Companies choose to incorporate for many reasons: to open themselves to investment, limit their liability, lower their tax bill, or simply to make their business official.
Whatever your reason for incorporating, once you've picked a state to incorporate in and a name for your corporation, you'll have to file your company's articles of incorporation. Here's what that means and how to do it properly.
Also sometimes referred to as a company's letters patent, corporate charter, or certificate of incorporation, your articles of incorporation are a legal document you submit to your state to make the incorporation of your company official.
Don't get your articles of incorporation confused with articles of organization, which are used to form a limited liability company (or LLC).
Where you file this document varies, so consult your state government's website for information about where to file them and how much it costs.
The articles of incorporation usually include:
They might also include:
Keep in mind that each state has slightly different formatting and filing requirements for articles and might refer to this document by another name. Here are some example articles from the most popular states to incorporate in:
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Your articles of incorporation are important because they officially confirm your business's status as a legal entity. That's important because:
You might have heard corporations referred to as legal "persons," which gives them a superpower called limited liability or liability protection. All this means is that if your corporation ever gets sued or goes bankrupt, you aren't personally legally or financially liable for it.
Your articles of incorporation record in writing and set in stone information about your business that might become important if you, your co-founders, shareholders, creditors, or anyone else ever enter into a legal dispute.
For example, if there are multiple owners involved in your business, writing up your articles gives you a chance to figure out an equity split—how much of the business each owner will get to keep—that is fair, and to get it down in writing.
Incorporating makes it easier for others to invest in your business, mainly because it lets you legally issue shares of stock and protect your shareholders with limited liability. When you or an investor put money into and become a shareholder of a corporation—say by signing on as a co-founder or buying $1,000 worth of stock—you're only on the hook for that initial investment and no more.
Your articles of incorporation differ from your company's bylaws, which lay out the detailed rules and procedures for the day-to-day functioning of your company (like how officers are elected, how voting on company policies works, and more).
Generally speaking, your articles of incorporation are a public document that you must pay to file with your state. You can usually only amend them by holding a shareholder's meeting.
Bylaws don't require you to do any of those things. They aren't public, you don't have to file them with your state, and they're usually easier to amend than your articles. Although they're admissible in court, for the most part, they're used for internal company purposes only.
Before getting started, keep in mind that:
Speaking very generally, C corporations tend to be better for companies that are focused on growing quickly and raising money from external investors. On the other hand, LLCs tend to be better for businesses that are focused on lowering their tax burden.
You might have heard of S corporations, but this is a tax designation, not a business entity type. That means you can't "incorporate" as an S corporation. Instead, you have to first create a C corporation and then apply to the IRS for S corporation status by filing Form 8832 or Form 2553.
Some states also have special designations for nonprofit corporations that fulfill charitable, religious, educational, or other public functions. The articles of incorporation for these corporations are different from the ones we file for for-profit concerns and vary quite a bit across state lines. If you're incorporating a nonprofit, consult your state for detailed instructions.
Before you decide where to incorporate, read up on your state's rules around incorporation, compare tax rates across state lines, and see whether another location might be more attractive. If your business is super local and you're certain you want to incorporate in your current state, this might not be a big deal.
If you don't intend to focus on any single state—say, if you're launching an ecommerce store or other online business—you might choose to file in Delaware, which is famous for its business-friendly laws.
If you're not sure where you should incorporate—especially if you intend to do business internationally— make sure to talk to a lawyer to find the best fit for you.
Before you settle on a name, use your state's business registry to make sure it isn't already taken (if you need help getting started, here's Delaware's registry and here's California's). If you plan to do business under a different name, consider filing a DBA or "Doing Business As."
In your articles of incorporation, you might specify your initial board of directors, i.e., the people who govern the corporation, make important decisions about its operations, and issue shares.
"Shares" are small pieces of your company, each worth a certain dollar value. If you add up the total value of your shares, that's your "stock" in the company.
Your board of directors can issue shares at any time for any value to any person. When your company incorporates and drafts up articles of incorporation, it has to call a board meeting to decide how many shares to distribute to each of the company's original owners.
In a stock split, the company's board of directors issues additional shares of stock to its current shareholders without decreasing the value of their stakes.
Typically you'll file the articles of incorporation with your Secretary of State, and you'll need to pay a filing fee between $100 to $800 depending on where you incorporate.
Within a few weeks, you should hear back and receive an official letter that certifies your corporation has been created. Congrats! Now keep everything together in your corporate records in case you need to refer back to anything.
Filing your articles of incorporation isn't the only thing you need to do to set up your corporation. After you file, you'll also need to:
Bylaws function as your company's corporate rulebook. They vary by company but are typically used to enumerate your corporation's rules around ownership, responsibilities, shareholder voting rights, salaries, fiscal year, tax liability, profit distribution, what happens if the business fails, and more.
If you need help getting started, we recommend checking out LawDepot's handy corporate bylaws generator.
Officers are people responsible for day-to-day operations. Usually, they have official-sounding titles like "Chief Executive Officer," "President," and "Treasurer." For most smaller C corps, directors will usually also be officers (and shareholders) in a company.
The Internal Revenue Service uses your Employer Identification Number (EIN) to track your business for tax purposes. You may not have any employees, but you still need an EIN.
The rules for corporate licenses and permits vary widely by state and industry, so you want to check with your state and get the proper business licenses and permits for your newly registered corporation as well.
You can either do this over the phone by calling the IRS directly at 1-800-555-3453 (EFTPS Pin and bank account info ready), or online using the Electronic Federal Tax Payment System. You'll also have to create a password for your EFTPS account, which you'll then use to log into their system.
You'll need to sign up with the SS BSO to complete your Federal W2 filing with Social Security. You can do that at the Social Security Administration's Business Services Online portal, and you can find a handy guide to navigating the portal at Wave.
How Accracy can help
Corporate taxes can be complicated—C corporations, for example, are subject to double taxation, while LLCs and S corporations are not. When you're dealing with corporate taxes, it's always a good idea to have an experienced professional help you understand and manage your tax obligations.
Your Bench bookkeeper keeps your business transactions categorized and up to date, which makes for a tidy tax package at year-end.
We are offering free 1 Month Basic Bookkeeping to all new customers so you can experience Accracy's seemless and professional services.
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