Incorporating a business, either by establishing a corporation or a limited liability company (LLC), is a fairly straightforward process—as long as you’re organized and have all the documents you need in order. Understanding each document that’s required and when you’ll need to submit it is the best route to a fast, painless business incorporation.
Here are the 11 incorporation documents that every small business should know when registering their business entity:
1. Business Name Reservation Form (Corps and LLCs)
A business name reservation form is exactly what it sounds like—it allows you to reserve a unique name for your business while you complete the incorporation process. This comes in handy because two businesses can’t have the exact same name in the same locality if it would cause confusion to consumers. For example, two restaurants can’t be called Tasty Food LLC or Tasty Food Inc.
Most secretary of state offices have an online name search that you can use to find out which business names are available. If the business name you want to use is available, then you can ask the state to “reserve” it for a certain amount of time—usually 60 to 120 days. No other business owners will be able to claim that name during that time period.
2. Articles of Incorporation (Corps only)
Articles of incorporation are the foundational document for C-corporations and S-corporations. You have to file these documents with the state for your corporation to exist. The information that goes into the articles of incorporation will vary based on what state you’re in, but it typically includes the following:
- Business’s name, address, and principal place of business
- Purpose of the corporation
- Number and type of shares (if the corp is issuing stock)
- Names and addresses of the initial board of directors
- Registered agent for the corporation (person or company who will accept official mail and legal papers on the company’s behalf)
- Name, address, and signature of the incorporator who is submitting the form (usually you, your attorney, or an incorporation service if you’re using one)
All states charge a fee (ranging from approximately $100 to $500) to process the articles of incorporation. Once the state processes it, they will send you a certified copy of the articles which confirms that they’ve approved your corporation to do business in the state.
3. Articles of Organization (LLCs only)
The articles of organization are the equivalent of the articles of incorporation for LLCs. They officially establish your LLC in the state that you’re registering in. Like the articles of incorporation, the articles of organization contain basic business information such as:
- Business’s name, address, and principal place of business
- Purpose of the LLC
- Name and address of initial members or managers of the LLC
- Registered agent for the LLC (person or company who will accept official mail and legal papers on the company’s behalf)
- Name, address, and signature of the filer (usually you, your attorney, or an incorporation service if you’re using one)
As with incorporations, all states charge a fee to process the articles of organization. After processing your form, the state will send you a certified copy of the articles confirming that they’ve approved your LLC to do business in the state.
4. Corporate Bylaws (Corps only)
Corporate bylaws lay out how the shareholders, officers, and directors will split control within the organization and manage it on a day to day basis. Along with the articles of incorporation, corporate bylaws are the main organizational document for a corporation.
Corporate bylaws usually contain the following info:
- Basic business information, like name, address, and principal place of business
- Frequency and procedures for shareholder meetings, board meetings, and annual meetings
- How directors and officers will be elected and replaced when there are vacancies
- Types of officers (e.g. CEO, CFO, CMO, etc.) and their responsibilities.
- Procedure for the board of directors to adopt resolutions
- Procedure for corporate record keeping, including frequency of audits
- Procedure for amending the articles of incorporation and bylaws
- Number, type, and authority to issue shares of stock
- Dissolution process
Although many people confuse the articles of incorporation and bylaws, they serve different purposes. The first just sets up a skeletal outline for the corporation, while the latter includes all the details for managing and running the corporation on a daily basis.
5. Operating Agreement (LLCs only)
An operating agreement is similar to the bylaws for a corporation. The operating agreement sets out in detail the structure of the LLC and the day-to-day management processes.
An operating agreement generally contains the following things:
- Whether your LLC will member-managed, manager-managed, or both.
- The rights and responsibilities of each member and manager
- How to handle member or manager vacancies
- How to admit additional members
- How to handle a member selling their shares in the business
- Methods for raising additional capital
- Procedure for amending the articles of organization and operating agreement
- Dissolution procedures
Only a handful of states (California, Delaware, New York, Maine, Minnesota) require LLCs to form an operating agreement, and no state requires you to file one. But, it’s important to have one to map out how you’ll do business and avoid disputes down the line. It’s best to store your agreement with other important business records.
6. Meeting Minutes (Corps only, but beneficial for LLCs)
All states requires corporations to maintain and safely store corporate records, so there’s a paper trail for government audits and other legal purposes. Meeting minutes are one of the most important corporate records because they document important company decisions. You should keep minutes during all formal meetings—shareholder, board, and annual meetings.
