What Is the License to Form a Corporation Issued by a State Government Called?
The license needed to form a corporation is known as a Certificate of Incorporation. This is also known as a corporation’s Articles of Incorporation.
A Certificate of Incorporation confirms your company’s formation with your state of registration. It is usually issued by the Secretary of State.
As public information, these certificates remain available to everyone through their states’ government websites. Usually, this involves a small fee.
What Is a Certificate of Incorporation?
Obtaining a Certificate of Incorporation is one of the most important steps that you will need to make when forming your new corporation within the US.
While the information required within a Certificate of Incorporation can vary from state to state, it generally includes the corporation’s:
- Name
- Registered agent name and registered office address
- Directors’ names and addresses
- Lifespan (if not mentioned, the default is an indefinite duration until it is actively dissolved)
- Incorporators’ names, addresses, and signatures
You may be required to submit additional information depending on your state. This could include:
- Your corporation’s stock rights
- The authorized types of stock in your corporation
- The social benefit that your corporation will provide (i.e., for benefit corporations)
- The extent of your directors’ limited liability
Why Is a Certificate of Incorporation Important?
A Certificate of Incorporation acts as proof that your corporation is legitimate and has been formed in compliance with your state’s regulatory procedures and laws.
This means that it is commonly a prerequisite to the benefits enjoyed in incorporation. These include:
- Limited personal liability under the law: The shareholders of a corporation are privy to limited liability. This means that, if the corporation happens to go insolvent in the future, shareholders’ personal assets (e.g., their homes, vehicles, savings accounts, etc.) will not be claimable by previous financiers.
- Easier transference of ownership: Corporations have an assumed “perpetual” lifespan (unless a specific lifespan was decided), meaning corporations do not run into nearly as many complications as unincorporated business structures (i.e., general partnerships and sole proprietorships) if a partner happens to pass or exit the business. The corporation “lives on” as a separate entity.
Transference of ownership in a corporation is also generally easier because individuals can buy and sell stocks. - Increased credibility: Common lenders (e.g., banks, credit unions, etc.) will need to see proof of your Certificate of Incorporation before they offer your company a loan. This is because they have to comply with the strict regulations set forth by the IRS and the SEC (if they are a publicly traded corporation).
- Financial benefits: Since corporations are separate legal entities from their owners, shareholders of a corporation are able to register themselves as “employees” of the company. Additionally, employees’ salaries are deductible under US law.
How Do I File My Business’s Certificate of Incorporation?
Fortunately, you can typically file your business’s Certificate of Incorporation entirely remotely regardless of your location. However, you should note that the procedure, requirements, and types of forms that you will have to complete can vary significantly depending on your state.
Below we have outlined a general step-by-step guide that you can follow to file for your Certificate of Incorporation online:
- Find your relevant state’s government website: Even though these can vary, you should be able to find or search for a “business filings” or “business portal” section.
- Create an account: This may not be strictly necessary for every single state, but getting it out of the way at the start will mean that you will not need to waste time signing up after you have already filled in your required forms. You may also need an account to file compliance reports later on in your business’s lifespan, as well.
- Write and review your application: This step may seem obvious, but it is very important nonetheless. After you have completed your application, make sure you take your time and re-read every single section carefully.
If you need to change your information after you have submitted your application, you will usually have to pay additional fees, and your application process will be extended. - Keep a record of your submission confirmation: After you submit your application, you will receive a confirmation notice electronically. This should be almost immediate and will allow you to follow up with your state’s government department if you do not hear an update in due time.
Should I File for Incorporation in my Home State?
For simplicity purposes, we recommend incorporating in your home state. This does not mean that you cannot incorporate your business in another state — especially if that is where you will be conducting the majority of your business — but it is usually the most straightforward and affordable option.
Generally speaking, you should consider the following factors:
- Different states have varying laws and regulatory requirements. If you operate in multiple states with different requirements, you will have to comply with both. This can be both costly and timely.
- You will need to conduct enough business in another state to make it “worth your while.” If this is not the case, it will not make sense from a financial point of view to invest the resources necessary to incorporate to more than one state (i.e., capital, time, etc.).
- You will need a registered agent for each state. Finding additional registered agents will seldom be a problem due to the increasing prevalence of registered agent services. Nevertheless, this will be an additional cost that should be factored in when deciding where to incorporate your business.
If your operations or employees are scattered across the US quite proportionally, you should choose to file your incorporation in a “business-friendly” state such as Nevada, Wyoming, or Delaware.
Frequently Asked Questions
Not really, but your exact costs can vary depending on your state.
Typically, these fees do not exceed $300 and are generally around $100. If you hire a specialized attorney or tax consultant to handle your incorporation process, you should expect to pay significantly higher fees.
Another option would be to rely on incorporation services. These tend to be affordable, fast, and reliable, making them an ideal alternative for small businesses with small budgets.
Yes, this is possible regardless of your state of registration, although the process that you will have to follow may vary slightly.
In most states, you will be able to submit amendment requests entirely electronically, but a few will require these to be sent either via mail or via fax.
Your state’s requirements can be found with your Secretary of State or equivalent government agency.
Yes. This is because a Certificate of Incorporation officially certifies that your corporation has been set up legitimately and in compliance with your state’s laws and regulations.
Since banks have to comply with regulations set by both the IRS and the SEC (i.e., with money laundering, etc.), they are legally required to carry out several background checks on your business.
Other documents that you may need include your corporation’s:
- Articles of Association
- Memorandum
- Share certificates (if they have been issued)
Corporations are generally more ideal for medium- to large-scale businesses.
This is because they are quite complex and expensive to set up, and this can dissuade a lot of smaller business owners that may not want to invest significant time or capital into registering their company.
They are also subject to a much higher degree of government scrutiny, meaning they may not be the most convenient option for first-time business owners.
Having said that, corporations can provide several benefits to businesses of all sizes; these include:
- Limited liability
- Increased credibility
- Increased funding options
- Improved brand image
Even privately traded corporations have to comply with strict regulatory requirements. These are imposed by the IRS (if they become publicly traded, additional ones are imposed by the SEC).
This means that shareholders of corporations experience decreased managerial flexibility when it comes to how they can run and operate their business on a day-to-day basis. For example, they are required to hold and record annual meetings with their shareholders and board of directors.
Moreover, corporations suffer from “double taxation.” They are taxed twice on the same stream of income — once at a corporate level (corporation tax) and another on a personal level (income tax).