A corporation is a separate legal entity and there are formal state requirements for setting it up. The individuals who will own the business will be shareholders, or stockholders, and will need to agree on the following before proceeding to form the corporation:
The name of the corporation
The total number of authorized shares of stock that the corporation can issue
The stated value, or par value of each share of stock, although in some cases shares do not need to have a par value assigned
The number of shares each owner will buy, and the money or property they will contribute to buy those shares
The line of business in which the corporation will engage
The directors and officers who will manage the corporation
Setting Up
Once these matters are agreed upon, they must be formalized in the articles of incorporation, which must be filed with the state in which the business is to be incorporated. Corporate by-laws, which are the rules and procedures for running the corporation, including board of directors’ meetings, shareholders’ meetings, the presentation of financial statements, and independent audits, will also need to be drafted and filed.
The state charges an initial fee when the corporation is set up, and an annual fee for allowing the corporation to continue operating. These fees may be based on the stated value of the authorized stock.