FAQ's - Incorporate your Business

What is the organizational structure of a corporation?

The organizational structure of a corporation relies on three basic groups: shareholders, directors and officers.

A corporation is owned by shareholders; however, they do not directly manage the corporation. Instead, they influence corporate decisions through indirect methods such as electing and removing directors, approving or disapproving amendments to the articles of incorporation and voting on major corporate issues.

The board of directors are responsible for managing the affairs of the corporation. Usually, directors make only the major business decisions and supervise and appoint the officers who make the day-to-day business decisions of the corporation.

Officers are responsible for the everyday management of the corporation. Typically, officers are appointed directly by the board of directors.

It is important to note that a shareholder may serve on the board of directors and as an officer. In fact, in most states one person is enough to form a corporation.

How many directors do I need to form a corporation?

Only one director is required in most states although you are allowed to have more. Some states use the number of shareholders in the corporation to determine the minimum number of directors. If the number of shareholders is three or more, then the corporation must have three directors. If the corporation has less than three shareholders, then the number of directors may equal the number of shareholders. States which have this rule include:
AR, CA, HI, LA, ME, MD, MA, MO, NY, OH, UT, VT.

Where should I incorporate my business?

One of the first decisions a business must make after deciding to incorporate involves selecting the proper state of incorporation. A corporation is not required to incorporate in the state of its operations; however, often the best decision is to incorporate in your home state.

Two issues must be weighed to determine the proper state: (1) a dollars and cents analysis comparing the costs of incorporating in the state of operation versus qualifying to do business as a foreign corporation in the state under consideration and (2) determining the advantages and disadvantages of each state's corporate laws and tax structure. The decision usually falls between the state in which the business is located or Delaware.

If the corporation is a closely held corporation and does business primarily within a single state, local incorporation is typically preferable. The cost of local incorporation will usually be less than incorporating in another state and qualifying to do business as a foreign corporation in the state. A foreign corporation that qualifies to do business in another state is subject to taxes and annual report fees from both the state of incorporation and the qualifying state. Another disadvantage of incorporating outside of your home state is the possibility of having to defend a law suit in another state. If you have any questions concerning where to incorporate consult an attorney or an accountant.

Steps to incorporate your business

1.  File your company's Articles of Incorporation or Articles of Organization.
http://www.secretary.state.nc.us/corporations/
Under Print Corporation Forms-
Click Business Corporations
You can mail your filing to the Corporations Division, N.C. Secretary of State, P.O. Box 29622, Raleigh, N.C. 27626-0622. If you want to deliver your Articles of Incorporation in person call (919) 807-2000 to get directions.  The fee for business incorporations is $125.

2.  Obtain your corporations tax identification numbers from the IRS and the North Carolina Department of Revenue.

For IRS, go to http://www.irs.gov/formspubs/lists/0,,id=97796,00.html and get form # SS-4.   Complete and fax to number shown in instructions.  An Employer Identification Number (EIN) will be sent to you within 7 days.

For NCDOR, go to http://www.dor.state.nc.us/downloads/wh_forms.html and get form # AS/RP1.  Complete and fax to 919-715-2999. This provides your North Carolina corporate withholding number.  If you will be collecting sales tax on products sold, then you will need to get a Sales Tax ID, as well.

3. Once you have an EIN from the IRS, go to http://www.irs.gov/formspubs/lists/0,,id=97796,00.html and get form # 2553 to elect to be taxed as a Small Business Corporation.  Complete and send to the IRS. (This will allow you to pay taxes only once like an S corporation, instead of twice on income like a C corporation.)  By March 15 each year, you must file form 1120S (or 1065 if LLC) with the IRS and form CD-401S with the state. 

4.  Check with the Business License Information Office (BLIO) to see if your corporation needs a license to operate BLIO is a division of the Department of the Secretary of State. Its mission is to help new businesses like yours identify and complete any governmental permitting processes prior to starting up corporate operations. Call (919) 807-2166 or toll free 1-800-228-8443 for BLIO assistance. BLIO's web address is: www.secretary.state.nc.us.

5.  Purchase a company seal.  They are about $25 - $30 from most any stationary or office supply store.

6. If Incorporated, purchase a blank stock certificate to create your "no par" value certificate(s) of shares issued.  ("No par" is recommended to minimize personal exposure to the corporations liabilities.  e.g. A stock with $5 par value means that the owner is personally liable for the debts/liabilities of the company up to $5 for every share owned.

If LLC, develop a Organization agreement to establish whether the LLC will be member-managed or manager-managed and other important items.  There is good software available (e.g. NOLO's LLC Maker) to assist you in doing that.  It generally costs less than $50. 

7.  Contact county and local agencies to see what regulations and restrictions may apply to your business.  Your attorney will usually be able to guide you through this process. You are not, however, required by law to hire one.

8.  Set up a bookkeeping system.  Many firms have found Intuit's QuickBooks to be very easy to use and handles most of their requirements.  For more sophisticated small firms, Peachtree is another popular accounting system.  Most corporations hire an accountant to oversee this part of the incorporation process and check the company's books on a regular basis. An accountant can also help prepare your company's tax filings.