name in your state.

This process can be quite difficult if you are forming the corporation yourself without any assistance from an online service. Searching through the state databases can be difficult as they aren’t always easy to use. If you do not find the name you are looking for, or if it’s already taken, you will have to apply again.

Incfile provides a free search for business names and unlimited searches as part of its formation packages.

It is very simple.

Simply type your business name and choose the entity type. Finally, select your state. Incfile will take care of the rest. Incfile will search the state business registry to confirm the availability of the name.

Incfile has a tool that will help you generate a business name if the name is already in use.

It is important to choose a memorable business name. This step should not be taken lightly.

You could also register a generic corporate address now, and use Incfile later to register a DBA or FBN (doing business under the name) This is a great way to distinguish your company from the legal name filed with your secretary of state’s office.

Step 2 – Select a type of corporate entity

Corporations are not a one-size fits all entity. There are three types of corporate entities you can choose from C corporation, S corporation, or nonprofit corporation.

Incfile can help you set up your corporation in any state, regardless of what entity structure you choose.

Let’s look closer at the advantages and differences between each corporate structure.

C Corp

A C corp is the default type of corporation. If you do not have any tax designations or special requests, your business will automatically be considered a C corporation.

This entity type is ideal for large companies and multiple investors. C corps can issue multiple stock classes, so they can eventually be traded at a public stock exchange. Outside investors love the possibility of large dividends and gains from this corporate structure.

Double taxation is a possibility for C-corporations. Taxes are imposed on the company and shareholders based on personal income tax returns. This tax structure is not ideal for smaller entities with only one or two owners.

S Corp

An S corp is technically not a type of corporation. It’s a status that the IRS has granted. This status allows the corporation’s income to be passed to shareholders through their tax returns. This avoids double taxation by a C corp since the business is not taxed.

S corp is attractive options for smaller companies with fewer shareholders. If you are interested in applying for this tax designation, there are certain requirements. You cannot have more than 100 shareholders and shareholders must be US citizens.

If you run an S corp, you can only issue one type of stock. You cannot take the company public.

You must file IRS Form 2253 to start an S corporation. This can be done either during or after incorporation. Incfile will handle the filings for you if you use them to create your corporation.

Non-profit

Nonprofits are not like other corporations and don’t pay dividends or have shareholders. Profits are instead reinvested in the organization and used to further the mission of the nonprofit.

Nonprofits are granted tax exemption status by the IRS. The IRS grants nonprofits a 501(c),(3) designation. This means that they are exempt from federal income taxes. Donors can also write off donations to the corporation in their tax returns.

Step 3 – Get an EIN

An EIN (employer identification number) is required for every legal business entity. This is also known by the acronym TIN (tax identification numbers) or simply “tax ID.”

The IRS can provide an EIN free of charge. It’s much easier than going to multiple websites and filling out additional paperwork to obtain an EIN. You can get one directly through your online incorporation service. Incfile makes it easy to complete this process.

Incfile charges $70 to obtain an EIN. Incfile’s Platinum and Gold business formation packages include an EIN for free. These packages are briefly described below.

• Silver — $0 plus state fees
• Gold — $149 plus state fees
• Platinum — $299 plus state fees

If you could get your EIN free of charge from the IRS, $70 may seem high at first. When you think about the value of the Gold or Silver packages, it’s not unreasonable to obtain your EIN elsewhere. Incfile will obtain your EIN by checking the box online when you fill out the incorporation form.

Step 4 – Elect a Registered Agent

Each legal entity within the United States must appoint an agent. Your registered agent will deal with government correspondence and serve processes on your behalf.

The registered agent of your company could technically be any person who lives in the state where you were formed. This could be you or one other shareholder.

It’s not a good idea for you to be your registered agent, especially if you’re forming an organization.

To receive documents in person, the registered agent must be present during normal business hours. A PO Box is not allowed to receive legal correspondence such as a lawsuit.

Many shareholders do not want their personal information to become public records. And nobody wants to have to answer them at any time during business hours. This is why a registered agent is the best choice.

Incfile offers registered agent services in all 50 states. This service is ideal for companies that want to expand and establish a presence in multiple countries. Incfile can be used as your registered agent in every state where you are located.

Incfile charges $119 per annum for the service, but Incfile offers a free first year.

Step 5 – Prepare your Articles of Incorporation and file them

Articles of incorporation (also known as corporate charter or certificate) are legal documents that are used to register a company with a US state.

Information such as the company name, business description, address, registered agent, and stock classes will be included in the paperwork. The documents will also include information about shareholders.

It is crucial to have these documents filed promptly. You are more vulnerable to human error and delays, which could increase your costs and increase the time it takes to file. This service is included in all Incfile packages, even the free ones.

You can also choose to accelerate the formation process.

You can see that the California filing process takes six weeks. Incfile can reduce this time to five business days.

The expedited service is $50 for the Silver or Gold packages. It is also included in the Platinum plan.

Step 6 – Draft your Corporate Bylaws & Shareholder Agreement

You will need to finalize your corporate bylaws and create a shareholder contract.

The bylaws govern how the corporation is run. This will cover voting rights, meeting procedures, and corporate record-keeping.

Your bylaws won’t be filed with the state but they will still be required for incorporation. Incfile can help you prepare your bylaws. This service is included in the Gold and Platinum packages. For $30, the Silver package includes bylaws.

You will need to create a shareholder agreement.

This document is intended to define the rights of shareholders. It will include vital information about the company’s management structure, responsibilities, and the power of the different roles.

Most shareholder agreements include the following:

• Conditions for issuing shares
• Share transferring rules
• Valuation and percentage of ownership
• Dispute resolution
• Non-compete clauses
• Procedure for when a shareholder is incapacitated or dies

These legally binding documents should be signed by all stockholders and must be issued.

Next steps

After you have completed the incorporation process it is time to appoint your board of directors and hold your initial board meeting. The first meeting should discuss topics such as appointing officers and determining your tax status.

Your corporate meeting minutes should contain a formal record of board meetings.

Also, check out our list of the top online legal services. This is a great resource if you need to quickly access legal documents or contracts for your corporation’s board meetings. This resource is also a great resource for any legal amendments you may need to your corporate bylaws.