Their stories are legendary: Apple, Groupon, Khan Academy, and Etsy all started as humble side projects that bloomed into global enterprises and defined their business categories. These success stories serve as motivation for millions of founders pursuing their dreams. Evenings and weekends are now filled with building out passion projects or creating additional revenue streams.
Today, it’s easier than ever to incorporate and launch a business. All you need is a laptop and a reliable internet connection. But with so many online legal services available to help you start, the process is daunting for many first-time founders.
This checklist covers the most important aspects of incorporating your business so you can move forward confidently.
1. Choose the best structure for your business
For a majority of businesses, the choice is between an LLC or a Corporation (two types):
LLC (Limited Liability Company) is simpler in formation and can be owned by one person (single-member LLC) or by more than one person (multi-member LLC). This type of entity protects owners from being held personally liable for debts and other business obligations. Small e-commerce businesses usually prefer operating as an LLC.
C-Corporation is the default business selected when you incorporate. This type of entity pays taxes on profits and expenses and ownership is distributed by shares to shareholders. For startups seeking to raise capital from investors, incorporating as a C-Corporation is the gold standard.
S-Corporation is formed by filing for a different tax designation to create a “pass-through” entity. No income tax is paid at the corporate rate, but rather is paid at the individual owner level.
2. Choose where to incorporate
Choosing where to incorporate is an important strategic decision for your business. Business-friendly states like Delaware and Wyoming offer strong legal protections, and low taxation and administrative costs that make both an ideal choice for both LLCs and C-Corps.
Delaware is great for startups looking to fundraise (the preferred choice for YC, 500 Startups, etc), plus:
- Flexible legal framework and specialized court system that allows companies to resolve disputes quickly with a judge rather than a jury
- Business-friendly taxation that minimizes tax obligations
- Easy to incorporate and maintain while offering privacy
Wyoming offers very low administrative costs and ease of doing business, plus:
- No state income tax on LLCs
- No citizenship requirements and easy transferability of ownership
- Minimal paperwork and fees
3. Choose and register your business name
No two companies can have the same name in the same registered state, so you must choose a unique name that hasn’t been used in your state of incorporation. Avoid using generic or overly complicated names. Also, consider search-friendly names that also have an available corresponding domain name. A business name generator can help with this.
4. Assign corporate directors
For Corporations, you’ll need a board of directors to oversee your company’s operations. Company officers, employees, or stakeholders (including investors) may serve as board members. The board’s main role is to project the interest of investors, partake in strategic decision-making, and manage policies related to stocks.
Your corporation also needs a registered agent to accept mail and official paperwork on behalf of the company, as well as receive service of process, legal documents and other official notices.
5. Prepare and file Articles of Incorporation or Organization
For Corporations, you’ll need to create the Articles of Incorporation, which covers:
- Basic details of the business
- Names and addresses of board members and the registered agent
- Purpose of the corporation and any relevant stock information
For LLCs, this process is called Articles of Organization (also known as the Certificate of Formation) and contains similar information as mentioned above.
6. Write your Operating Agreement or Bylaws
For LLCs, an Operating Agreement articulates the management structure and generally includes:
- How the company will raise capital
- Responsibilities and rights of all members and managers
- A course of action if someone sells a share
- Process for amending/changing company documents
Corporations need Bylaws that are much more formal. These bylaws state how often meetings are held, how stocks are issued, the handling of future board elections, record-keeping procedures, and other legalities.
7. Formal Meeting Requirements and Minutes
Corporations must hold an annual shareholder meeting each year, documenting the details as well as any major discussions relevant to the company. These are usually called corporate minutes. The corporation must also file an annual report to update the Secretary of State of any changes to stay compliant.
LLCs have fewer records that they need to maintain as they are not required to keep minutes or have a board of directors.
Conclusion: Startup Incorporation
While this checklist doesn’t cover all the nitty-gritty of the incorporation process, it does cover the most important points so you can take your side project to the next level. 🚀