When you are starting a business, one of the most important decisions you must make is the type of business structure you will use. The structure of your business has tax implications, and it can affect your financing options. While the names of giant American corporations are familiar to most, companies formed as public corporations account for only 5 percent of all businesses in this country. In 2011, the majority of U.S. companies were privately held corporations, according to CNBC. These businesses range from sole proprietorships to companies that employ thousands of workers. Although the procedures for incorporating a business vary by state, you create your privately held corporation during the incorporation process.
1. Contact the Secretary of State's office in the state where you intend to incorporate your business. Obtain the forms and instructions for registering a corporation.
2. Reserve a business name through the Secretary of State's office. In some states, you can complete this step online, but you can't incorporate the business until the name has received official approval.
3. Adopt bylaws for your corporation. This document sets out corporate procedures, meeting schedules and the role of board members in corporate governance.
4. Draft for-profit corporation articles of incorporation for your approved business name. Your articles of incorporation for your business must indicate the company owns all shares; this leaves no shares available for the public to buy through securities brokers or on a stock exchange.
5. Name each shareholder in your articles of incorporation and include contact information. State the total number of shares available for your corporation. Indicate the total number of shares that each shareholder you named owns. In a privately held corporation, the total number of shares owned by the named shareholders must equal the total number of shares the corporation owns.
6. Complete any required forms. Submit them with the articles of incorporation, bylaws and required fees to the Secretary of State. The incorporation and filing fees vary by state.
- Article of incorporation
- Corporate bylaws
- Incorporation fees
- Because the shares in a privately held corporation are not traded publicly, there is no preferred stock. All of the stock owned by a privately held corporation is common stock.
- A privately held corporation can provide stock options or sell shares to employees. The corporation sets the price because the stock is not subject to investor whims or market volatility.
- The shares for a sole proprietorship often total no more than 100, all of which belong to the corporation’s owner.
- U.S. laws don't require that you incorporate in the state where your business is located. Because of tax benefits for corporations, states such as Delaware and Nevada are common incorporation alternatives. You might incur additional costs to register your corporation as a foreign business entity in the state in which your corporation mainly does business.
- Nonprofits are not eligible to incorporate as privately held corporations.
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