Incorporation Guide
A corporation is a type of business regarded as its own legal entity, with many of the same legal rights as an individual person in the eyes of the law. To start a corporation, you’ll need to appoint a registered agent, name your corporation, file paperwork, and pay a fee to your Secretary of State. We’ll go through those steps in more detail below.
If you’d prefer a professional service to handle the filing and fine details, hire us to do it for you. We can set up your corporation in just a few clicks for $100 + state fees, and that includes a year of registered agent service.
What Is a Corporation?
A corporation is a type of business entity with a wholly separate legal existence from its owners, called shareholders. Corporations do business, pay taxes, realize income and loss, and make distributions to shareholders. They can also enter into contracts, own property, hold assets, and sue and be sued—all separately from the people who own them. This separation is called limited liability, and it’s one of the major perks of incorporating.
What is incorporation?
Incorporation is the formal process by which businesses become corporations. It typically involves filing formation documents and paying fees to the secretary of the state in which your business operates.
Are there different kinds of corporations?
Yes. Corporations can take several different forms:
C Corporation
A C corporation is the default tax status of every corporation that doesn’t elect to change its tax status to S corporation. C corporation and S corporation both refer to tax classifications, not separate or unique entity types.
In a C-corp, the corporate entity itself pays the federal corporate tax rate on its profits. Then, shareholders pay additional taxes on their personal income tax returns. Informally, this is called the corporate “double tax.”
S Corporation
S corporation is a tax election available to certain corporations. S-corps are taxed as pass-through entities, which means that profits pass through to the owners’ personal tax returns rather than being taxed first at the federal corporate tax rate. This avoids the “double tax” C-corps pay.
To qualify as an S-corp, your business must meet specific requirements—such as having no more than 100 shareholders—and file Form 2553 with the IRS.
B Corporation
A benefit corporation, or B corporation, is a relatively new, purpose-driven business entity available in most states. Benefit corporations have a specific mission to benefit the world around them, and typically must meet additional state requirements such as publishing an annual benefit report.
In a traditional corporation, directors and officers have a fiduciary duty to shareholders to maximize profit. In a B corporation, officers and directors must also consider ways in which the business may produce a “general public benefit”—a material, positive impact on the environment or society.
Nonprofit or Not-for-Profit Corporations
A nonprofit corporation is a corporation that exists to benefit the public, the shared interests of a group, or a religious organization. Nonprofit corporations don’t issue stock or distribute profits to their members. When properly formed and maintained, some nonprofits receive tax-exempt status.
Cooperative Corporations
More commonly called co-ops or just cooperatives, these are a unique kind of corporation that are run by members, for members, to achieve a common economic, social, or cultural need. These might be worker cooperatives, which are owned and managed by the employees, or consumer cooperatives, which are owned and managed by the people who use the products or services the co-op offers. Producer cooperatives, like agricultural co-ops, and housing cooperatives are other popular choices.
Comparing Corporations and LLCs
Small business owners often wonder whether incorporating or organizing into a limited liability company is the better option for their business. Corporations and LLCs have some features in common, but they also have several major differences. Which entity is right for your business will depend on how you weigh these different factors.
Limited Liability
Corporations and LLCs both feature limited liability, which limits the risk that owners—the corporation’s shareholders or LLC’s members—will be held personally liable for business debts and obligations.
When you start selling something without forming an LLC or corporation, you’re automatically a sole proprietor (or a general partnership, if you’re doing it with more than one person). Sole proprietors don’t pay any corporate taxes or pay any filing fees to maintain their business, but they also don’t have any legal separation between themselves and their business. In other words, they have unlimited liability. If disaster strikes and the business folds, the owner’s personal assets like their home, vehicles, and savings might be tapped to repay any outstanding obligations.
Both LLCs and corporations require filing paperwork, paying filing fees, and other upkeep. But they also provide strong liability protections to their owners. If your LLC or corporation is sued, and it’s been properly formed and maintained, you won’t have to dip into your own personal assets to settle business debts.
Corporate Management Structure
LLCs and corporations are quite different when it comes to management structure.
Unlike in an LLC, where an unlimited number of members can manage their LLC themselves or hire a manager to do so, corporations are subject to defined models of corporate governance. The most commonly adopted corporate structure works like this:
- Owners, called shareholders, elect a board of directors.
