How to Start a Corporation in the U.S.

Guide to Formation and Basic Laws for Corporations in the U.S.

Whether you’re a seasoned entrepreneur or a budding business owner, understanding the basic laws for corporations in the U.S. is essential for navigating the complex terrain of corporate governance and compliance.

Corporations are one major type of business structure in the U.S. Another popular structure for many small businesses is the LLC.

Formation of a Corporation

The process of creating a corporation in the United States involves several key steps, each governed by specific laws and regulations. Corporations are formed under state laws and regulations, and each state has its own specific way of doing things. You will need to know your state’s specific process, which you can research at the website of your state’s Secretary of State. (See info on California corporations.) Here are the general steps:

1. Choose a Business Name: The first step in forming a corporation is selecting a unique business name that complies with state laws. The name must not already be in use by another entity and must meet any naming requirements set forth by the state’s corporate laws.

2. File Articles of Incorporation: To officially establish a corporation, founders must file Articles of Incorporation with the Secretary of State in the state where they intend to incorporate. These articles typically include basic information about the corporation, such as its name, purpose, registered agent, and initial shareholders.

3. Draft Corporate Bylaws: Once the corporation is formed, the founders must draft corporate bylaws—a set of rules and regulations that govern the internal operations of the corporation. Bylaws address matters such as shareholder rights, director responsibilities, meeting procedures, and amendment processes.

4. Appoint Directors and Officers: The corporation’s initial directors—who oversee the company’s affairs—and officers—who manage day-to-day operations—must be appointed in accordance with the bylaws and state laws.

5. Issue Stock Certificates: If the corporation plans to issue shares of stock, it must issue stock certificates to the initial shareholders, documenting their ownership interests in the company.

6. Determine Tax Structure: Decide whether to designate the corporation as an S Corporation or keep it as the default C Corporation. If S Corp, file Form 2553 with the IRS.

7. Other Tasks: There are often other registrations, permits, licenses, etc. for a corporation to obtain. See our Guide to Registering a Business.

Compliance with Corporate Laws

Once a corporation is up and running, it must adhere to various laws and regulations to ensure compliance and mitigate legal risks.

1. Corporate Governance: Corporations are required to comply with state corporate laws, as well as federal securities laws and regulations, such as the Securities Exchange Act of 1934. Compliance with these laws involves maintaining accurate corporate records, holding regular meetings of the board of directors and shareholders, and disclosing relevant information to investors.

2. Taxation: Corporations are subject to federal, state, and local tax laws, including income tax, employment tax, and sales tax. Compliance with tax laws requires proper record-keeping, timely filing of tax returns, and adherence to tax planning strategies to minimize tax liabilities.

3. Employment Laws: Corporations must comply with various employment laws, including the Fair Labor Standards Act, Title VII of the Civil Rights Act, and the Americans with Disabilities Act. Compliance involves ensuring fair treatment of employees, providing a safe work environment, and preventing discrimination and harassment in the workplace.

4. Intellectual Property Rights: Corporations should protect their intellectual property rights, including trademarks, copyrights, and patents. Compliance with intellectual property laws involves registering trademarks and copyrights, enforcing intellectual property rights, and avoiding infringement of third-party rights.

Dissolution and Winding Up

In some cases, corporations may need to be dissolved and wound up due to various reasons, such as bankruptcy, insolvency, or voluntary dissolution by the shareholders. Dissolution involves liquidating the corporation’s assets, settling its debts and liabilities, and distributing any remaining assets to shareholders in accordance with state laws and the corporation’s governing documents.

Further Reading

Guide to Business Structures in the U.S.

Guide to Laws for Entrepreneurs and Business Owners

Photo credit: Image by drobotdean on Freepik

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