Corporations

What is a Corporation?

A corporation is a type of entity structure that is distinct and separate from its owners. Corporations can be taxed, make a profit, and are considered a separate “legal person” from its owners, and therefore can be held legally liable for certain acts and omissions.

The two types of corporations are C Corps and S Corps. Most people know the names C Corp or S Corp but not that these aren’t two different types of corporations – rather two different tax election statuses.

How to Set Up a Corporation

  1. Name Your Corporation​
  2. Appoint a Board of Directors
  3. Choose a Registered Agent
  4. File the Articles of Incorporation
  5. Apply for an Employer Identification Number (EIN)
  6. Create Corporate Bylaws
  7. Hold an Organizational Meeting
  8. Open a Corporate Bank Account

Starting your business with an LLC may seem overwhelming or daunting at first, but it is pretty straightforward. Let’s dive in to give you a better understanding of how the process works and the important things to consider.

Step 1 – Name Your Corporation​

When naming your corporation, you want to come up with a name that reflects your brand’s unique identity. You’ll need to be cognizant of your state’s requirements when naming your corporation, as some words or phrases are expressly required or prohibited. But don’t worry, Midland Forms can help with that!

STEP 2 – Appoint a Board of Directors

Once your corporation has been named, the next step is to appoint a board of directors. The board of directors oversees the corporation when it comes to strategies, corporate governance, investments, and profits, just to name a few. Most states require at least one board of directors, but it varies from state to state. The board of directors does not have to be owners, although they can be.

STEP 3 – Choose a Registered Agent

A registered agent (RA) is an individual or company that accepts documents and notices on behalf of your business and is a requirement of every business entity.

This could be a preferred structure that will allow some members to be passive investors in the business. The members could delegate management responsibilities and duties to one or more members or even nonmembers of the business.

Some states require you to specify this when completing your filing and is something to take into consideration when beginning to establish your business.

You can act as your own Registered Agent for your corporation. The requirement is that you have a physical address in the state you file. A P.O. Box address will not be accepted. However, hiring an outside Registered Agent has many benefits.

Remember, your Registered Agent must be available during normal business hours throughout the year, which is why it can be beneficial to hire an outside service.

Need a Florida registered agent? Midland Forms can help! To learn more about those benefits and Registered Agents, please find our “Does My Business Need a Registered Agent?” guide.

STEP 4 – File the Articles of Incorporation

The Articles of Incorporation are used to establish your corporation and are filed with your state’s business filing entity. Each state has different requirements, but generally, your Articles of Incorporation need to include the corporation name and address, registered agent name and address, business purposes, directors and/or officers, the number of shares, and the name of the incorporator.

Once you have determined all of the information, the Incorporator will file the Articles of Incorporation with the state. However, there’s more to be done than just filing in order to get your corporation up and running.

STEP 5 – Apply for an Employer Identification Number (EIN)

An EIN is a number used to identify a company to the federal government. It’s used when filing federal taxes and will be needed to open up a corporate bank account. You can apply for an EIN online on the IRS website, or by filing Form SS-4 via mail or fax.

A few benefits to an EIN include:

  1. Preventing Identity Theft
  2. Speeding up Business Loan Applications
  3. Opening a Business Bank Account
  4. Hiring Employees

STEP 6 – Create Corporate Bylaws

Corporate Bylaws are the rules and regulations that govern a corporation’s day-to-day operations such as who does what, shareholders’ voting rights, and the responsibilities of those running the corporation. Corporate Bylaws typically aren’t filed with the state, but they are an important component when setting up a corporation.

STEP 8 – Hold an Organizational Meeting

An organizational meeting is the first meeting held by the corporation and is a time when bylaws are adopted, company stock is issued, officers are elected and appointed, and any other business setup items are discussed. Organizational meeting minutes will need to be recorded and kept with corporate records.

STEP 9 – Open a Corporate Bank Account

Once you have incorporated your business, your business needs to establish and set up a corporate bank account. You can set up multiple bank accounts based on the needs of the company, but you need to keep business income and assets completely separate from that of its shareholders, directors, and officers. When setting up a bank account, you’ll usually need a few items such as the corporation’s Articles of Incorporation, EIN, and sometimes even the corporate bylaws.

Pros of Choosing an Corporation

  • Personal Liability Protection: A Corporation is one of the best business entity options in order to protect the owners’ personal assets from business risks. Since a corporation is considered a separate legal entity from its owner, this type of business structure helps to shield the owner from the liabilities of the corporation.
  • Stock Issuance: Corporation structures also allow for stocks to be issued. Stock is a great way to attract and retain key employees, as well as attract outside investors. Depending on whether the corporation is public or private, stocks can be a great way to transfer ownership.
  • Business Continuity: Another great advantage of corporations is the perpetual life. Ownership can pass down through generations, which makes it a great way to leave a legacy.
  • Pass-Through Taxation for S Corp: If electing to treat your corporation as an S corp, you can have pass-through taxation. This means profits and losses are passed through to the shareholders, so the corporation does not pay income tax.

Cons of a Corporation

  • Complex Business Structure: Corporations are a lot more involved than partnerships or LLCs to run and manage. Corporations have to hold regular ownership and management meetings and these meetings must be recorded and the minutes must be logged and kept with the corporate records. Corporations must also adhere to stricter and more rigid rules, i.e. the Corporate Bylaws.
  • Double Taxation: Corporations are also subject to double taxation depending on the type of corporation you set up, which means that the corporation pays taxes on its income, after which shareholders pay taxes on dividends received. Hence, you could be taxed twice. As discussed earlier, S corps are not subject to double taxation.

FAQs

Why Would Someone Choose to Set Up a Corporation?

What is double taxation?

What is a Shareholder?

What is a Corporate Resolution?

What is the Difference between a C Corp vs an S Corp?


Why Choose Midland Forms?

Midland Forms is committed to offering you personalized service from start to finish in setting up your business entity. While we realize you don’t do this every day, the great news is that we do! We have a dedicated and experienced team waiting to assist you on your journey to a new business.