- The board of directors oversees the corporation, appointing officers.
- The officers manage the corporation’s day-to-day operations.
These roles often intersect. For example, a CEO might sit on the board and hold shares in the company.
Private corporations (for example, small family-owned businesses) have more freedom when it comes to management structure. Public corporations are subject to stricter regulations.
Corporate Taxes
Corporations are taxed differently than LLCs.
By default, corporations pay the federal tax rate (21%) on the company’s taxable income, as in their revenue minus expenses. They can also take deductions, including special deductions only available to corporations, to help reduce their overall tax burden. Then, when a corporation distributes profits to its shareholders, those profits are taxed again at the personal level. This is informally called the “double tax,” and is one of the least popular features of a corporation.
Limited liability companies are taxed as pass-through entities by default. The LLC itself doesn’t pay taxes at the federal tax rate; instead, owners report profit and losses and pay taxes accordingly on their personal tax returns.
Some corporations and LLCs are eligible to apply for the S Corporation tax status. If they meet the requirements, they can avoid the corporate tax rate and distribute money to their shareholders, who then pay taxes on profits on their personal tax returns.
Transferring Ownership
Transferring ownership in a corporation is much easier than in an LLC. In a corporation, ownership is represented by shares of stock, which can be bought and sold. In an LLC, ownership is represented by a percentage of membership interest, and the LLC’s operating agreement defines how membership interest can be transferred.
Because of this, corporations are a popular choice for business owners looking to raise capital through investors. Investors can become shareholders by buying shares of stock.
Record-Keeping
Unlike LLCs, corporations are required by law to keep certain records. The requirements vary state to state, but in general include your Articles of Incorporation, corporate bylaws, meeting notes, and financial and tax records.
How to Incorporate Your Business
Every state registers corporations a little bit differently, but in general, you’ll complete these few steps.
1
Choose a registered agent.
Your registered agent is a person or a business who receives service of process and other legal mail on behalf of your company. You’ll need their name and registered office address—and in an increasing number of states, their signed consent to serve—before you can file your articles of incorporation with your Office of the Secretary of State.
When you hire us to form your business, we include one free year of registered agent service.
2
Name your corporation.
This is a bit more involved than it sounds, as each state has its own rules for what you can and can’t name a corporation. At minimum, plan to include an entity identifier like “Inc” or “Corp”. Most states also require your name to be unique in the state to avoid confusing consumers, and you usually can’t choose a name that might make someone think your business is an official government entity.
A unique name also benefits your business when you tie it to your brand identity. Before you commit to a business name just because it’s available in your state, check its availability as a domain name. Creating a seamless and consistent online presence with a branded website, professional email addresses, and social media profiles takes the guesswork out of finding you and enhances your reputation. Finally, consider running a national trademark search. This can help you avoid the legal headaches of accidental trademark infringement and set you up to register your own trademark in the future.
3
File Articles of Incorporation.
The forms vary by state, as do the filing fees and methods, but in most states you can file your formation documents online via the Secretary of State. You’ll need basic information about your company, including its name, address, business purpose, registered agent name and address, and other information related to the directors, officers, and number of shares plus their value.
Most small businesses incorporate in the state where the owners live, but there may be benefits to choosing a different state as your charter state. Just be aware that before doing business outside of the state in which you’re chartered, you’ll need to establish a foreign qualification.
4
File your Beneficial Ownership Information (BOI) Report
The BOI report counters financial crimes by disclosing information about owners and substantial controllers of businesses to the federal government’s Financial Crimes Enforcement Network. This mandatory report must be submitted within 90 days of incorporation for businesses formed in 2024, and within 30 days of incorporation for businesses formed after January 1, 2025.
Note: A federal judge in Texas has temporarily blocked enforcement of The Corporate Transparency Act. Check our News Room for updates as this situation evolves.
Running Your Corporation
Once you’ve filed your articles of incorporation and received a certificate of incorporation (or equivalent) from the state, your corporation will need to handle a few more details to run smoothly and stay in good standing with your state. These will vary depending on state—for example, only a handful of states have a publication requirement—so it’s a good idea to consult with local experts who can help you determine how to prioritize the steps that apply to your business.
Write your corporate bylaws.
