How to open a corporation in the United States?

If you are looking to open a company in the United States Together, a corporation may be the business structure you need. In this guide, we will look in detail at everything you need to know and do to open a corporation. So let's start with the first thing!

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What is a corporation?

A corporation is a commercial entity independent of its owners and shareholders. This type of business structure offers numerous advantages, among which are the limited protection of its shareholders and the ease of transfer of ownership. 

In a corporation, shareholders are the owners and elect a board of directors to oversee its operations. The corporation operates under statutes and guidelines established by its board of directors, which is also responsible for admitting or removing new companies and shareholders, as well as distributing company shares, among other aspects.

The different types of corporations in the USA

There are 2 main types of corporations in the USA, each with its characteristics, advantages and disadvantages. More precisely, there are 2 possible tax structures that a corporation must adopt before the IRS. 

C-Corps

C-Corp status is the default tax structure applied by the IRS to corporations. The fundamental characteristic of a C-Corp is that it is subject to double taxation: first it pays corporate taxes and then shareholders must pay personal taxes on profits derived from dividends or sale of shares.

The main advantage of being taxed as a C-Corp is that there are no restrictions on who can own shares nor is the total number of shareholders limited. This provides greater flexibility in the company's shareholding structure.

S-Corps

The S-Corp tax status means that the company is not subject to double taxation. imposition. According to the IRS, these entities are considered passthrough, meaning they do not pay corporate taxes and only shareholders' income is taxed.

However, to meet the requirements of an S-Corp, the IRS states that must meet the following criteria:

• Cannot have more than 100 shareholders

• Only one class of stock can be issued

• Ownership is limited to US individuals, certain trusts and non-profit organizations.

• Not be an ineligible corporation

• Be a domestic corporation

The B-Corp

A B-Corp is a certificate that a company can receive to prove its social responsibility and thus improve its reputation. B-Corps can be for-profit, but above all they must have a social mission. Contrary to what you may think, B-Corporations do not benefit from tax reductions: it is only a prize and not a different tax structure with the IRS.

• S-Corp vs C-Corp: Similarities, Differences, and which one to choose

Open your corporation in the USA following these 11 steps

Now that you are convinced that corporations, whether C-Corp or S-Corp, are the business structure you need, let's see the step by step of how to open them. 

1. Choose the name of your corporation

The first thing you will need to do to open a corporation is register its name. When choosing a name, in addition to thinking about marketing and branding aspects, you must comply with certain legal formalities:

• The name of the corporation must contain identifiers of the entity, such as "Incorporated", "Corporation", "Company", "Inc", "Co" or "Ltd".

• Avoid restricted prohibited words, such as "trust", "bank", "credit union" or "trustee", or words related to a government agency, such as "FBI," "State Department," or "treasury."

In addition, we recommend that you consider domain name availability for your website and make sure there are no conflicts with other trademarks with the chosen name! You can see that here.

2. Register a DBA (optional)

If you wish to do business under a name other than your corporation's name, you may need to register a DBA (Doing Business As) in your corporation's state of formation. The DBA application fee ranges from $5 to $150, depending on the state. 

To apply for a DBA, you will need to apply online through a state, county, or local agency. This varies by state. If you are only going to use your corporation's official name for your business operations, you can skip this step.

3. Appoint directors

When forming a corporation, the owners must appoint a board of directors. Owners may appoint themselves and/or other persons as directors.

The responsibilities of directors include:

1. Directing the corporation.

2. Managing the business and affairs of the corporation.

3. Electing corporate officers.

4. Attending corporate meetings mandatory.

The number of directors required varies according to each state. They can be a single director or three or more. It is also important to mention that it is possible to modify the directors once your corporation has been established.

4. Hire a Registered Agent

A registered agent is a person or entity designated to receive legal documents and notices on behalf of a corporation. This agent acts as an intermediary between the corporation and state authorities. 

