A Guide to Starting a Corporate Business in 2021
You might have the most sound business plan. You could even have a service that truly services a gap in the market. But there are times when what type of business you set up is what determines your success. While a sole proprietorship or partnership might be ideal for smaller businesses, an operation with plans to scale might be better off being set up as a corporate business.
Every entrepreneur knows that investing in a big venture is a game of high stakes, high reward. In starting a corporate business, it’s imperative to do everything meticulously and under federal and state laws. This way, you lessen the chances of running into liabilities and you can pour everything into hitting targets and expansion. This is but a part of a slew of considerations you should carefully take when looking to incorporate.
In this article, we detail what you need to know in building your corporate business from the ground up.
What is a Corporate Business or Corporation?
A corporate business/corporation is a large organization that is recognized by law as a distinct entity from its owners. That means it is entitled to its assets, taxed separately, can borrow money, and is liable for lawsuits.
In contrast, companies are much smaller and are less complex in structure. Companies also do not exist separately from their founders, thus do not require special recognition from the state and tax offices.
The owners of corporations are usually shareholders who are not as involved in daily operations. Instead, they serve as shareholders that provide funding and vote on executive affairs. Most companies, owners are more hands-on with the members of the organization.
Corporate businesses are considered more advantageous than companies given their unique privileges.
Types of Corporate Business
There are different types of corporation. A corporate business may be categorized into either of the following based on the extent of its legal liability, tax exemptions, and trading regulations:
- C Corporation – typically chosen for its ability to protect owners from personal liabilities since it is considered as a separate legal entity by the state. It is also taxed separately.
- S Corporation – prevents double taxation, but is limited to having a maximum of 100 shareholders.
- B Corporation – also seen as a separate entity by the state. The primary purpose of this type of corporation is to make good and lasting social impacts. It is required to submit annual benefit reports to prove its contributions to the community.
- Closed Corporation – smaller, less formal corporation that comprises a select few individuals. Closed corporations are barred from public trading.
- Nonprofit Corporation – organized specifically for causes like charity, scientific discoveries, religion, and others. This type of corporation is typically completely exempt from taxes.
How to Start a Corporate Business in 2021
1. Analyze your Business Plan
The first step is to take a closer look at your business plan and what it is you’re looking to achieve. This will give you a better idea of how best to set it up. Keep in mind that the main reason for incorporating is to limit the liability of the owners. As opposed to a partnership where creditors can go after the owners’ personal assets to collect business debts, owners of a corporate business can be protected from such liabilities.
So when analyzing your business plan and what type of setup would best fit it, take the time to consider the advantages of incorporating. These include:
- Perpetual existence – A business can continue to exist even if a partner dies.
- Stock – Ownership interest may be issued in the form of stocks.
- Ease of transferability – A corporate business and all of its assets and accounts may be transferred by simply assigning a stock certificate.
- Raising capital – A corporate business may raise capital by selling stock or borrowing money.
2. Settle Finances
One of the most common pain points of an entrepreneur with an idea is money. Hard as it is to hear, you need resources to get your vision off the ground. And when you’re aiming to build a business empire, money is all the more important.
Basic documents for incorporation range from $100 to $800. You then have to take into account expenses for securing various licenses, infrastructure, and money to kick start your operations.
Start addressing your finances by making a checklist of non-negotiable expenses. Next, list down ways on how you can generate the needed amount. It’s best if you already have a dedicated budget for your corporate business, but if not, you can take up a loan, pitch to investors, or go on a crowdfunding website.
3. Fortify your Business Plan
A business plan is a blueprint of how to run your corporate business. It describes managerial responsibilities and the daily functions of regular employees. Business plans are also the place to delve deep into marketing strategies and how to build a sales pipeline.
For example, you can go into detail about marketing tactics you want to be implemented like growth hacking. It’s also good practice to specify basic marketing tools needed such as those used in verifying email addresses, collecting consumer information, content marketing, and automating mundane processes.
When making a business plan, prepare an executive summary, market evaluation, and operation plan. All these will help your corporate business in delivering a memorable experience to your customers as well as your shareholders.