Your corporate bylaws are an internal document that establish management policies and regulations for the business. Some states require them, but even if your state doesn’t, having this governance document written can help prevent complications down the line. You can include whatever standards make sense for your business in here as long as your bylaws don’t conflict with state statutes or interfere with the authority of the board of directors.
When you hire Registered Agents Inc to incorporate your business, we’ll include a template of corporate bylaws you can customize to suit your needs. If you select our premium documents service, our team of licensed attorneys will also tailor a set of corporate bylaws to your company structure that’s powerful enough to include state statutory citations and flexible enough to revise as you grow.
Elect your board of directors.
The shareholders elect a board of directors who govern the corporation. This usually includes deciding on strategic objectives, creating policies, appointing officers, approving budgets, and being accountable to shareholders for the corporation’s progress. Your state statutes and/or corporate bylaws will determine specifics like the size of your board of directors, the timing of their initial meeting, and the frequency with which they meet, but plan for at least one meeting each year.
Get your corporation a taxpayer ID.
A corporation is its own legal entity, so it needs a unique taxpayer identification number in order to conduct business. Establishing business banking accounts, filing taxes, hiring employees, and even some permits and licenses will require your business to have an EIN (Employer Identification Number). You can get one free from the IRS online.
Obtain required licenses or permits.
Which permits and licenses you’ll need vary widely by location and industry. Professions regulated by state or federal agencies—like doctors and lawyers, and also occupations like whitewater guiding in some states—typically require licenses issued by those agencies. Your state may or may not require a generic business license, but you’ll probably need one for specific services like food and beverage sales, and you may need tax licenses and/or sellers’ permits too.
Check your county clerk’s office, your city’s licensing department, and your state’s business resource websites for more information about which licenses and permits you need to be legally compliant.
Keep up with compliance requirements.
Different states have differing requirements to remain in good standing with the state. For example, most states require corporations to file an annual report or an equivalent, such as a yearly statement of information. Depending on where you’ve incorporated and the frequency of required reports, you may also hear these compliance requirements called biennial reports, periodic reports, or annual renewals.
Compliance filings are distinct from the detailed financial reports prepared for shareholders. They mostly serve to keep the state updated on key information about your business, including any changes in address or designated registered agent.
How Our Incorporation Service Works
You don’t have to start your business alone. Registered Agents Inc is proud to have assisted thousands of business owners nationwide to launch and grow their companies with confidence. We can incorporate your business for just $100 plus state filing fees, and that includes a year of registered agent service with compliance filing. Here’s how:
1
Head to the Business Formation Sign Up Form.
Our Business Formation Sign Up Form will take you through a series of questions required to start your corporation, including your company name, the state(s) in which you want to do business, brief details about key people running your business, number and value of authorized shares, and other information as required by your state(s). You’ll also have the option to add on additional business identity tools, like a custom domain, website, business email addresses, and a business phone line.
2
Create your secure account.
Your secure client account is your one-stop shop for managing your services, viewing any documents we receive on behalf of your business, and accessing our library of state-specific filings for all your business needs. We also have templates for business plans and corporate bylaws, tips for securing funding and marketing your business, and more.
3
Pay our fee ($100) plus the state’s filing fees.
We’ll file your Articles of Incorporation and send you confirmation when it’s official.
Frequently Asked Questions
Who are the owners of a corporation?
The owners of a corporation are called shareholders. In a corporation, ownership is represented by shares. A shareholder (or stockholder) holds ownership of a corporation in the form of shares or stocks.
Can a corporation be owned by one person?
Yes! In this case, the sole owner of the corporation would hold 100% of the shares.
Do all companies start out as corporations?
No. In fact, most businesses start out as sole proprietors. A sole proprietor is an individual who starts selling goods or services without filing paperwork to formally create a business entity with the state. Sole proprietors are legally considered one and the same as their business, so there are no special maintenance or record-keeping requirements (and also no liability protections) associated with being a sole proprietor. A sole proprietor can form an LLC or a corporation anytime and gain liability protection.
What are fiduciary duties?
Fiduciary duties are the responsibilities of someone entrusted to protect the assets of a beneficiary. In the case of public corporations, the board of directors are considered fiduciaries, and so have responsibilities to the shareholders of the corporation to protect their investments.