Corporation Requirements: Everything You Need to Know
Corporation requirements are the legal obligations one must meet to form and maintain a corporation.3 min read
2. Corporation Formation Requirements
3. S Corporation Requirements
4. Ongoing Corporation Requirements
5. Consequences for not Meeting Corporation Requirements
Corporation Requirements Overview
Corporation requirements are the legal obligations one must meet to form and maintain a corporation. Such requirements may range from what information must be included in forms to how the company is to be run, and there will be requirements to meet so long as the corporation is in operation. Such extensive requirements are why some people choose to run limited liability companies (LLCs) or sole proprietorships instead, but others feel that the rewards of corporate status far outweigh the downsides and pursue corporate status nonetheless.
Corporation Formation Requirements
The major requirement to forming a corporation is filing the Articles of Incorporation, which is a legal document that provides proof that your company exists and is authorized to operate in the state. A proper Articles of Incorporation document will include the following information:
- The corporation’s name.
- The corporation’s address.
- The corporation’s registered agent’s name and address.
- The purpose of the corporation.
- Stock information, which includes the amount, class, and possible value of the shares.
- Other information as required by state law, varying from state to state.
There will also be a filing fee–usually $100 to $500–that is usually to be made payable to the Secretary of State.
In many states, after the Articles of Incorporation are filed, the creation of corporate bylaws is also required. These will set forth the management structure of the corporation along with the procedures for governing it. Other formalities that are required will vary depending on the state. The website of each state’s Secretary of State should list them.
S Corporation Requirements
After corporation formation, you may elect to have your corporation be considered an S corporation for tax purposes. If not, your corporation will be considered a C corporation, which is the standard corporate status. S corporations have a different tax situation that some may find beneficial. In order to successfully take S corporation election, your business must meet the following requirements:
- The shareholders can only be individuals, estates, and certain trusts and exempt organizations. The shareholders cannot be corporations or partnerships.
- The shareholders must be U.S. residents or citizens.
- There cannot be over 100 shareholders in the business.
- If stock is issued, there can only be one class of it.
- Profits and losses from the business must be allocated proportionally to the investment made by the shareholders.
- The business cannot be an insurance company that is subject to subchapter L, a corporation running under section 585, or a domestic sales corporation (DISC).
- The election of S corporation status must be agreed upon by all shareholders.
Ongoing Corporation Requirements
Once incorporation is complete, a corporation’s requirements are not finished, but continue on. These continuous requirements include those related to the following:
- Taxes. Corporations must file their annual tax returns.
- Securities. Corporations must issue stock as their security laws and articles of incorporation mandate.
- Bookkeeping. Corporations must establish and maintain their records and books, which include shareholder records, corporate minute books, and accounting ledgers.
- Board meetings. An initial meeting involving the directors and shareholders is usually required, and then subsequent board meetings must be held at least annually.
- Meeting minutes. Along with holding board meetings, corporations must also keep official records of all decisions and actions discussed and resolved in their meetings.
- State registration. Corporations must maintain their annual registration with the state government, which will require annual fees.
- Licensing. Some corporations may also need to meet licensing requirements that may entail annual renewal and fees.
Consequences for not Meeting Corporation Requirements
If a corporation fails to meet their corporate obligations, the following consequences could occur:
- Personal liability for officers, shareholders, and directors for the acts of the corporation.
- An inability to file civil lawsuits.
- Tax liens being taken out against the corporation for nonpayment of its tax obligations.
- Difficulty securing loans or capital investments.
- Other penalties, including fines.
- A suspension or complete revocation of a corporation’s corporate status.
Because the consequences for failing to meet corporate obligations can be so harsh and because the requirements for meeting them can be very specific depending on a corporation’s business situation, it is recommended that those looking to form a corporation seek out expert legal assistance to make sure that all legal obligations are met.
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