Incorporation 101: Five Key Decisions When Forming a Corporation

by | Apr 4, 2019 | U.S. Private and Emerging Business

Incorporating your business is an exciting transition. Whether you are changing your business from an LLC to a corporation or setting up your business for the very first time, the decisions you make in the early stages can protect your business interests for years to come. It is crucial to invest time at this stage and evaluate whether you are making the best decisions for your commercial and personal goals. Read below to review five key decisions you will need to make when incorporating your business.

  1. Choose your incorporating state: Businesses can incorporate in one state while operating in another. Each state has its own business environment, with varying annual filing fees and requirements, income taxes, and legal proceedings. The state in which you reside and operate may not be the most favorable environment for your business goals. Consult with legal counsel to determine the optimal state of incorporation.[1]
  2. Determine how many shares you will authorize: Whether you intend for your company to be publicly traded or not, you will need to determine the number of shares you authorize when you first incorporate the company. You can authorize one share or one hundred million shares; financial implications of a higher number of shares could include a larger initial filing fee, depending on the state of incorporation.[2] Still, it could be more advantageous to authorize a larger number of shares, in the tens of thousands or even millions. This will allow you to issue more shares to employees and investors, even if each share begins at a low valuation.
  3. Issue shares among co-founders: While you must determine the total number of available shares at incorporation, you will be able to issue those shares throughout the life of the company. It is typical to issue some of these shares to the company founders at incorporation. Keep in mind that whoever has the majority stake will have control over major business decisions that require a vote by stock owners. If you and a single co-founder will be receiving stock, yet you want to retain full decision-making abilities, ensure that you have at least 51% of the company stock issued to yourself.
  4. Secure a domain name: Advertising, networking, and selling your business all require a solid online presence. This is only possible with a domain name, where you will host your company website. You will need to purchase a domain name through a web hosting service. The domain name you choose will affect your visibility on the internet. If possible, include your company’s name and location in the domain, yet be cautious of the possibility of trademark infringement! Consulting with an intellectual property attorney before selecting your domain can prevent thousands of dollars spent down the road on an infringement lawsuit.[3]
  5. Create clearly defined bylaws: The corporate bylaws will determine company procedures and responsibilities of each company officer. This will set your rules, meeting procedures, and record-keeping standards. Clear and detailed bylaws will give your corporation a structured path to begin business operations. Additionally, setting these rules and standards down in writing at the beginning of business can prevent conflicts down the road. They can be used to protect the company if any member should infringe on these rules.

Seeking qualified legal counsel as you make these decisions can greatly reduce your exposure to legal risk down the road. If you would you like additional information, contact our legal counsel for a complimentary consultation at [email protected].