Learning center

Everything you need to know about Corporations, LLCs and Trademarks.

« All Topics

Incorporation essentials

Incorporation is the process by which a company incorporates and thereby gains the benefits and status of an incorporated company. This process entails preparing certain documents, including a document referred to as the "Articles of Incorporation," and filing the documents with the Secretary of State. (For an LLC, the main document used to incorporate is referred to as the "Articles of Organization.") Below is a list and discussion of the essential knowledge required to successfully incorporate a business.

Once you are able to answer these six questions, you are ready to incorporate. Incorporating with Direct Incorporation entails filling out an online form, which will take about ten minutes to complete. We will then use the information you have supplied us to prepare the necessary documents and file them with your chosen state. We will walk you through the process and enable you to effectively incorporate your business based on your business's specific needs, at a fraction of the cost of a lawyer.

  1. Where to incorporate

    The choice of where to incorporate is an important one, as the state of incorporation will be the company's legal home. However, the legal home is not necessarily the company's physical home. Most states do not require a business, which is incorporated under its laws, to maintain an office within the state. A company can operate and carry on all of its business in a state other than its state of incorporation. This opens a wide range of options of states in which to incorporate, but for most businesses the choice usually boils down to the State of Operation, Delaware, or Nevada.

    • Your State

      Incorporating in the state of operation, your home state, is generally the best option for a mid-sized to small company where virtually all business is to be conducted within that state. Incorporating in the state of operation is preferable because it is usually the least complicated and least costly choice.
    • Delaware

      Delaware has the reputation of the incorporation capital of the United States. Thousands of start-up companies make the choice to incorporate in Delaware every year, despite the fact that they operate completely or partially in states other than Delaware. Although Delaware incorporation has the potential to be advantageous to all corporations due to the state's low incorporation fees, low taxes, and management flexibility, it is the larger corporations who stand to benefit the most. In fact, for smaller out of state corporations, the disadvantages of Delaware incorporation may outweigh the benefits.
    • Nevada

      Recently, Nevada has gained a reputation for its favorable corporate laws. As such, a growing number of out of state businesses choose to incorporate in Nevada. These businesses are attracted to Nevada by the state's low taxes, low fees and corporate privacy laws. However, like Delaware incorporation, larger corporations have the most to gain from incorporating in Nevada. Similar to Delaware, the smaller, out of state corporations may find that the disadvantages of Nevada incorporation outweigh the benefits.
  2. The corporate form (C-Corp, S-Corp, or LLC)

    There are essentially three options for the corporate form of a for-profit company: a C-Corporation, an S-Corporation, or an LLC.

    • C-Corporation

      A C-Corporation is the traditional and most common type corporation. The benefits of a C-Corporation include personal liability protection, lack of limitation on the number of shareholders allowed, the ease by which stock can be transferred, low state formation fees and the public's familiarity with the C-Corporation as a business entity. The major disadvantage of a C-Corporation is that it is subject to "double taxation."
    • S-Corporation

      The S-Corporation is similar in structure to a C-Corporation, yet it is not subject to the C-Corporation “double tax.” The profits of an S-Corporation will only be taxed at the individual level, whereas a C-Corporation is taxed at the corporate and individual level.

      An S-Corporation is initially formed as a C-Corporation by filing the Articles of Incorporation within a state. The C-Corporation can then become an S-Corporation when an extra step is taken by filing with the IRS. However, not all C-Corporations are able to take advantage of the S-Corporation status. A corporation is only eligible for the S-Corporation election if it meets a list of detailed ownership requirements.
    • Limited Liability Company (LLC)

      An LLC offers the best of both worlds of business types. An LLC is favorable because it avoids the “double tax” of a corporation, yet also affords its owners the personal liability protection of a corporation. Other benefits of an LLC include less stringent state formality requirements, management flexibility, and, in relation to the S-Corporation, relaxed ownership qualifications. However, the drawbacks of an LLC include restrictions in ownership transfer, and the public's lack of familiarity with the LLC as a corporate form.

