When you establish a corporation or a limited liability company, it’s usually a fairly straightforward process. That is, if you have all of the required documentation. This article is for educational purposes only. Please consult financial, tax and legal professionals with respect compliance obligations involving incorporation documents and procedures.
Here’s a list of the documents involved and what needs to be submitted for a painless business incorporation process.
Frequently asked questions
What Are Articles of Incorporation and Organization?
These are important legal documents you’ll need to file with the state regulatory authorities. They establish that your new business is “legal” in the eyes of the government.
Why Do I Need to File Articles of Incorporation?
Having Articles of Incorporation filed means you can set up a business bank account, apply for business loans, and separate your company from your personal assets and finances.
What Is the Difference Between Articles of Incorporation and Articles of Organization?
Basically, these are the same but vary depending on the kind of business you want to start. “Articles of Incorporation” are for starting a Corporation. Articles of Organization are used for starting an LLC. Both are filings that establish your business as a legal entity in your state. Filing these will also make sure your business is registered with the state regulatory authorities.
Types of corporations you can form
Limited liability company (LLC)
The Rocket Lawyer blog describes an LLC as “a type of legal business entity that was developed to provide business owners with a lower level of liability”. According to the IRS, LLC owners can face significantly lower caps on company actions and debts. Legally, your business can be an LLC but have the option to be taxed as an S-corporation or C-corporation.
A C-corporation is a business term that is used to distinguish this type of entity from others, as its profits are taxed separately from its owners under subchapter C of the Internal Revenue Code. That means all debts, obligations, and liabilities are its own.
According to the IRS, S-corporations pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S-corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S-corporations to avoid double taxation on corporate income.
List of incorporations documents you need
1. Business name reservation form – Corps and LLCs
Deciding on your business name is an important step to avoid duplicating an existing business. Name reservation is simply registering the name of a business with the state you operate in to reserve that name for the business owner. There’s usually a small fee for filing this document. An easy option if you’re a sole proprietor is to file a "doing business as" (DBA) registration with your state or county clerk indicating that you're operating your business under a name other than your own.
2. Article of Organization- LLCs, or Articles of Incorporation - Corporations
Articles of Organization and Incorporation are legal documents that act as a “Birth Certificate” for a business. These articles need to be filed with the Secretary of State at its inception. All American businesses, regardless of which state it resides in, are mandated to file. No matter the type or size of your new business, most states require that the articles of incorporation include, at a minimum, the following information:
- Your new corporation's name and address
- The corporate purpose
- Name and address of your corporation's registered agent, who will be authorized to physically accept delivery of certain legal documents (including lawsuits) on behalf of your corporation.
- Stock information
Keep in mind that there is a cost associated when filing an official document with any state.
3. Operating agreement - LLCs
An LLC operating agreement, similar to corporation bylaws, is a contract that sets up guidelines and rules for an LLC. Five states - California, Delaware, Maine, Missouri, and New York - require this document during the incorporation process. Operating agreements set detail the structure of the LLC and the day-to-day management processes. An operating agreement helps you plan how your business will run and can help you avoid future issues. An operating agreement usually consists of:
- Whether the LLC will member-managed, manager-managed, or both.
- The rights and responsibilities of each member and manager
- How to handle member or manager vacancies
- How to admit additional members
- How to handle a member selling their shares in the business
- Methods for raising additional capital
- Procedure for amending the articles of organization and operating agreement
- Dissolution procedures
Although not required, this document helps map out how you’ll do business and avoid questions or issues down the line.
4. Corporate records (meeting minutes)
Corporate records are minutes of important meetings. They are the legal and official record of major activities and decisions acted on during the course of business. Even a one-owner business must maintain corporate minutes by documenting, in writing, all major actions and decisions. A major action might be issuing stock or purchasing another company. RocketLawyer has a template you can download tailored to your particular state.
5. Corporate bylaws (corporations only)
Corporate bylaws should contain:
- Business information like name and location.
- Frequency and procedures for shareholder meetings, board meetings, and annual meetings
- How directors and officers will be elected and replaced
- Types of officers and their responsibilities.
- Resolution adoption procedures for the board of directors.
- Procedure for corporate record keeping and frequency of audits
- Procedure for amending the articles of incorporation and bylaws
- Number, type, and authority to issue shares of stock
- Dissolution process
You might think that Articles and Bylaws are the same. However, Articles are the charter that creates a corporation. Bylaws set out the rules and procedures for internal governance of the corporation.
6. Shareholders agreement
Shareholder agreements are not needed by every small business and they are not required. But if your corporation has multiple owners, it’s a smart strategy to have one in place. A typical shareholder agreement might include:
- Who can be a shareholder.
- Who can serve on the board of directors.
- What happens if one of the shareholders becomes disabled or dies, files personal bankruptcy, resigns, retires, or is fired.
- How much shares of stock are worth.
- Whether the corporation will be required to purchase the shares of a shareholder who's leaving.
- How much will be paid for the purchase of such shares.
7. Board resolution
According to the RocketLawyer website, a Board Resolution is a formal document that helps to identify the roles of corporate offices and the result of any votes or decisions the board makes regarding the company. Usually, they are written when a new member is voted into the board.
It’s a good idea to have a board resolution for each of the following types of business decisions:
- Hiring new officers
- Selling shares in the corporation
- Acquiring another company or a part of it
- Using corporate funds for an important project
- Business loan approval
- Contract approval
8. Stock certificate
Investopedia outlines a stock certificate as a ”physical piece of paper representing ownership in a company.” Stock certificates include important information such as:
- The number of shares owned
- The date
- An identification number
- A corporate seal
- Relevant signatures
Stock certificates are typically bigger than a normal piece of paper, and most of them have intricate designs to discourage fake copies.
9. Annual report (Corps and LLCs)
Each state requires different information in an annual report, outlined by the business’s secretary of state office. This keeps the state where you run your business up to date on details like the business’s address, owners, and registered agent.
10. Form 2553 (for S-corp Election)
According to the IRS website, a corporation or other entity eligible to be treated as a corporation files this form to make an election under section 1362(a) to be an S corporation. Form 2553, “Election By a Small Business Corporation,” is required to be filed with the IRS to switch a C Corporation to S Corporation status for purposes of federal taxation.
A calendar year small business corporation begins its first tax year on January 7. The 2-month period ends March 6 and 15 days after that is March 21. To be an S-corporation beginning with its first tax year, the corporation must file Form 2553 during the period that begins January 7 and ends March 21.
Get help if needed
It’s always a good idea to consult with an attorney who has small business experience when dealing with legal paperwork. If you don’t register your business correctly, you might miss on personal liability protection, legal benefits, and tax savings.