Maybe you’re operating your business as a sole proprietor (a “dba”) and you’re ready to take your business “to the next level” and form a corporation. Maybe you’re starting a new business and want the protection that a corporation will provide.
Well, here are the 7 steps to take when forming your Massachusetts corporation.
- Step 1 – Choose a Corporate Name. But, before you can do anything with that new corporate name, you need to check it’s availability with the Secretary of State. If it’s available, then you can reserve it until you’re ready to file you Articles of Organization. But, if the name is too close to an existing corporation the Secretary of State won’t accept your filing without the consent of the current holder of the name.
- Step 2 – Decide on the Corporate Structure. Who will the officers (i.e., the President, Treasurer, Clerk) of the corporation be? Who will the Board of Directors be? Massachusetts allows one person to serve in all of these capacities, but you need to decide on this before filing your Articles of Organization.What about shares of stock? Will you be issuing just shares of common stock? Or, will you also be issuing preferred shares because you may have interested investors? These are all questions that you must answer when deciding on this corporate structure.
- Step 3 – Prepare and File the Articles of Organization with the Secretary of State. Articles of Organization inform the state, and the rest of the world, about the corporation’s basic information (i.e., its name, business address, officers) and its business purpose. Articles of Organization in Massachusetts can now be filed online with the appropriate filing fee. Until the Articles are accepted by the Secretary of State, though, the corporation will not be an “official” corporation.
- Step 4 – Create Your Corporate Bylaws. Bylaws are the “playbook” of how a corporation is to be run and operated. It outlines the rights, powers and responsibilities of shareholders, directors and officers. It establishes when and where annual meetings are to take place, the procedures for calling “special meetings,” and how to fill corporate vacancies. The bylaws aren’t filed with the Secretary of State, but are instead included with the corporate records.
- Step 5 – Obtain Your Corporation’s Federal Identification Number. Once created and accepted, your corporation now has its own “legal identity” and requires a federal identification number (commonly known as a “fed i.d. number” or an “04 number”). Your bank will require your company’s “04 number” before it will allow you to open a business checking account. In most circumstances, the IRS now permits you to fill out an online form and issues the number in a matter of minutes.
- Step 6 – Hold the First Meetings of the Shareholders and Board of Directors. During these meetings the shareholders will officially elect the Board of Directors and the Board will then ratify the acts taken before the filing of the Articles of Organization. A lot of other things usually occur during the first meetings including the election of officers, the acceptance of the bylaws and the issuance of stock certificates. The minutes of these meetings should be taken and kept with the corporate records.
- Step 7 – Prepare and File a Declaration of S-Corporation Status. If you decide that you would like your corporation treated as an S-Corporation by the IRS (and this decision should usually be made in consultation with an accountant and/or attorney), then an IRS form must be filled out, signed and filed with the IRS. The IRS will then send you its decision on whether it accepts your election as an S-Corp within 30-60 days. It is critical to remember, though, that the form must be filed within a certain time frame after forming your corporation.
Once you’ve taken your 7 steps, your Massachusetts corporation should be up and ready to run. All that’s left is to do what you do best – running your business and making money.
Attorney Andrew Garcia, your SouthCoast Business Attorney, is a principal of Phillips Garcia Law. He’s created a Business Legal Planning system that will walk you through the process of forming your Massachusetts corporation. Locally he has appeared live on WBSM-AM radio and nationally on NBC’s Today Show and Fox’s Fox & Friends program. If you are interested in learning more about his Business Legal Planning services, just contact him at firstname.lastname@example.org or by calling (508) 998-0800.