How to Set Up a Corporation
By Kris Lamey, September 1, 2021
© 2020 – Present, Kris Lamey, Inc.
NAVIGATION
To choose a structure for your business, visit the SBA site at https://www.sba.gov/business-guide/launch-your-business/choose-business-structure. A corporation is typically the most advantageous form of business structure.
Here‘s an overview of how to set up your corporation:
- Select a corporate name.
- File articles of incorporation with your Secretary of State.
- Create bylaws for your corporation. (Not required by all states, but always a good idea.)
- Draft a shareholders’ agreement that governs how shares can be bought or sold.
- Maintain corporate minutes of shareholder and board of directors’ meetings.
- Issue shares of stock and maintain a register of who owns them and how many stocks are outstanding.
- Obtain an Employer Identification Number for tax purposes.
- Select a tax election, S Corp or C Corp, both of which have significant tax impacts.
Pitfalls To Avoid
- Incorporating in a state to avoid taxes. Delaware and Nevada are popular states for business registration due to their corporate-friendly filing fees and taxation. However, if you have less than five shareholders, it’s better to incorporate in the state where you operate.
- Choosing the wrong business structure. It’s important to discuss the advantages and disadvantages of each business structure with your company’s legal professional, financial advisor and tax professional. Otherwise, you might miss something obvious and end up restructuring your corporation down the road.
- Failing to file for a business license. Most business licenses are relatively inexpensive. You could face financial and legal repercussions for failing to purchase the relevant licenses.
Paying Taxes
Corporations based within the United States pay taxes on any profits made. The corporate income tax is typically higher than individual tax rates. However, the corporate structure protects shareholders and officers from financial loss and certain liabilities.
Most corporations filed form 1120 with the IRS, while taxes are paid on a quarterly basis based on estimated income.
Many people prefer to set up corporations to claiming business income on their personal tax returns. However, corporations pay taxes on net earnings and owners also pay taxes on any dividends received from the company (double taxation).
Obtaining Investors
Some investors are lucky enough to have personal connections, family and friends who can float them the cash for their new venture. For others, obtaining investors can seem like a daunting task.
Find Angel investors on networks such as AngelList. By networking with other companies in your industry, you can find out what worked for other startups.
It’s a good idea to network with startup investors to ask for advice or introductions to individuals or entities seeking investment opportunities. It’s also important to promote your early success on social media and other platforms to get the word out about your corporation. Ultimately, making money — or at least proving that your business has the potential to make money — is the best way to attract lucrative investors.
Professional Stock Transfer Agent and Registrar
Professional stock transfer agents and registrars manage startup investors. These professionals help your corporation stay in compliance with SEC regulations. Additionally, transfer agents liaise between entrepreneurs and investors, acting as transfer agents who closely monitor investor accounts and track certificates of ownership.