These are some things you should memorialize in meeting minutes:
- Date, name of everyone present, and if there’s a sufficient quorum to make binding decisions on behalf of the corporation
- Election of a new director or appointment of a new officer
- Resignation of a director or officer
- Corporation takes out a business loan
- Corporation enters into an important contract
- Corporation purchases insurance
- Stock transactions
Under state laws, only corporations are generally required to keep meeting minutes. However, it’s a good idea for owners of both LLCs and corporations to keep extensive meeting minutes. It’s not pleasant to think about, but they will come in handy if the government audits your business or someone sues your business.
7. Board Resolutions (Corps only, but beneficial for LLCs)
Board resolutions document and formalize board decisions and show how directors voted on different matters affecting the company. These records are important for compliance reasons if a board’s decision is, for example, ever called into question in a lawsuit or during an audit.
It’s a good idea to have a board resolution for each of the following types of business decisions:
- Hiring new officers
- Selling shares in the corporation
- Acquiring another company or a part of it
- Channeling corporate funds to an important project
- Approving a business loan
- Approving a contract
You should store resolutions along with other important corporate records, such as your articles of incorporation and meeting minutes. Board resolutions usually follow a specific format, with the date, number, and title of the resolution followed by a description of what exactly the board decided. Follow this description with a listing of all directors present, who voted yes and no, and their signatures.
While resolutions aren’t required for LLCs, it’s wise to keep a record of important decisions in case of a dispute in the future.
8. Stock Certificate (Stock-issuing corps only)
A stock certificate is a piece of paper which records the sale and purchase of shares in the corporation. Stock certificates were traditionally physical pieces of paper, but most companies now back them up with digital versions. The certificate will specify the business’s name, the shareholder’s name, the date of the sale, the signature of the board member who authorized the sale of stock, and the company’s seal.
9. Shareholder Agreement (Stock-issuing corps only)
Shareholder agreements touch on shareholder rights and responsibilities that aren’t mentioned in the corporate bylaws.
The shareholder agreement will typically specify a number of things:
- How owners can sell their shares should they choose to exit the corporation
- What happens to an owner’s shares when they pass away or if they become disabled
- How and when the corporation will issue dividends
- The number, type, and value of shares
- Which board measures require shareholder approval and what percentage of shareholders need to approve.
Not every small business will need a shareholder agreement, and no states require a business to have one. However, if your corporation has multiple owners, it’s a good idea to have a written shareholder agreement.
10. Annual Report (Corps and LLCs)
In most states, all registered business entities must have file an annual report by a certain date every year and pay an annual tax or processing fee. Without filing your annual report, you cannot maintain approval to do business in the state.
Every state requires different information in your annual report, and you can find out the requirements in your state by contacting your business’s secretary of state office. Usually, it’s just very basic info to keep the state up to date on your company, such as the business’s address, names and addresses of the owners, and registered agent information.
11. Form S-2553 (for S-corp Election)
To qualify your business as an S-corporation, you have to file Form S-2553-Election by a Small Business Corporation with the IRS. S-corporations differ from ordinary C-corporations in a few ways, but the main way is taxation. C-corps are subject to “double taxation.” Owners pay a corporate income tax, and shareholders have to pay taxes on dividends on their personal tax returns. In contrast, S-corps are pass through entities. Business income and profits flow through to the owners’ personal tax returns and are taxed at the owners’ personal income tax rates.
Without filing Form S-2553, your business cannot be an S-corporation and will continue to be taxed as a C-corp. The deadline for filing the form is in the first 75 days of the tax year you want the S-corp election to take effect or in the year preceding the year that you want your S-corp election to take effect.
Online Legal Companies Can Help With Incorporation Documents
If you’re having trouble keeping track of this list of incorporation documents, don’t worry! Help is available. Many online legal services such as IncFile, Rocket Lawyer, and LegalZoom will help you file incorporation documents and complete most of the legal forms mentioned above to maintain your business entity. Prices range from $10-$20 for a single document, or you can pay a monthly fee for unlimited access to business legal forms. Some legal sites will even connect you to a lawyer to discuss legal matters. This is great when you’re just launching your business and as you continue to grow your company.
The post The 11 Incorporation Documents You Need to Know Before Creating Your Corp or LLC appeared first on Fundera Ledger.
from Fundera Ledger https://www.fundera.com/blog/incorporation-documents/
No comments:
Post a Comment