Forming a Corporation

An individual who wishes to start a corporation is known as a promoter. The promoter must find the money to start a corporation. This financing is known as capital and can be the promoter’s own money, a loan from a bank or other financial institution, or money from an investor or group of investors who lend money to the promoter typically in exchange for future corporate profits. Before legally forming the corporation, or incorporating, the promoter often locates office or building space to house the corporation, identifies the people who will run the corporation, and then prepares the documents to make the corporation a legal entity. The work accomplished by the promoter prior to incorporation often necessitates contractual arrangements such as leases and loans. Because the corporation does not officially exist yet, the promoter must be the entity that enters into contracts. Later, when the corporation is legally formed, the corporation is considered as having assented to those contracts that were formed to benefit it prior to its official birth.

Corporation laws vary from state to state, but most states have the same basic requirements for forming a corporation. Promoters must file a document called the articles of incorporation with the secretary of state. These articles must include the corporation’s name, whether the corporation will exist for a limited period of time or perpetually, the lawful business purpose of the corporation, the number of shares that the corporation will issue to shareholders as well as the types and preferences of the shares, the corporation’s registered agent and address for the purpose of accepting service of process in the event that the corporation is sued, and the names and addresses of the corporation’s directors and incorporators.

A corporation must also have bylaws, although states generally do not require that corporations file the bylaws with the secretary of state. Bylaws are rules that dictate how the corporation is going to be run. Bylaws are fairly easy to amend. They may include rules regarding the conduct of corporate officers, directors, and shareholders, and typically they designate times, locations, and voting requirements for corporate meetings.

Small corporations frequently incorporate in the state in which they operate. However, promoters can incorporate in any state they wish. Delaware is the most popular state for corporations because the Delaware General Corporation Law has been considered to be so favorable to corporate bodies. With other states recently adopting laws modeled after Delaware’s, however, Delaware has lost some of its competitive edge in recent years. Still, Delaware continues to lead the nation in incorporations largely because corporate attorneys throughout the country are familiar with the laws in that state, because Delaware infrequently changes its corporate laws, and because Delaware courts specialize in legal issues regarding corporations.

Inside Forming a Corporation