There are several types of business entities. If it is determined that a corporation is the proper type of business entity to form, the Articles of Incorporation Worksheet can be used to organize the information that will be needed by a lawyer or other advisor to prepare the necessary documents to establish the corporation. Most likely, the corporation should be formed under the laws of the state in which the business will be located. Otherwise, the corporation would have to qualify as a "foreign corporation" in the state where it will operate, and it may be necessary to pay annual fees and license taxes in both states. If a legal problem arises related to the corporation's business, a lawyer licensed to practice in the state of incorporation would have to be consulted. A corporation is formed by filing "Articles of Incorporation" (also referred to as a "certificate of incorporation"), with the state's Secretary of State. The Articles must contain a minimum set of required information; other information is optional. A filing fee must accompany the Articles. In conjunction with the filing of the Articles, it is necessary to also prepare corporate bylaws and either "organizational minutes" or "organizational consent." Some states offer corporations the option of electing to be organized as a "close corporation." If the corporation qualifies and makes such an election, it is allowed to operate under relaxed, partnership-type rules, allowing for less formal management by the shareholders instead of the directors and officers. However, few corporations actually make such an election and an informed decision to make such an election should only be carried out after consultation with a lawyer. IMPORTANT: State and federal securities laws require compliance with complex registration procedures unless the incorporation process meets a set of exemptions, including: (a) a very limited number of persons will purchase the stock, (b) there will be absolutely no public solicitation or advertising to sell the shares, (c) the shares will be sold/issued to persons who will become directors or officers of the corporation or who are immediate family members of a shareholder/director or shareholder/officer, and (d) the shares will be purchased by persons who intend to hold the shares for their own investment and not for resale. Consult an attorney or other advisor for further information. A lawyer or tax advisor should be consulted regarding the advisability of electing to be treated as a "Subchapter S" corporation for federal income tax purposes. (See Subchapter S Election.) THIS ELECTION MUST BE POSTMARKED NO LATER THAN TWO MONTHS AND 15 DAYS AFTER THE BEGINNING OF THE CORPORATION'S TAXABLE YEAR, and should be sent by certified mail as evidence of the date of mailing. The corporation begins its existence when the Secretary of State files the Articles. However, additional steps must be taken to complete the organization. See Additional Steps for details. |