The law requires every corporation to have a registered agent, but it also helps protect the privacy of its members. There are several companies that offer registered agent services, with an average cost of $200 annually, but they can also be members of the corporation if they meet the necessary requirements.

5. File the "Articles of Incorporation"

Next, you will need to file a legal document called the "Articles of Incorporation" with your state's Secretary of State's office. Although the requirements may vary from state to state, they will generally include:

• The name of your corporation.

• Its principal place of business.

• Your corporation purpose.

• The name and address of the registered agent who will accept the legal documents on behalf of your corporation.

• The names and addresses of the founders and/or initial members of the board of directors.

Articles of Incorporation can usually be filed online on the secretary of state's website. There you will find precise information about exactly what they must contain, since each state has requirements, forms and filing fees different.

Once the articles are approved (it usually takes about 2-3 weeks), you will receive a certificate of incorporation andestablish your corporation as an official business entity. 

6. Write the bylaws of the corporation

In some states, corporate bylaws are required to be filed in order to form the corporation. These bylaws are a set of rules and regulations that define the operation of the corporation. Bylaws can be drafted before or after filing the Articles of Incorporation.

In general, corporate bylaws cover aspects such as:

• The number of shares that the corporation can issue

• The number of directors required

• How the distribution of shares will work dividends

• Procedures for meetings and registration of documents

• etc...

It may be interesting to obtain legal help to draft these bylaws. You can also find templates, but you should make sure they validate your state's specific requirements.

7. Draft a shareholders agreement (Optional)

A shareholders agreement is a legal document that establishes the rights, responsibilities and obligations of the shareholders of a corporation if certain circumstances arise. For example, they will dictate procedures in the event of the death of a shareholder, or the operation of the transfer of ownership. 

It is an optional document, but we recommend that it be done. 

8. Hold the first meeting of the board of directors

Once your corporation has been officially incorporated and the bylaws have been drafted, the first meeting of the board of directors must be held. At this meeting, the directors:

• Appoint a permanent board of directors,

• Approve the corporate bylaws

• Establish the fiscal year of the corporation

• Appoint corporate officers, responsible for directing the daily operations of the company

• Authorize the issuance of shares.

• Define whether will be operated as an S-Corp or C-Corp

It is legally required to record and retain minutes of all meetings of the board of directors.

9. Issue shares

After the board of directors has authorized the issuance of shares, it is time to carry out the issuance of shares to the shareholders.

When carrying out this issue, it is essential to record the following information:

• Identification of the purchasers of the shares.

• Exact number of shares acquired by each shareholder.

• Monetary value corresponding to the shares. shares acquired.

• Precise date of acquisition of the shares.

The most common thing is that the shares are issued in the form of physical certificates or in digital format. Logically, maintaining an accurate record of all these transactions is essential to ensure transparency in the ownership of the corporation, as well as the rights of shareholders.

10. Obtain an EIN

An EIN is a tax identification number that serves to identify the corporation at the tax level, both at the federal level by the IRS, and at the state level. It will also be necessary to open a bank account, hire employees, obtain licenses, etc...

You can apply to obtain an EIN directly at the IRS website. 

11. Apply for licenses and permits

Your business may need some type of business license or permit to operate, but the requirements will depend on the registration status of your corporation and the activity you carry out. Some states require a general business license, and certain particular industries, such as CBD, weapons, medication, or catering, will require additional licenses. Here you can learn more about this. 

What to do after registering your corporation?

Once you have your American corporation registered, there are some important formalities to take into account when managing your company.

Open a bank account dedicated to your corporation

Once you have your corporation, it is essential that you obtain a bank account associated with your business. 

In addition to simplifying accounting and centralizing all the movements of your corporation, this will allow you to protect your corporate veil and personal assets. 

To open a bank account, you will need your EIN and your corporate documents. 

Complies with the formalities required for corporations

They exist certain formalities that your corporation must comply with. 

