In January 2009, I incorporated a company called Crackerjack Greenback for my original website. I later set up Provident Planning, Inc. as a fictitious name (like a DBA). I’m Chairman of the Board, President, Secretary, Chief Financial Officer, and owner of my very own corporation. And I incorporated for a total cost of $260! How did I do it? Through research and a couple helpful websites, I was able to find all the information I needed to incorporate without the help of a lawyer or paid incorporation service. (Their fees would be on top of the $260 I had to pay.)
This guide is a review of the steps I took to incorporate in Pennsylvania. This guide is primarily for people who want to do business in Pennsylvania and want to incorporate in Pennsylvania as well, though most states have a similar process. (You don’t have to incorporate in the state you do business in.) While this guide is not a replacement for specific advice from an attorney and an accountant, it should familiarize you with the process of incorporation and prepare you for the steps you’ll need to take. I incorporated on my own, but I have a pretty good understanding of accounting, taxes, and business law due to my training in financial planning. You may or may not wish to do everything on your own. Regardless of what you choose, I am not responsible for what you do with the following information. This information is not to be taken as legal advice. This also does not mean that I recommend everyone incorporate when starting a business. Your specific situation and needs will determine the best business structure for you.
The most helpful website I found for starting a corporation in Pennsylvania came from the Citizen Media Law Project. Their page about forming a corporation in Pennsylvania is quite extensive. However, I’m reviewing the steps I took for my benefit and yours. I’m also linking to a better source of the Pennsylvania Consolidated Statutes. (The links they use at Citizen Media Law Project are slow and difficult to navigate.)
1. Choose the Business Name
When you choose a name for your business, you need to consider two aspects. First, you have the marketing aspect. Does your business name describe your product or service effectively and help you achieve your marketing goals? Entrepreneur.com has a good article about how to name your business which covers the marketing aspect and some of the legal aspects.
From a legal perspective, you need to make sure that your business name meets the following requirements:
- Meets State Law Requirements – In Pennsylvania, a corporation’s name must contain the word “corporation,” “company,” “incorporated” or “limited,” an abbreviation of any of these words, or words or abbreviations of like import in languages other than English. There are also some limitations on which words your corporate name can contain. You can find all of those limitations in 15 Pa. Cons. Stat. § 1303.
- The Name Is Available – You can check to see if the name is being used by another corporation in Pennsylvania using the Corporation Search from the Department of State. Your name must be distinguishable from other corporate names according to the guidelines outlined here. The Department of State also has additional information regarding name availability.
- Does Not Violate Federal or State Trademarks – Read up a little on trademark law. Then you’ll want to search for trademarks that others may have registered. You can search for federal trademarks using TESS, the federal trademark database. Pennsylvania does not have an online database of registered trademarks. To check for trademarks in Pennsylvania, you’ll have to call the Department of State at (717) 787-1057.
You may want to register a trademark for your business name. You can find out more information in Citizen Media Law Project’s article about registering trademarks. If you’re going through the trouble of registering a trademark for your business, you might as well register federally with the U.S. Patent and Trademark Office. I didn’t do this for my business. There is some common law protection for unregistered trademarks, but it can be prudent to register your trademarks.
2. Recruit a Director or Directors for the Corporation
Pennsylvania requires all corporations to have at least one director. Directors must be at least 18 years old, but they do not need to be residents of Pennsylvania or shareholders in the corporation. You can set requirements for directors in your corporate bylaws, but they are not necessary. When you write the corporate bylaws (in a later step), you should state how many directors the corporation will have. If you don’t state how many directors you will have, Pennsylvania law requires 3 (three) directors. You can be the director of your corporation and hold all the offices for the corporation. I chose to be the director of my corporation.
3. File the Articles of Incorporation
In Pennsylvania, you can file your articles of incorporation online through the Online Business Registration Interview (OBRI). Most of the application process is self-explanatory, but here are a few key things to keep in mind:
- Most corporations will be “for profit” “stock” corporations. If you’re creating a different kind of corporation, this guide will not cover everything you may need to know.
- When choosing how many shares you will authorize, 1500 is a good number because it is easily divisible by 2, 3, 4, 5, 6, 10, 12, 15, 20, and 25.
- If you choose to publicly trade your stock, you will need to meet additional requirements that are not covered here. For a small business run by a single owner, you do not need to publicly trade your stock.
- During the registration process, you are asked if the corporation will be an S corporation. There are some advantages to making your corporation an S corporation. You can read more than you’ll ever want to know about S corporations with a simple Google search. It’s relatively easy to elect S corporation status if you meet the requirements, and an S corporation is taxed similar to partnerships. That means the corporation doesn’t pay income taxes. It all flows through to the shareholders. I elected S corporation status for Crackerjack Greenback, Inc.
