Incorporating in the United States

Mabbett Railway Chair Manufacturing Company share certificate 1867

A while ago, I wrote an article on choosing the state of incorporation for your US company. Now that you’ve decided where your company will be located (probably Delaware), the next step, of course, is to incorporate:

  1. First, you file a brief document (the Articles of Incorporation or, in Delaware, Certificate of Incorporation) outlining the basic structure of the company (typically name, initial corporation address, number of shares authorized, and often some sort of provisions for indemnification of officers and directors. Once the Articles are stamped by the state the corporation is in existence.
  2. The person who filed the Articles (called the incorporator) appoints the first board of directors and enacts the first bylaws (basically, the rules of operation of the company) in a written “Consent of the Incorporator.” The incorporator is a bit of an odd concept, since he or she has all power or responsibility for the company once formed, but is often a third party service provider not in any way related to the company. The position is really a temporary vehicle to effect the incorporation and the appointment of the board of directors, and the incorporator will typically resign right after formation.
  3. While not technically a corporate document, the incorporator will also typically file for a federal tax ID (commonly referred to as an Employer Identification Number or EIN). This can be a royal pain for non-US companies, but I’ll get to that in a later post.
  4. At this point the corporation has the beginnings of a structure but no owner or officers. The board of directors (similar to the German Aufsichtsrat) meets or signs a written consent appointing officers for the corporation, issuing stock to the shareholders, and if no bylaws have been put in place, enacting bylaws. The Board will typically also pass resolutions directing the officers to carry out some of the tasks necessary to make the company fully operational, such as opening bank accounts, signing a lease for an office, appointing counsel and an accountant, and signing other necessary documents or agreements.
  5. The Shareholder(s) may, but need not, sign a consent confirming the appointment of the board and ratifying any of the actions taken by the board.

The company is now fully functional, and can operate under the direction of the officers without further documentation. Note that the officers fulfill a role similar to the German Vorstand, but with significant differences. The signed documents are placed in a corporate minute book, which should be maintained for the life of the corporation.

After the initial incorporation, most jurisdictions require that the shareholder and board hold at least one meeting per year and maintain written minutes of that meeting in the corporate minute book. The board should also consider a meeting or written consent approving any transactions which impose a significant cost on the corporation, obligate the corporation for a long period of time, or which fundamentally change some aspect of the corporation’s operation or structure. More on that in a future post.

Part of an occasional series of posts on starting your business in the US.

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