Many new business owners choose to use a limited liability company (LLC), sole proprietorship, partnerships, as their business structure. There are many reasons why a business owner may think that these are not the most optimal business structure. If you plan on going public, or issuing shares to new shareholders, having a corporation makes better sense than having another business structure. Many financiers and business partners prefer a corporation because it is more permanent than an LLC, sole proprietorship, or partnership. If you decide you want to turn your business into a corporation, this article is for you.
There are 6 basic steps toward forming a corporation.
- Hire a business attorney. A business attorney will be able to take you through the entire process. Regulations regarding business formation and corporate governance vary by state and they are always changing. You need a business attorney who understands the law and has experience navigating the entire process. The last thing you want are problems at the inception of your business.
- Nominate a registered agent and file articles of incorporation. A business must nominate a registered agent where it will be formed. Business formation is done through the filing of articles of incorporation. A registered agent is an individual or business who will act as your proxy, receiving service of process, such as complaints like lawsuits and summons. The registered agent will also receive paperwork from your state regarding the business’ charter. The registered agent must have a physical address in the state and be present in that physical address during business hours. You may use an officer of the company, or a third party such as the business’ lawyer or a service company.
- Create the business’ bylaws and appoint its directors.The bylaws of the company are the governing principles, rules and regulations of the business. They are similar to an LLC’s operating agreement. There are states where this is not compulsory, but, even if it is not, it is crucial to have bylaws so as to give structure to your business and set in stone what all the stakeholders rights and duties are. Many banks will ask you for your business’ bylaws if you want to open an account or get a loan.
- Issue stock.Corporations are defined by the exchange of capital for shares in a business. The corporation is distinct from its shareholders. Naturally, then, you have to issue stock in order to assume your role as a corporation. Stock is issued to shareholders according to their capital contribution. The stock falls under the securities laws of the state and the federal government.
- File any remaining documents. The articles of incorporation are filed with the secretary of state. This is true of any remaining documents. For instance, California corporation law obliges a business to file a statement of information in the 90 days following its incorporation and every year after that, during filing season. In other states, this is referred to as the annual report. Check with your state to determine what is required of you. Your Florida LLC lawyer will be able to advise you on what other documents you need to file.
- File any IRS forms required of you. Every business must get an employer identification number (EIN). This allows you to open bank accounts and file corporate taxes You will get an EIN number within 4 weeks of applying for one, if you apply by mail. If you apply online, you will get one that day.