First Posted: 3/27/2015

Last week, we reviewed the start-up process for limited-liability companies. This week, let’s focus on the beginning steps for successfully forming a corporation.

A corporation is a business structure that is owned entirely by the shareholders. Shareholders (stockholders) are individuals, companies or other institutions that own at least one share of the corporation’s stock. One of the major benefits to the corporation business structure is that the business itself and not the shareholders are held legally responsible for any actions and the debts incurred by the business.

This means that the personal assets of the shareholders are protected. Corporations are taxed as business entities, therefore, the business itself has to pay taxes. However, the shareholders could also be required to pay taxes on any distributions they receive from the business. This process is referred to as “double taxation.”

Similar to a limited-liability company, there are certain requirements for creating a corporation in North Carolina, including filing Article of Organization and complying with state or federal registration and tax requirements.

The first step to correctly establishing a corporation is choosing a name for the business. There are three guidelines to consider when choosing a name for your company. First, the name must end with one of the following words: Incorporated, Corporation, Company or Limited.

Second, the name must be different from the name of other businesses already registered with the state. Lastly, there are certain words the state will not allow in the name of the business. The incorporator, the person registering the corporation, must make sure the company’s name does not include those words. After the name is chosen and agreed upon, it should be registered and reserved with the Secretary of State.

Once the name of the business has been properly registered, the corporation will need a registered agent and will need to establish a physical address for the business. In North Carolina, a corporation is required to have a physical address and a “registered agent” or an “agent for service of process” registered with the Secretary of State. Additionally, the incorporator will need to file Articles of Incorporation with the North Carolina Secretary of State.

The Articles of Incorporation should include the following: the address of the corporation’s main or principal office, the purpose of the corporation, the names and addresses of the initial directors, guidelines pertaining to how the company will be managed or regulated, provisions that outline the rights and responsibilities of the shareholders and provisions that define and regulate the powers of the corporation, its directors and its officers.

In addition to the Articles of Incorporation, a North Carolina corporation will need to establish bylaws, but they are not required to be filed with the Secretary of State. Bylaws are rules that direct the internal management and how they will handle matters within the corporation, however, they cannot be inconsistent with the Article of Incorporation. Usually, a corporation’s bylaws are adopted by the incorporators or the board of directors.

All corporations need to have an established organizational structure which includes the board of directors and officers. The directors are the individuals who are responsible for managing the corporation. A corporation is required to have at least one director or a board of directors. The director or directors are either elected or appointed, and the Articles of Incorporation generally describe the election or appointment process.

Additionally, a corporation needs to establish officers who will manage the day-to-day business operations. Officers are also either appointed or elected, and the corporation’s established bylaws defines the election or appointment process. The officers within a corporation normally consist of a president, one or more vice presidents, a secretary, a treasurer and any additional officers the directors deem necessary.

Lastly, the corporation must determine how it wants to be taxed and follow all tax regulations including obtaining a federal employer identification number, or FEIN. Additionally, a corporation needs to issue stock to its shareholders.

Each of the shareholders’ names and contact information is recorded in the corporation’s stock transfer record book. Most states including North Carolina have established security laws that regulate the offer, sale or trading of stock.

Please remember that this information is only meant to inform our readers. This article does not include all of the detailed requirements and rules related to the requirements for setting up a corporation. If you have any additional questions about properly establishing a corporation, please consult an attorney. As always: Be informed. Be prepared.

Bellonora McCallum is an attorney at the McCallum Law Firm, PLLC, in Rockingham. Reach her at 910-730-4064 or visit www.mccallumlawfirm.com.