4. Appoint Directors and Officers
Your next order of business is building your team. Appoint corporate directors and officers whom you trust to have the right leadership competencies and line management skills.
Remember that corporate directors oversee business affairs, while corporate officers are more hands-on in delivering tasks. For the former, choose partners who excel in strategic management. In the latter position, screen for technical abilities as well as skills in human and project management.
Check with the laws of your corporation’s home state to get the exact number of corporate directors you require.
5. Name your Corporate Business and Design your Logo
When naming your corporate business, keep in mind that it is one of the first things people use to form their first impressions along with your company logo. Your corporation’s name should be striking, branded, and is not registered to any other business.
In some states, you will be required to use designations like “Incorporated,” “Limited,” and “Corporation.” If you feel your official name won’t go with your branding, register a DBA (doing business as) to appear in less formal documents.
DBAs boost brand awareness and make it easier for you to expand to other markets while retaining the original name of the mothership of your satellite businesses.
As for your company logo, aside from producing a unique logo, choosing the right color combination for your company logo plays a huge role in attracting new leads. You can refer to the Pantone Color Matching System (PMS), this system identifies 5,000 diverse subtle color shades and variations. This will help you match colors perfectly.
6. Secure a Certificate of Incorporation
Articles of incorporation are official documents that narrate the founding of your corporation. The process of obtaining them varies slightly from state to state so it’s best to get instructions from your local government’s website.
In general, you’ll be tasked to fill out forms asking for your corporation’s name, address, nature of business, and other pertinent information. Then, you need to hire a registered corporate agent to process these forms.
Finally, you pay the processing fee and wait for your certificate of incorporation to arrive. Be sure to review the information before submitting them to save yourself trouble in the future.
7. Draft Corporate Bylaws and a Shareholders Agreement
Corporate bylaws are sets of rules followed by shareholders and members of the board. Drafting corporate bylaws is not required by many states, but is commonly practiced to prevent internal conflict.
This document outlines corporate standards that are ideally upheld throughout the organization’s lifetime. Some of the elements of corporate bylaws include:
- Responsibilities of the board of directors
- A clause on term limits
- Guidelines on selecting and replacing a member of the board
- Voting rights of shareholders
- Schedule of board meetings
- Requirements to reach quorum
- The management structure
- Protocols for signing contracts
- The corporation’s purpose and goals
- Basic corporate information
For both corporate bylaws and shareholders agreements, see to it that you elaborate on guidelines as much as possible. Have a legal professional review them to avoid loopholes that may be exploited in times of trouble.
8. Issue Stock
There are two types of stock: common and preferred stock. Common stock entitles shareholders, dividends, part ownership, and voting rights at one vote per share. The returns on this type of stock are dependent on the performance of the corporation.
On the other hand, preferred stock does not come with voting rights. Instead, stockholders are given fixed dividends no matter the performance of the organization in sales.
The number of stocks to be issued is based on the total capital needed and the number of authorized shares available. You can issue as much you need according to your corporate bylaws, but be sure to notify the Registrar of Companies within 10 business days upon issuance.
9. Register with the IRS and Other local Government and Tax Agencies
Registering with the IRS is a must in starting any form of business. For C corporations, special rules apply as they are considered separate entities from their owners. This means C corporations pay taxes as an organization.
Go to the IRS website to fill out necessary forms and get additional tax ID numbers. Take note that there are no tax deductions for corporate businesses that distribute dividends to shareholders.
10. Open a Corporate Bank Account
Lastly, open a corporate bank account with limited access. This will serve as a central safe for all your finances and will help in keeping money matters transparent and easily traced.
This 2021, we settle into the kind of normal the world can afford after a global pandemic. For businesses, it means adopting new marketing strategies that fit emerging trends and changing consumer behaviors.
Starting a corporate business in our current landscape is riskier, but it doesn’t mean it can’t be done right. If you’re dead set on launching your corporate business this year, just remember to manage expectations and be more attuned to the needs of both your target audience and your shareholders.