In August 2019 I incorporated a business to manage the payments for my poetry app, Poesie. This blog post outlines the steps I took during incorporation. Even if you have someone doing this for you, it may still be helpful to get a basic overview.
A major disclaimer: I am not a lawyer. PLEASE don’t take this as the single source of truth for your incorporation process! At best, please consider it a reference or list of some sources I used while creating my business. And please do comment or let me know if there are any important steps that aren’t written out here.
Intro: Poesie Inc.
I incorporated Poesie Inc. as a C-Corporation in Delaware that is doing business in California. I am the sole founder, and as of the today am the only person working for Poesie. Poesie Inc. operates the app Poesie, available on the iTunes app store. (https://apps.apple.com/app/id1332841582)
This guide will cover (a) initial incorporation in Delaware, (b) permission to do business in California, and (c) ongoing processes to maintain the business. I’ll include links and costs wherever possible.
Step 1: Certificate of Incorporation
The first step is obtaining a Certificate of Incorporation from Delaware state. This is the main document that forms your business. In order to obtain a Certificate, you will need a registered agent for Delaware.
I signed up for Harvard Business Services as my registered agent, and used their incorporation package. The package costed $179, including $50 annual fee for their registered agent. (Note: I probably could have filed the incorporation without their package and saved $30; looks to be about $89 on the Delaware website.)
Step 2: Obtain an EIN
The next step is to obtain an Employer Identification Number from the IRS. This is necessary for identifying your company during a few other steps in the process. The step is free, and can be done through the IRS website.
Step 3: Corporate ownership setup
Next you should complete setup of the corporation. Setup includes a few important steps: assigning directors, writing bylaws, assigning corporate officers, and issuing stock. The first two steps were done by my Harvard Business Services registration package. The registration package also prepared shares of stock for the company for issuing.
Documents to accomplish officer assignment and stock issue are available from this helpful website: https://www.cooleygo.com/documents/incorporation-package/. I do want to note one important step: if the shares you are issuing including vesting, you will want to look into the 83(b) election document to avoid being over-taxed on the vested shares.
Step 4: Operating in California
In order to operate in California, where my business is located, the main document required is the Statement and Designation by Foreign Corporation (S&DC-S/N). There are a few steps necessary to get this.
- As before, you will need a registered agent in California. The cost from Harvard Business Services is $100 / year.
- You will also need to attach a Certificate of Good Standing for your company, which you can request from Delaware. I ordered this from the Delaware government website, and the form cost me $50.
The S&DC-S/N filing itself can be mailed in to the state office, and requires a $100 filing fee.
Finally, once you have submitted your S&DC-S/N, you will also be required to submit the annually required Statement of Information. This form is available online and cost me $30 to submit.
Cost: $50 for Certificate of Good Standing, $100 for S&DC-S/N filing, $30 for Statement of Information. $100 annual cost for registered agent through HBS.
Step 5: Ongoing requirements
Once the corporation is formed, these are some of the ongoing responsibilities:
- Fulfill corporate requirements, including annual shareholder/director meetings
- Submit an annual report and pay taxes to Delaware state; Submit an annual Statement of Information and pay taxes to California state; Submit annual federal tax filings
- Retain registered agent services for Delaware and California
- Manage payroll and the associated state/federal taxes
The annual report to Delaware costs $50 to submit and is available online. The tax will depend on whether your corporate income occurs in the state; if not, there is still a minimum franchise tax of $175.
The Statement of Information to California costs $30 and is available online. Keep in mind the minimum franchise tax of $800. Note that this minimum tax is waived for the first year if you don’t have any income taxes to pay.
The federal tax filings required will depend on your business, but the main for is the F1120 available online. You should also note estimated tax payments required for these on a quarterly basis if your income requires that.
Managing payroll is worthy of a whole separate blog post, and will vary state by state. The gist is to (a) sign-up for any state & federal online accounts necessary to report wages, e.g. EDD in California and EFTPS for federal, (b) make sure you account for employee and employer taxes when paying wages, (c) file necessary state & federal forms and make the state & federal tax payments when paying wages. Of course, there are plenty of paid service providers that will handle this for you.
Cost: minimum $225 to Delaware, minimum $30 to California for Year 1 (minimum $830 afterwards), $150 to registered agent services.
Delaware taxes: https://corp.delaware.gov/paytaxes/
California taxes: http://www.taxes.ca.gov/corpC.html
Federal taxes: https://www.sba.gov/business-guide/manage-your-business/pay-taxes
Summary: Total costs
So, in total I paid $714 my first year, covering registered agent fees, initial filings, annual reports, and year one minimum taxes. Going forward, I expect to pay $1,205 per year, covering registered agent fees, annual reports, and minimum taxes.
Please let me know how your experience went forming a company, whether you did anything differently or recommend any other services. For people reading this, once again I’ll remind you to please do your own research while forming your company. But I hope this guide was helpful!