How to Start a Corporation in 7 Steps

If you've sorted through the many types of business structures and decided to start a corporation, you're facing a list of important—but manageable—tasks. Follow the steps below to start your corporation.

If you want rules specific to your state, see our state guide to forming a corporation.

Step 1: Choose a Name for Your Corporation

The name of your corporation must comply with the rules of your state's corporations division. You should contact your state's office for specific rules, but the following guidelines usually apply:

• The name can't be the same as the name of another corporation on file with the corporations office.
• The name must end with a corporate designator, such as "Corporation," "Incorporated," "Limited," or an abbreviation of one of these words (Corp., Inc., or Ltd.).
• The name can't contain certain words that suggest an association with the federal government or restricted type of business, such as "Bank," "Cooperative," "Federal," "National," "United States," or "Reserve."

Your state's corporations office can tell you how to find out whether your proposed name is available for your use. In addition, you can usually, for a small fee, reserve your corporate name for a short period of time until you file your articles of incorporation.

Besides following your state's corporate naming rules, you must make sure your name won't violate another company's trademark rights. For instance, opening a grocery store called "Piggle Wiggle" would likely infringe on the Piggly Wiggly trademark. (For information about trademark law and general advice on picking the right business name, see our FAQ on choosing a business name.)

If you're unsure about which name to choose or have questions about name availability, you should talk to an attorney. A small business lawyer can run a quick name search and file the appropriate paperwork to claim your name. An intellectual property attorney can conduct a more intensive search of trademark and corporate databases to help you determine if moving forward with your chosen name is a good idea.

Step 2: File Articles of Incorporation

After you've chosen a name for your business, you must prepare and file articles of incorporation with your state's corporate filing office—typically, the department or secretary of state's office. While most states use the term "articles of incorporation" to refer to the basic document creating the corporation, some states use other terms, such as "certificate of incorporation" or "charter."

No state requires a corporation to have more than one owner. For single-owner corporations, the sole owner simply prepares, signs, and files the articles of incorporation themselves. For co-owned corporations, the owners can either all sign the articles or appoint one person to sign them. Whoever signs the articles is called the "incorporator" or "promoter."

Articles of incorporation don't have to be lengthy or complex. In fact, you can usually prepare them in just a few minutes by filling out a form provided by your state's corporate filing office and paying a fee.

Typically, the articles of incorporation must specify just a few basic details about your corporation, such as the:

• corporation's name
• corporation's principal office address
• corporation's registered agent (the corporation's contact person to receive official paperwork)
• the number of shares the corporation can issue, and
• the name and address of each incorporator.

If you need help creating or submitting your articles of incorporation, you can hire a local business attorney to write and file your articles for you. The lawyer can also be your registered agent.

Step 3: Appoint Corporate Directors

Before you start operations, you'll need to appoint the corporation's directors. Directors make major policy and financial decisions for the corporation and represent the corporation's shareholders. A board of directors, the corporation's governing body, is responsible for:

• electing officers (which might include a president, secretary, and treasurer)
• setting corporate policies (such as a nondiscrimination policy)
• overseeing finances (including setting budgets and reviewing financial statements)
• approving significant commercial transactions (like purchasing property or signing a loan)
• authorizing and issuing stock
• declaring dividends (when and how much to pay shareholders)
• amending bylaws, and
• deciding on major decisions (such as mergers or dissolution).

Typically, the incorporators—the persons who signed the articles—appoint the initial corporate directors to serve on the board until the first annual meeting of the shareholders. The incorporators should complete and sign an Incorporator's Statement showing the names and addresses of the initial directors. You don't need to file the statement with the state, but you should keep this document with your corporate records.

For a sample Incorporators Statement, see Incorporate Your Business, by Anthony Mancuso (Nolo).

Rules for Appointing Board Directors

Most states permit a corporation to have just one director, regardless of the number of owners. In other states, a corporation can have one director only if it has one owner; a corporation with two owners must have at least two directors, and a corporation with three or more owners must have three or more directors.

You should review your state's laws along with your corporation's formation documents to determine the structure and procedure for your board. You'll need to find the rules and requirements for:

• the number of directors
• term lengths
• term limits
• qualifications of board members
• frequency of meetings, and
• the procedure for adding or removing directors.

For example, your state might require that a corporation have at least one director and that the directors be elected at each annual shareholders' meeting. Many states generally allow a corporation's articles or bylaws to largely dictate how a corporation's board is elected and run.

Evaluating and Recruiting Board Directors

When building a board, you should pick directors that fit your corporation's needs. If your corporation's organizers have knowledge or experience gaps in one or more areas, such as legal or marketing, consider a candidate who can fill that gap.

If you're a small company, a formal selection process might not be necessary. But if you're a larger corporation that's looking beyond its organizers to fill the director positions, you'll probably need to follow a standard procedure that includes:

• evaluating the current needs of the board
• reviewing the potential candidates
• conducting interviews, and
• making recommendations to the shareholders.

If you need legal advice on recruiting and appointing directors for your board, consider contacting a small business attorney with experience working with corporate boards. They can help you establish a review process and outline your company goals.

