How to Incorporate a Small Business

Start by understanding that it usually makes the most sense to stay put and incorporate in the state where you do most of your business. If you form an out-of-state corporation (such as in Delaware or Nevada, two of the current favorites), you will end up having to qualify to do business in your home state anyway. Unfortunately, this process is similar to incorporating in your state, and costs the same. You also will have to pay any state corporate income taxes levied in your home state for income earned there. Even if another state has more modern or flexible corporation laws, these mostly favor large, publicly-held corporations, not the smaller type of privately-held corporation most small business owners form.

Incorporating is easy as long as you and close associates and family members will own all stock and none will be sold to the public. It's so easy, in fact, that the necessary legal documents--principally your Articles of Incorporation and Corporate Bylaws--can usually be prepared in a few hours. The first step is to check with your state's corporate filing office (usually either the Secretary of State or Corporations Commissioner) and federal and state trademark registers to be sure the name you want to use is available. You then fill in blanks in a preprinted form (available from commercial publishers or your state's corporate filing office) listing the purpose of your corporation, its principal place of business and the number and type of shares of stock. You'll file these documents with the appropriate office, along with a registration fee which will usually be between $200 and $1,000, depending on the state.

You'll also need to complete (but not file) Corporate Bylaws. These will outline a number of important corporate housekeeping details such as when annual shareholder meetings will be held, who can vote and the manner in which shareholders will be notified if there is need for an additional " special" meeting.

Assuming your corporation has not sold stock to the public, conducting corporate business is remarkably straightforward and uncomplicated. Often it amounts to little more than recording key corporate decisions (for example, borrowing money or buying real estate) and holding an annual meeting. Even these formalities can often be done by written agreement and don't usually necessitate a face-to-face meeting.

Fortunately, self-help books exist in many states which make it easy and safe to incorporate your business without a lawyer and, once incorporated, to operate your corporation.

Copyright 1999 Nolo.com, Inc.

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