  3. The Name of the company

    Basically all that is required in selecting a corporate name is that the name is distinguishable from already existing corporate names. Within the Articles of Incorporation a corporate name must be followed by the word "Corporation," "Incorporated," or "Company." An LLC name must be followed by the words "Limited Liability Company," or "Limited." An abbreviation of the corporate indication, such as "Inc.," "Co.," or "LLC" is also acceptable.
  4. The address of the company's initial office

    The Articles of Incorporation ask for the address of the company's initial office. An actual physical address is mandatory, as a PO Box is unacceptable.

    Does your business already have an office, or are you doing business from your home for the time being? Either can serve as the company's initial office.
  5. The name and address of the Resident Agent

    The Corporation's resident agent is simply a person designated by the corporation to receive important legal and other documents on behalf of the corporation. The resident agent must be a resident of the company's state of incorporation and the resident agent's address must be a physical address (not a PO Box) within the state of incorporation.

    Virtually any state resident can serve as a corporation's resident agent. However, it is strongly encouraged that the corporation appoint someone who is closely associated with the corporation as to ensure that the corporation is alerted to all important documents received. A corporation commonly appoints an owner, director, or officer of the business to serve as the initial resident agent.

    If you wish to incorporate in Delaware or Nevada and your company does not have an office within the state, Direct Incorporation can provide you with a dependable resident agent as part of our incorporation service.
  6. For Corporations: Number of shares the corporation is authorized to issue

    Authorized shares are the total number of shares that the Corporation can issue. The Board of Directors is responsible for deciding if and when to issue the authorized shares. When shares are actually given to the shareholders, they become issued, authorized shares.

    When determining ownership percentages, the total number of shares becomes an arbitrary number. All that is considered in determining ownership is the proportion of shares issued to each shareholder, not the actual number of shares.

    It may be wise for the company to authorize more shares than it plans to issue. This will allow the company flexibility to issue more shares if a second round of financing is required. Naming a small amount of authorized shares in the articles will limit the company's ability to do this. The number of shares authorized can only be changed by officially amending the articles with the Secretary of State.

    Note that the number of authorized shares may increase the state filing fees in a limited number of some states.

    Designating the number of authorized shares is done in the Articles of Incorporation for C-Corporations and S-Corporations and does not apply to LLCs. In an LLC the shares are called "membership interests," and the shareholders of the LLC are called its "members."
  7. For LLCs: The management type of the LLC

    An LLC's Articles of Organization ask to designate between one of two types of management structures. An LLC can either be Manager-managed, or Member-managed. If an LLC is Manager-managed, the power and authority of the company's management lies within its Board of Managers, which is similar to the Board of Directors of a Corporation. If an LLC is Member-managed, there is no Board of Managers and the LLC is directly managed by its Members (the owners).

    Either type of management (Members or Board of Managers) can delegate power and authority to the company's officers. If the management does delegate authority, it will retain the responsibility to oversee the affairs and activities of the company.

    If Manager-managed, the Members elect, or approve of each proposed Manager at the organizational meeting. Each Manager may be appointed by the owners for a one year term, expiring at or before the following annual Member meeting.

    • Member names and addresses

      In an LLC, the "Members" are the owners of the company. In a few states, the Articles of Organization require the names and addresses of all the initial Members. It is not necessary to amend the Articles of Organization if a Member is added to the LLC in the future.
    • Manager names and addresses

      If the LLC is Manager-managed, the power and authority of the company's management lies within its Board of Managers, which is similar to the Board of Directors in a C or S-Corporation. In some state, the Articles of Organization require the names and addresses of all Managers to serve on the initial Board of Managers of the company.

      Most states require that the Board of Mangers, whether listed in the Articles or not, have at least three Managers, unless there are fewer than three Members (owners). Where there are fewer than three Members, the number of Managers in these states must match the number of Members.

      There is no requirement that Managers, Members and officers be different people. In a small LLC, the Managers are usually Members or officers as well.