Company Formation Steps: How to Start a Business
Learn the key steps in company formation, from choosing a business structure to state filings, licenses, tax registrations, and compliance requirements. 6 min read updated on August 27, 2025
Key Takeaways
- Company formation begins with choosing the right structure (LLC, corporation, partnership, or sole proprietorship).
- Filing requirements vary by state but typically include Articles of Incorporation/Organization and appointing a registered agent.
- Federal, state, and local licenses or tax registrations may be required depending on industry and location.
- An EIN is usually necessary to open bank accounts, hire employees, and file taxes.
- Ongoing compliance—like annual reports, franchise taxes, and corporate record-keeping—is essential after formation.
The steps to form a company can be complex when choosing to incorporate under the Subchapter C of Chapter 1 of the IRS code. A corporation is its own entity distinct from its owners who are shareholders. This structure helps to protect the owners from incurring personal liability from the business. A corporation is subject to the corporate laws in the state where the business was incorporated.
Steps to Forming a Corporation
There are several steps that must be completed when you decide to form a corporation.
- Choose a legal business name: You must register your business name with the Secretary of State's office in the state where you wish to do business. Most states allow you to reserve a name for a fee while you are waiting to file your Articles of Incorporation, though it is for a limited time, often 30 days. If you do not register your company in the time frame, the name will become available again to the public.
- File your Articles of Incorporation: You will need to draft and files your Articles of Incorporation with the Secretary of State's office. You can choose to have an attorney draft them or complete them yourselves. The articles will need to have the name of the initial officers and directors who will run your corporation.
- Issue stock certificates to the initial shareholders: After your articles have been approved by the Secretary of State, you will need to distribute your stock certificates to the initial owners of the company based on their number of shares.
- Apply for business licenses and permits: You will need to obtain any required business licenses or permits that are required for you to operate in your chosen industry. You may be required to file for state and local licenses as well as federal ones.
- Apply for an Employer Identification Number: If you plan to hire any employees, you will need to file a form SS-4 with the Internal Revenue Service to obtain an EIN. Your EIN will serve as your company's tax identification and will be used for reporting employee wages. You may also be required to have an EIN to open a business bank account or applying for a loan.
- Apply for state or local identification numbers: If required, you will also need to file for any state and local identification numbers that are necessary for the payment of disability, unemployment, or other payroll taxes. If you are unsure of the state and local requirements, seek out the advice of an attorney.
Choosing the Right Business Structure
Before filing documents, one of the most important company formation steps is selecting a business structure. Each option has distinct tax, liability, and administrative implications:
- Limited Liability Company (LLC): Flexible structure offering liability protection with fewer formalities than a corporation. LLCs are popular for small to mid-sized businesses.
- Corporation (C Corp or S Corp): Provides liability protection, the ability to issue shares, and may be preferred by investors. However, corporations involve stricter reporting and compliance requirements.
- Partnership: In a general or limited partnership, two or more individuals share ownership. Liability and management responsibilities vary by type.
- Sole Proprietorship: Easiest to form, but the owner has unlimited personal liability for debts and obligations.
Choosing the right structure affects everything from taxation to fundraising ability, so it’s often wise to consult a professional before filing.
Steps to Forming a Corporation in Delaware
Forming a corporation in Delaware is similar to starting a corporation in other states. Delaware has become a popular state for incorporating due to its favorable corporate laws. To form a corporation in the state of Delaware, you will need to:
Verify and Secure Your Brand Name
The first step in forming your corporation is by choosing your brand name. There are some requirements you will need to meet when choosing your name. Your name will need to:
- Be distinguishable from any other named business name in the state. You can run a check on the state's website to see if it is available.
- Not include any restrictive words such as "bank," "university," "trust," or "college."
- Must contain a word indicating it is a corporation, such as "company," "limited," or "incorporated," or an abbreviation of one of these words.
You may also want to check to see if your name is available for a website and email as this will often be an important part of your business.
Registering Your Company in Other States
While Delaware is a popular state for company formation due to its business-friendly laws, most entrepreneurs will register in their home state. Key steps include:
- Check Name Availability: Confirm your chosen name is distinguishable from existing businesses in your state.
- File Organizational Documents: Submit Articles of Incorporation (for corporations) or Articles of Organization (for LLCs) to your Secretary of State.
- Pay State Filing Fees: Costs vary widely, from under $100 in some states to several hundred dollars in others.
- Foreign Qualification: If your business operates in multiple states, you may need to register as a “foreign” entity in each additional state.
Each state has its own requirements, so it’s critical to review local laws.
Appoint a Registered Agent
During the incorporation process, you will need to designate a registered agent to receive process paperwork and other vital corporate documentation. They will be the ones who will accept tax forms and legal documentation on behalf of your corporation. In Delaware, an owner can act as their own registered agent, though many corporations use a third party as the registered agent needs to:
- Be available during normal business hours at a physical address.
- Have your address made publicly available.
- Be responsible for maintaining essential corporate paperwork.
Post-Formation Compliance Requirements
Company formation does not end after filing documents. To remain in good standing, businesses must meet ongoing compliance obligations, which typically include:
- Annual or Biennial Reports: Most states require periodic filings to update company information.
- Franchise or Business Taxes: Corporations and LLCs may owe annual state franchise taxes or fees.
- Maintaining Corporate Records: Keep bylaws, operating agreements, minutes of meetings, and shareholder records current.
- Renewing Licenses: Many permits must be renewed annually or biannually.
Ignoring compliance can result in penalties, late fees, or administrative dissolution of your company.
Obtain Necessary Licenses and Tax Registrations
After appointing your registered agent, ensure you comply with all licensing and tax obligations:
- Federal Licenses: Required for industries such as broadcasting, transportation, and alcohol sales.
- State and Local Licenses: Many states require additional permits for professional services, retail, food service, or construction.
- Employer Identification Number (EIN): Most businesses need an EIN to open a bank account, file taxes, and hire employees.
- State Tax Accounts: Depending on your location, you may need to register for sales tax, unemployment insurance, or workers’ compensation.
Failing to obtain the right licenses can lead to penalties or business closure.
Frequently Asked Questions
-
What is the easiest business structure to form?
A sole proprietorship is the simplest, requiring minimal paperwork, but it does not provide liability protection. -
Do I need to register my company in every state I operate?
Yes. If you conduct business in multiple states, you must “foreign qualify” in each one. -
How much does company formation cost?
Costs vary by state and structure, typically ranging from $50 to several hundred dollars, plus licensing fees. -
Is an EIN required for all businesses?
Not always. Sole proprietors without employees can use their Social Security number, but most other entities need an EIN. -
What happens if I don’t file annual reports?
Failure to meet ongoing compliance requirements can lead to fines, loss of good standing, or even dissolution of your business.
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