The checklist for founders looking to incorporate is lengthy:
- Articles of Incorporation,
- Corporate Bylaws,
- Financing arrangements,
- Obtaining a business license,
- Getting familiar with payroll compliance
The list goes on and the risk goes up! In this article, we’ll highlight 5 corporate governance tips that will put you on the path to compliance before you incorporate. Let’s dive in:
Tip 1: Check in with an attorney: Is Incorporating The Right Move For Your Business?
Choosing the wrong corporate structure can cost you in taxes, missed opportunities, and compliance issues. Worse still, changing entity structure is expensive and time consuming. It’s beneficial to get things right the first time around – and you should be aware that structuring your business as a corporation isn’t always the right choice.
To get it right, you need to spend time reflecting on the pros and pitfalls of the different types of corporate entities. And, at this point, it would be a good use of your business funds to do a quick check in with an attorney. There are so many factors that go into decision making about corporate structure, and so many things you need to do when you decide on a corporate structure. Your attorney can give you peace of mind, as well as a strong foundation for your corporate future. So, those legal fees will be money well spent.
Tip 2: Work Out Where To Incorporate.
Delaware is a known hotspot for startups and businesses looking to incorporate, and with so many big names having incorporated there, new startups do tend to look to Delaware first. The reason behind many of the big names choosing Delaware is due to its highly developed corporate law environment, by the way.
Other founders look to Nevada, in hopes of reducing their corporate taxes.
However, there are factors that might impact whether these states are the right choice for incorporating your business – particularly if you aren’t headquartered or ‘doing business’ in Delaware or Nevada.
Bring this up with your attorney if you do decide on incorporation during that initial meeting. They will work with you to confirm whether you should incorporate in California or if you can choose Delaware or Nevada and then apply for foreign qualification in California after incorporation.
Tip 3: Check Your Business Name is Compliant and Available.
You will need to register your business name with the state in which you incorporate. In California, you must register the business name with the Secretary of State. There are naming conventions you must comply with, including restrictions on the types of letters and symbols you can use. But, importantly, your business name must not be “substantially similar” to another business entity – unless you get consent from the other business to use it.
If you want to trade under a different name, you’ll also need to look at the requirements for filing a fictitious business name – also called a DBA or ‘doing business as’ name.
Another quick tip is to make sure that the website domain is available for your proposed business name – and that it’s affordable. Some speculative investors will purchase domain names they expect to be popular and then sell them to business owners at a profit – the fees they charge for transferring the domain name ownership are often hefty.
Tip 4: Cement Your Ownership Arrangements Before Incorporating.
The importance of getting all your ducks in a row when it comes to ownership and equity from the outset really can’t be overstated. Interestingly, the documents you need to file to incorporate your business really don’t require you to formalize all the elements of your agreement. That’s largely left for you to manage internally – and it’s critical that you do.
Work with an attorney to solidify a plan for assigning founder IP to the company, create documents that will define your relationship, as well as each owner’s stake in the company, and develop a malleable map for future ownership.
Document generators can be helpful at this stage, but they aren’t able to account for the unique circumstances in your business. It’s best to think of them as a tool, not a solution. You should work with an attorney and have them review any documents generated to ensure they’re complete and reflect your actual circumstances and plans. If they’re an attorney experienced with startups, they’ll let you know which documents you can generate using these tools and which you’re best off having drafted by an attorney.
Tip 5: Open a Corporate Bank Account.
Okay, admittedly this tip is one that will have to wait until you have incorporated (since most banks will want to see those documents before opening your business bank account). But we want founders to place ‘opening a corporate bank account’ at the top of your list once you have those incorporation documents.
One of the major benefits of incorporating is that business owners can shield themselves from personal liability for business debts. However, this protection hinges on the corporate entity being treated as separate from you (and any other founder). If you don’t open a corporate bank account, you may lose that protection.
Opening a corporate bank account is a key step in separating the legal business entity from you as a business owner. It is critical that you do this as early as possible. Don’t skip this step – and don’t put it off until later. This should be a priority.
As always, we would love to hear from you! Let us know what considerations went into your decision to incorporate – or not – by commenting on the social media post sharing this content or emailing us at firstname.lastname@example.org
If you have any topics you’d like us to cover, tell us. We’re here to help!
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