Gathering and maintaining files containing the legally required information is an essential step in starting a business. It will help you avoid getting into trouble later (if you need proof or a record of your actions) and could save you a lot of time if you need to gather information for tax or other official purposes.
The documents that need to be submitted initially are called the articles of incorporation. Though the basic type of certificate of incorporation is the same across the U.S., every state has its different requirements, especially regarding fees.
The basic information required for incorporation:
- The name of the company. The company name will typically have a suffix such as "Corporation" or "Inc" or "Company," which is legally required. Before you commit to choosing a company name, you may wish to check whether this name is being used already in the state. If it is, you'll probably have to choose another, as using the same name as a concurrently trading company could render you liable to legal action from that company. Whatever name you choose, the state has the final authority to decide if the name is available and whether it will grant it to you. If it deems the name to be too similar to another company's name, it has the power to decide not to grant it.
- The purpose of the business. The company's role is to provide certain products or services, and the state requires you to explain the nature of the business to it. It comes under two basic categories
- General business: This denotes a company engaged in various business activities, rather than providing one product or service.
- Specific business: Some states will not accept a general-purpose clause, and they are more specific about the requirements. They ask what the exact business is and what is the range of products or services are carried out.
- The registered agent. A registered agent deals with the receipt of legal and tax documents for the corporation. Almost all states require a business to have a registered agent before allowing the business's incorporation. The agent must possess a physical address in the concerned state and should be available during business hours. What the agent receives is the taxation documents and any litigation notice that initiates a lawsuit. To ensure that your documents are handled professionally, retaining a registered agent's services is recommended.
- The incorporator. The state requires information about the individual or company that prepares and files the formation documents with the state – also called an incorporator. His or her name, signature, and address are necessary information to be included in the formation documents.
- The authorized stock shares. However small your corporation is, it must possess a share of stock, and the state must know how much stock you want to authorize for the company. The stocks establish your ownership of the company. If you're thinking of adding extra owners later, it's better to keep some stock un-issued, which will maintain the ownership percentage for the existing shareholder.
- The minimum stated value of each share (also termed the share par value) is also required by the state. The par value doesn't depict the actual share value. For public corporations, the value of the share is based on the price that investors are willing to pay on a national exchange for each share – and that's determined according to the company's perceived value. The value can rise and fall at any time. The exception to this is in the case of a private company, where the corporation's overall value decides the actual value of a share.
- The authorization of preferred shares. Information about common and preferred shares authorization and voting rights information must be included in the articles of incorporation. If the company ceases to function, preferential payments of dividends or distribution of assets are carried out in the preferred shares.
- Directors' information. The names and addresses of the directors of the corporation must be included in the formation documents. They are responsible for all the company affairs, including major decisions. They appoint the officers to look into day-to-day business activities. However, shareholders elect the directors.
- The Officers' information. Only a few states insist on this information. These Officers are President, Secretary, and Treasurer, and they carry on the company's day-to-day activities.
- The principal address of the company. In a few states, it is mandatory to supply information regarding the legal address of the company.