- As long as your corporation will not do business under any name other than its legal name, you do not need to file a fictitious business name registration.
- You do not need a commercial registered office provider unless you do not have a physical location or mailing address in the Commonwealth of Pennsylvania.
- You can register for taxes and some licenses in OBRI as well. You’ll need to sign up for at least the Employer Withholding Tax, Unemployment Compensation, and Workers’ Compensation. Even as an officer of the corporation, you will be considered an employee and you’ll have to pay employer withholding taxes and unemployment compensation taxes. However, there is an exception for Workers’ Compensation for those employees who are officers and shareholders of the corporation. You’ll need to call the Bureau of Workers’ Compensation at (717) 783-5421 and request forms LIBC-509 and LIBC-513. You may need to sign up for additional taxes and licenses, and this is where an accountant or attorney may be able to help you. This guide does not cover every possible situation.
- The fee for filing your articles of incorporation is $125.
4. File a Docketing Statement
After you file your articles of incorporation, you’ll want to send in a Docketing Statement. It’s a very simple, one-page form. You should send it in to the Corporation Bureau. Their contact information is on this page. Once your application has been received and approved, you’ll receive an official acceptance letter from the Department of State. However, your corporation’s existence begins when you file the articles of incorporation – not when the Department of State accepts them.
5. Fulfill the Advertising Requirement
Your next step is to fulfill the advertising requirement. You are required to publish notice of incorporation in two newspapers of “general circulation”, one of which should be a legal journal if possible. This just means you need to publish in your closest major newspaper and the legal journal for your region. Your notice must simply state the name of the corporation and the fact that you have incorporated or will incorporate under the laws of Pennsylvania. You can see examples by checking the legal notices section of your local newspaper. Here’s my example:
Notice is hereby given that: Crackerjack Greenback, Inc. has been incorporated under the provisions of the Pennsylvania Business Corporation Law of 1988.
Since I’m in Lancaster County, I published in the Lancaster newspaper through their website. You’ll want to publish in the legal notices section of the classifieds. The Pennsylvania Department of State has a geographical listing of legal publications with contact information for legal journals. It cost me about $30 to publish in the local newspaper and $78 to publish in the legal journal for Lancaster County.
You don’t need to send in proof of publication to the Department of State. Just make sure you file it away with your corporate documents. I created a folder to hold all my important corporate documents: articles of incorporation, corporate bylaws, meeting minutes, corporate resolutions, and other important papers.
6. Write the Corporate Bylaws
There are no requirements for your corporate bylaws, but they’ll typically cover things like: existence and responsibilities of corporate offices (the officers), size of the board of directors and how they’re elected, length of term for a director, how and when board and shareholder meetings are held, who may call the meetings, and how the board of directors will function. The Citizen Media Law Project has more information about corporate bylaws.
To save you some time, I’m going to share the corporate bylaws for Crackerjack Greenback, Inc. with you. These may not include all of the bylaws you’ll want for your corporation, but they’re a good start. I’ve also highlighted all of the sections you may want to change to fit your needs. I’ve listed four corporate offices in my bylaws: Chairman, President, Secretary, and Chief Financial Officer (or Treasurer). The names don’t matter very much, but the duties of the offices must be completed by someone. See 15 Pa. Cons. Stat. § 1732 for more information. Click the link to download a copy of Crackerjack Greenback, Inc.’s Corporate Bylaws in Microsoft Word Document format.
7. Purchase a Corporate Seal
Many documents will require the Corporate Seal to prove that the board of directors has officially adopted, signed, or otherwise recognized the document as binding to the corporation. You can purchase a Corporate Seal online quite easily for about $30. I purchased a self-inking stamp for about $27 after adding shipping and handling. Your corporate seal must have your corporation’s full legal name, the year of its incorporation, and the words “Corporate Seal” and “Pennsylvania”. You’ll need it to officially adopt your meeting minutes and issue stock certificates in the steps below.
8. Hold the Organization Meeting
The first official meeting for your corporation will be the organization meeting. This meeting allows the incorporators or initial directors (if named in the articles of incorporation) to adopt the corporate bylaws, elect directors if they are not listed in the articles of incorporation, and handle any other business necessary. You must keep formal meeting minutes to prove that this meeting actually occurred and that the corporation is being run correctly. Failure to do so could dissolve your corporate status in a future lawsuit.
Pennsylvania law requires that the incorporator who calls the organization meeting notify all other incorporators in writing at least 5 days prior to the meeting. However, there is a provision in the law for any corporate meeting that allows the attendees to sign a written waiver of notice to get around this formality. I’m including here a copy of the minutes of the organization meeting for Crackerjack Greenback, Inc. which has a written waiver of notice included. You’ll want to read through it carefully to understand the minimum that should happen at your organization meeting and to determine if you’ll need to conduct additional business. Click the link to download a copy of the Minutes of the Organization Meeting of the Incorporators of Crackerjack Greenback, Inc. in Microsoft Word Document format.
