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Forming a Corporation

The life of a corporation begins upon the filing of articles of incorporation with the secretary of state's office. Prior to filing the articles of incorporation, the following issues should be considered.

  1. Where should I form the corporation?

    You can incorporate in any of the 50 states. Delaware is the popular state because of its history, experience, popularity and pro-business climate. Over half of the companies listed on the New York Stock Exchange are incorporated in Delaware. Recently, Nevada has also gained popularity due to its pro-business environment and lack of a formal information-sharing agreement with the IRS. Neither Delaware nor Nevada have corporate income taxes, and business filings in these states can usually be performed more quickly than in other states.

    Many people also choose to incorporate in their home state. This may save you money because the corporation will not need to register as a "foreign corporation" if it does business in its home state, and there is often no need to pay another person to serve as the registered agent.

    However, if your home state has a high corporate income tax or high corporate fees, and your corporation will not "do business" in that state, it may be wise to incorporate elsewhere. "Doing business" means more than just selling products or making passive investments in that state - it usually requires having an office or otherwise having an active business presence. Saletta.Com allows you to choose among California, Nevada or Delaware corporations.

     
  2. Choosing a name

    In general, the name of a corporation does not need to end with "incorporated", "corporation", "corp." or "inc." (unless the corporate name is a name of a person, which requires the addition of a corporate ending). Please note that a name will not be accepted if it is likely to mislead the public or if it too closely resembles the name of another corporation formed in that state.

    Before you choose the name, you should do a little research to see if the name is taken. Check Yellowpages.com, Switchboard.com or the Secretary of State of the state you wish to form your corporation. Saletta.Com allows you to choose up to three names, in order of preference.

    If the name of the corporation is used in connection with goods or services, you may wish to consider obtaining federal trademark protection for the name. This ensures that no one else in the U.S. may use that name in connection with the same general type of goods or services (except in areas where someone else is already using that name).

     
  3. The Board of Directors

    A corporation is managed by the board of directors, not directly by the shareholders. The board must approve major business decisions. A director can be, but is not required to be, either a shareholder or an officer. Like representatives in congress, directors are elected by the shareholders and typically serve for a one-year term. Each corporation must have at least one director.

    Examples of procedures which must be approved by the board of directors include:

     
    bulletDeclaring a dividend
    bulletElecting officers and setting the terms of their employment
    bulletAmending bylaws or the articles of incorporation
    bulletAny corporate merger, reorganization or other significant corporate transaction


    Directors of a corporation owe duties of loyalty and care to the corporation. Generally, means that directors must act in good faith, with reasonable care, and in the best interest of the corporation.

     

  4. Officers

    Officers are appointed by the board of directors to run the day-to-day operations of the corporation. A corporation must have at least three officers: (1) a president, (2) a treasurer or chief financial officer and (3) a secretary. Officers do not have to be stockholders or directors, but they can be. There is no limit on the maximum number of officers, and no limit on the number of offices that a person may hold. In fact, the same person may hold all offices.

     
  5. Registered Agent

    Each corporation must have a registered agent, who is the person designated to accept official notice if the corporation is "served" with a lawsuit. A registered agent must be either (1) an adult living in the state of formation with a street address (no P.O. boxes) or (2) a company (such as Saletta.Com) registered with the Secretary of State of the state of formation to be an agent.

    As previously mentioned, one of the advantages of forming a corporation in your home state is that any officer or director can act as the registered agent. However, there are some advantages to having another person or company act as your registered agent. First, this adds an extra layer of privacy. The names and contact information for the registered agent is publicly available. Second, this ensures that if your corporation is named in a lawsuit, no one will jump out of the bushes and surprise you with court papers.

 

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Last modified: 02/18/02