1. Keep corporate bylaws up to date: Your corporate bylaws should align with current laws and regulations. If you want to change them, a vote must be taken during a meeting of shareholders.

2. Establish a corporate record book: You must have an official file where all the important documents of the corporation are recorded, including the bylaws, meeting minutes, and stock registers.

3. Hold the required annual meetings: Corporations are required to hold at least one meeting of shareholders and one meeting of the company. board of directors each year.

4. Give notice of meetings when appropriate: A formal notice must be sent to all participants in the meetings (shareholders, directors, employees...). Place, time, and what type of meeting it is must be communicated. 

5. Maintain accurate meeting minutes: Many states require official meeting minutes to be recorded. They must be accurate and detailed to provide a legal record of the corporation's decisions. 

Comply with the laws, rates and taxes of your state

Each state has different regulations, but generally, you may be required to file annual reports and pay corporate taxes to maintain your corporate status.

Also, you will need to declare and pay corporate taxes on the company's profits to the IRS. Having accounting and tax advice is highly recommended for this.

Finally, if you have American employees, you will have to comply with a variety ofemployment laws and regulations.

Apply for Licenses

For certain types of businesses, you may need licenses from the state of New Mexico, your locality or even the federal government to operate legally.  Find out here about the licenses required according to the type of business you have (Alcoholic Beverages, Cannabis, Tobacco, Finance, Construction...).

We solve your doubts about the registration of corporations

Should I open a corporation?

A corporation is suitable for companies seeking:

• Raising capital: Raising investment is simpler through corporations, since the transfer of ownership is quite simple through the issuance of shares

• Perpetuity: Unlike LLCs, corporations can continue to exist regardless of changes in ownership of the organization

• Tax benefits: In certain cases, being taxed as an S-Corp or as a C-Corp can be advantageous. 

In any case, it is important that you make this decision correctly from the beginning, since although changing the legal structure later is possible, it is expensive. 

What are the disadvantages of corporations?​

While the corporation structure can be very beneficial for certain businesses, there are certain disadvantages:

• An expensive and cumbersome formation process

• Strict administrative rituals, such as annual meetings, meeting minutes, detailed financial reports...

• It will be subject to double taxation, unless it is taxed as an S-Corp

• Flexibility in the management of the company is more complicated than with an LLC or Sole Proprietorship

What is the cost of registering a corporation in the USA?

The formation of a corporation in the USA involves several costs.

• Presentation of the articles of incorporation:The cost varies depending on the state chosen, but usually ranges between $100 and $250.

• An advance payment of the franchise tax:It usually ranges between $800 and $1,000. Not all states charge this tax.

• Additional government fees of between $50 and $200 depending on the state of incorporation.

• Other additional costs such as hiring a registered agent service (approximately $200 annually) and hiring attorneys may be necessary.

What state should I open my corporation in?

A When choosing the state for incorporating your company, consider:

• The costs of incorporation

• The franchise tax rates

• The tax rate of the state you are considering for incorporation

• the corporate laws of the state under consideration, in terms of the rights and responsibilities of shareholders, officers and directors, as well as the rights of creditors therein state.

If you plan to do business primarily in one state, it may be wise to incorporate there. 

Can a foreigner create a corporation in the US?​

Yes, it is possible. There are no US or state laws that prohibit non-residents from starting a company in the United States. The US market is open to everyone.

Should I open an LLC or a Corporation?​

LLCs provide limited liability, are simpler to manage and maintain, and cheaper to incorporate. Additionally, an LLC can be taxed as an S-Corp or C-Corp, without losing its LLC status. 

However, the division of property is very complicated with an LLC, so obtaining investment will be very difficult. 

Choosing between a corporation vs. an LLC will depend on your current situation and your future goals. 

Can a single person open a corporation?

Yes, if you are the only shareholder, you can form a corporation in the United States. You must follow the same rules and administrative rituals as corporations with multiple shareholders.

If you still have questions, visit the IRS website or leave us a message!