Steps in the Incorporation Process

Incorporating and organizing a startup generally requires the following steps:

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Reservation of Corporate Name

Prior to filing the articles of incorporation, you should research to see if the desired corporate name is available. If the name is already registered in the state, then it will be unavailable. The reservation of name can take place before the actual filing of the articles of incorporation. The name is reserved until the time of filing.

• Note: Just because a name is available for registration in a state does not mean that it is not protected. There may be common law or federal trademark rights in a name. This means that, even if a corporate name is registered in a state, the owner of the trademark may be able to prevent use of the name in commerce.

Filing Articles of Incorporation

The Articles of incorporation is the document used to bring the corporation into existence. The incorporator may draft and file customized articles of incorporation, or she may simply fill out the form on the state secretary of states website. See our business entity lectures for more information on filing the articles of incorporation and their contents. One important thing to remember about the articles of incorporation for a startup seeking investment capital, the articles will need to authorize more than one class of stock. Investors will desire a preferred class of stock. The board will not be able to grant the preferred shares without authorization in the articles.

• Note: See the business entities lecture series for more information on what goes into a organizing a business entity.

Developing Bylaws

The bylaws cover the internal governance of the organization. For more information on what is contained in the bylaws, see our business entities lecture series.

• Note: This includes drafting the certificate for the corporate secretary to certify records of the corporation. For more information on the information included in the bylaws visit our business entities lecture series.

Action By Incorporator

This document is executed by the incorporator to appoint the initial board of directors and to adopt the bylaws. Remember, the incorporator has taken all actions necessary to bring the corporation into existence. In order to transfer control of the corporation over to the directors and shareholders, the incorporator must appoint an initial board of directors to take control. In some cases the board will simply be one person. The first actions of the board will be to adopt the bylaws and appoint a corporate secretary to memorialize board records.

Board Consents or Resolutions

Once the board is in place, it must follow the directions outlined in the bylaws for operating the company. The next steps will be the Initial Board Actions to establish the corporate structure and take steps to establish corporate operations. The initial board of directors may hold or meeting or take the initial actions through consent. Remember, often the initial board is a single individuals who finishes establishing the corporation and setting in motion the process for funding from shareholders, election of directors, and appointment of officers.

Stockholder Consents

Once the board approves stock subscription agreements, the corporate shares are distributed to stockholders (the owners of the corporation. The stock holders now have the authority to vote as laid out in the bylaws. Generally, once the initial actions are taken and corporate shareholders are in place, the initial board will step down and allow the shareholders to formally elect the board of directors. On top of the authority to vote for and elect the board of directors, Stockholders must consent regarding the following organization and corporate governance matters:

• Election of Board of Directors (remember, the incorporator appointed the initial board members).
• Approval of form of Indemnification Agreement for officers and directors
• Approval of Stock Option/Stock Issuance Plan