Step 4: Draft the Bylaws

Next, you should draft your company's bylaws. Bylaws are the internal rules that govern the day-to-day operations of a corporation. Typically, the bylaws are adopted by the corporation's directors at their first board meeting.

Your bylaws can detail:

• when and where the corporation will hold directors' and shareholders' meetings
• what the shareholders' and directors' voting requirements are
• what the requirements for serving on the board of directors are
• what the officer titles and responsibilities are, and
• how company shares will be divided.

If you have knowledge and experience creating rules for a corporation or drafting formation documents, you can probably write the bylaws yourself. But if you're unsure about what to include or need legal advice working through the details, you should talk to a small business attorney.

Step 5: Hold a First Meeting of the Board of Directors

After the owners appoint directors, file articles of incorporation, and create bylaws, the directors must hold an initial board meeting to handle a few corporate formalities and make some important decisions. At this meeting, directors usually:

• set the corporation's fiscal or accounting year
• appoint corporate officers
• adopt the corporate bylaws
• authorize the issuance of shares of stock, and
• adopt an official stock certificate form and corporate seal.

Additionally, if the corporation will be an S corporation, the directors should approve the election of S corporation status. (For information on whether your corporation should adopt S corporation status, read our article on understanding S corporations.)

Step 6: Issue Corporate Stock

You shouldn't start doing business as a corporation until you've issued shares of stock. Issuing shares formally divides up ownership interests in the business. It's also a requirement of doing business as a corporation—and you must act like a corporation at all times to qualify for the legal protections offered by corporate status.

Drafting a Shareholders' Agreement

If you'll have more than one shareholder, you should draft a shareholders' agreement (also called a "stockholders' agreement"). This agreement outlines shareholders' rights and restrictions. It can set rules for:

• the number of directors
• which shareholders can vote for directors
• whether votes are counted per capita (one vote per shareholder) or per share (one vote per share)
• how many votes are needed to elect the directors
• whether shareholders can vote by mail, electronically, or in person—nowadays you should consider allowing virtual shareholders' meetings
• how shares are valued and the minimum legal price for a share (also called its "par value")
• when and how stock can be sold and traded (including the right of first refusal), and
• drag-along and tag-along rights (dissenting minority shareholders' options when a majority of shareholders make a decision for the corporation).

Securities Registration

Issuing stock can be complicated, and it must be done in accordance with securities laws. Large corporations must register their stock offerings with the federal Securities and Exchange Commission (SEC) and the state securities agency. Registration takes time and typically involves extra legal and accounting fees.

Exemptions to Securities Registration

Fortunately, most small corporations qualify for exemptions from securities registration. For example, SEC rules don't require a corporation to register a "private" offering. In a private offering, a company—in an unadvertised sale—can sell unlimited securities to up to 35 nonaccredited investors and to as many accredited investors as it wants. The SEC generally defines an accredited investor as someone who can reasonably be expected to take care of themselves because of their net worth or income-earning capacity. (17 C.F.R. § 230.506.)

Additionally, most states have enacted their own versions of this SEC exemption. In short, if your corporation will issue shares to a small number of people who'll actively participate in running the business—as opposed to a passive shareholder—it'll almost certainly qualify for federal and state exemptions to securities registration.

Issuing the Shares

When you're ready to issue the actual shares, you'll need to document the following:

• the names of the initial shareholders
• the number of shares each shareholder will buy, and
• how each shareholder will pay for their shares.

Finally, you'll prepare and issue the stock certificates. In some states, you might also have to file a "notice of stock transaction" or similar form with your state corporations office.

Help With Passive Shareholder Rules

If you're selling shares of stock to passive investors (people who won't be involved in running the company), complying with state and federal securities laws gets complicated. If you need advice on shareholders' rights or whether you'll need to register your securities offerings, you should talk to a small business lawyer. They can help you draft your shareholders' agreement and help you comply with federal and state securities laws.

For more information about federal securities laws and exemptions, visit the SEC website. For more information on your state's exemption rules, go to your secretary of state's website. (You can find links to every state's site at the website of the National Association of Secretaries of State's website.)

Step 7: Obtain Licenses and Permits

After you've filed your articles, created your bylaws, held your first directors' meeting, and issued stock, you're almost ready to start your corporation. But you still need to obtain the required licenses and permits that anyone needs to start a new business.

You might have to obtain:

• an employer identification number from the IRS,
• a seller's permit from your state, or
• a zoning permit from your local planning board.

You might also need to obtain licenses and registrations that are specific to your profession—such as a real estate license—or industry. For instance, if your company produces hazardous waste, you'll likely need a permit from your state.

To learn more about your state's requirements, check out our state guide to small business license requirements.

Talking to an Attorney

Starting a corporation involves many steps that can quickly become complicated or overwhelming. If you need legal advice or help to draft documents or submit forms, you should reach out to a small business lawyer. They can help you with one particular step (like issuing shares) or with the whole process, from choosing a corporate name to obtaining your licenses and permits.