Key Takeaways

  • Corporation requirements include legal, structural, tax, and recordkeeping obligations at formation and ongoing.
  • Formation generally requires filing Articles of Incorporation, appointing a registered agent, and creating bylaws.
  • State-specific obligations may include additional filings, publication requirements, and corporate formalities.
  • Electing S corporation status requires strict eligibility compliance and timely IRS Form 2553 submission.
  • Ongoing compliance includes annual meetings, corporate minutes, licenses, tax filings, and registration renewals.
  • Failure to meet requirements can result in fines, loss of liability protection, or dissolution.

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.

State-Specific Formation Rules

While Articles of Incorporation form the foundation for a corporation, state-specific requirements can significantly impact the formation process. For example:

  • Name Availability Check: Most states require that the business name be distinguishable from existing entities and include a corporate identifier (e.g., “Inc.,” “Corp.”).
  • Initial Reports: Some states, such as California and Georgia, require an initial report or statement of information shortly after incorporation.
  • Publication Requirements: States like New York and Arizona require corporations to publish formation notices in designated newspapers for several weeks.
  • Franchise Taxes and Fees: Certain states impose franchise taxes at formation and annually, which can vary based on assets or shares issued.
  • Consent to Service of Process: Some states require a separate form affirming consent to be served legal documents via the registered agent.

These requirements vary, so consulting the Secretary of State’s website for your jurisdiction is essential.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.

Federal Tax Responsibilities Upon Formation

In addition to state obligations, forming a corporation involves several federal tax responsibilities:

  • EIN Application: Corporations must obtain an Employer Identification Number (EIN) from the IRS using Form SS-4, even if they do not plan to hire employees.
  • Corporate Tax Election: A newly formed entity is taxed as a C corporation by default. If you plan to elect S corporation status, IRS Form 2553 must be filed within 75 days of incorporation.
  • Form 1120 Filing: C corporations are required to file Form 1120 annually, reporting corporate income, deductions, and tax due.

Understanding and fulfilling these tax-related corporation requirements is critical for avoiding penalties and maintaining good standing with the IRS.

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.

Annual and Biennial Report Filings

Many states require corporations to submit annual or biennial reports to remain in good standing. These reports:

  • Confirm or update basic information such as business address, officer and director names, and registered agent.
  • May be submitted online via the Secretary of State’s portal.
  • Often carry a filing fee, which ranges by state but typically falls between $25 and $300.

Failure to file on time may lead to administrative dissolution or late fees, so it’s crucial to track deadlines.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.

Maintaining Corporate Formalities

To preserve limited liability protections and avoid piercing the corporate veil, corporations must strictly observe formalities, including:

  • Adopting Bylaws: Even if not filed with the state, bylaws establish governance procedures.
  • Issuing Stock Certificates: Shares should be formally issued and recorded in a stock ledger.
  • Complying with Meeting Requirements: Boards must meet regularly, and corporations should document major decisions through meeting minutes.
  • Keeping Financial Separation: Corporate and personal finances must be kept strictly separate.

Failing to uphold these practices can expose shareholders to personal liability.

Frequently Asked Questions

  • What documents are required to form a corporation?
    You typically need to file Articles of Incorporation, appoint a registered agent, and prepare corporate bylaws. Some states may also require an initial report or public notice.
  • What is the difference between C corp and S corp requirements?
    C corporations face double taxation and have fewer restrictions on shareholders. S corporations avoid double taxation but must meet specific IRS requirements, such as a 100-shareholder limit and only one class of stock.
  • Do all states have the same corporation requirements?
    No. Each state has its own rules regarding formation, annual filings, fees, and compliance. Always check your state’s Secretary of State website.
  • How do I maintain my corporation’s legal status?
    Ensure compliance with all state and federal filing deadlines, hold annual meetings, maintain accurate records, and keep your business license active.
  • What happens if I don’t meet my corporation requirements?
    Your corporation may face fines, lose limited liability protection, or be dissolved administratively by the state.

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