9. Hold the First Meeting of the Board of Directors
Immediately after you have held the organization meeting and have elected the directors, the directors may hold their first meeting. If you’re the only director, feel free to meet with yourself. Just keep the arguments to a minimum. During the first meeting of the board of directors, you’ll approve the minutes of the organization meeting, elect corporate officers, adopt a stock certificate form, adopt your corporate seal, give the corporate officers the power to open a bank account, and authorize the issuance of stock certificates.
Again, I’ll offer you the meeting minutes, stock certificate forms, and bank resolution I used for Crackerjack Greenback, Inc. First, the Minutes of the First Meeting of the Board of Directors for Crackerjack Greenback, Inc. in Microsoft Word Document Format. Next, a blank stock certificate in Adobe PDF format that meets the requirements of 15 Pa. Cons. Stat. § 1528. Finally, a sample bank resolution in Microsoft Word Document format authorizing the officers to open a bank account for the corporation.
The price you issue your stock certificates for will depend on how much initial capital you need to have in your corporation. You can always contribute more and increase the shareholder’s capital contributions account, but if you don’t understand that concept you’ll want to hire an accountant. Make sure you fill out the stock certificate correctly by filling in the shareholder’s name and address, the number of shares, the full legal name of the corporation, and the date. Have the President of the corporation sign the certificate and affix the corporate seal. The Secretary of the corporation should then record this information in the corporate stock ledger including the date the shares were issued, the shareholder’s name and address, the price per share, and the total number of shares. You may also want to track the shareholder’s Social Security number, especially if you’ll be electing S corporation status (you’ll need all shareholders’ Social Security numbers).
10. Request a Federal EIN for the Corporation
You can do this easily via the IRS online application. There is no fee and you can print your confirmation letter after you complete the application. The IRS will let you know which tax forms you will need to file and when. If you need help with the tax and accounting side of things, hire an accountant.
11. Take Care of Employee Hiring Paperwork
Any time you hire an employee, there are certain steps you must take to gather information about them. Corporate officers are considered employees of the corporation. The IRS requires that you complete a Form I-9 (Employment Eligibility) and a Form W-4 (Withholding Certificate) for each employee. You don’t need to file these with the IRS, but you should keep them with your other records.
Each state has new hire reporting requirements to enforce child support orders. Here is Pennsylvania’s New Hire Reporting website. You’ll need to report all employees (including corporate officers).
12. Open a Bank Account for the Corporation
You should keep all of the corporations finances separate from your own. The best way to do this is to open a separate bank account for the corporation. You’ll most likely need your Federal EIN, a copy of your articles of incorporation, and either your own or the bank’s version of a corporate resolution. If your business is small and won’t involve a lot of financial transactions each month, you may want to look into a free business checking account. Just about every major bank offers a free business checking account, and your local bank may offer one as well. Check around to find one that suits your needs.
S Corporation Election
If you’ve decided that becoming an S corporation is right for you, you’ll just need to fill out Form 2553 (instructions here)and send it in to the IRS. If you’re going to elect S corporation status, you should do it within 2 months and 15 days after filing your articles of incorporation in Pennsylvania. Federal S Corporations are automatically considered S corporations in Pennsylvania, so you’ll need to let the Pennsylvania Department of Revenue know if you don’t want to be taxed as an S corporation in Pennsylvania. Once you receive confirmation from the IRS for your S corporation election, send a copy to the Pennsylvania Department of Revenue to notify them. You should send notification to:
PA DEPARTMENT OF REVENUE
BUREAU OF CORPORATION TAXES
PA S UNIT
PO BOX 280705
HARRISBURG PA 17128-0705
If you don’t understand the accounting and tax requirements for an S corporation, hire an accountant.
Ongoing Maintenance of the Corporation
You should continue to hold the board of directors meetings and annual shareholders’ meetings as outlined in the corporate bylaws. Additionally, Pennsylvania law requires that certain records be kept at the corporation’s place of business. See 15 Pa. Cons. Stat. § 1508 for a list of the required documents. These documents must be made available to any shareholder who wishes to examine them.
If you’re starting a simple one-person corporation, you can probably follow these steps and do just fine. However, if your situation is more complicated in any way you may want to hire an attorney. If you don’t understand the accounting and tax requirements of running a corporation, then strongly consider hiring an accountant to help you. It’s not worth going through all the trouble of incorporating if you’re going to neglect the requirements you need to meet to maintain the corporate veil of limited liability.
I hope you found this guide helpful. If you have any suggestions or additional notes, please feel free to leave them in the comments section below.