How to Become a Corporation

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Setting your business up as a corporation provides numerous advantages. Articles of incorporation dictate how the business will operate. Owners have greater protection from individual liability, and the option to bring on additional investors to finance the business. The paperwork for a new corporation is filed with the Secretary of State in the state where you want to base your company. However, other requirements require contact with the federal government.

Selecting C or S Corporate Status

Your new corporation can be set up as either a C-type or an S-type corporation. The S-corp structure is popular with small businesses. No income tax is paid at the corporate level and all profits or losses pass through to the shareholders to report on their individual tax returns. An S corporation can have no more than 100 shareholders. A C-corporation files and pays income taxes at the corporate level and the shareholders pay taxes on salaries if employed by the company, as well as on dividends. You want your company to be a C-corp if you plan to go public and sell shares on the stock exchanges.

State Filing Requirements

Although the basic requirements are similar, each state has its own specifics on what it needs from domiciled corporations. When you file to register your corporation, you will need to send in your articles of incorporation, a list of corporate officers and a named registered agent with an office in the state. A corporation must have a Board of Directors, a list the state may or may not require to be on file. You can incorporate in any state. Small businesses usually incorporate where they have their primary business office. Larger, multistate corporations compare tax and liability requirements when selecting a state in which to file incorporation papers.

Obtain a Federal Tax ID Number

To operate your corporation, you must obtain a federal tax ID number, officially called an Employer Identification Number. EINs are issued by the Internal Revenue Service. You can apply online, by fax, over the phone or by mail. You need the tax ID number to file corporate tax returns, and to submit tax payments and withholdings from employee salaries.

Open a Business Bank Account

With your corporate name and tax ID number in hand, you need to obtain a business bank account for the new corporation. All financial activity of the company should go through the corporate bank account. Even with a small business corporation with a single shareholder, the business funds should not be commingled in a personal bank account.

References

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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