Forming a corporation with multiple owners, known as shareholders or stockholders, is a two-step process. One or more incorporators must file formation paperwork with a state agency to have the business recognized as an authorized entity. Once the corporation is registered, shares of stock are distributed to one or more owners in exchange for their investment in the company.
Corporations are formed under state law. If you want to incorporate a small business, you must choose a home state and file articles of incorporation with the state's business registrar under its business code. In most states, the corporation division of the secretary of state's office authorizes the formation of new corporations. Most states maintain a website where interested parties can download fill-in-the-blank templates to make it easy for anyone to incorporate a business.
Incorporators, Directors and Shareholders
Setting up a corporation requires the participation of three basic groups: incorporators, directors and shareholders. An incorporator is the person who files the articles of incorporation to set up the company. This person can be someone who plans to be involved in the ownership or operation of the corporation or someone who is hired simply to set up the company, such as a lawyer. Directors are selected to oversee the general operation of the corporation, while shareholders are the people who own a percentage of the company. These roles are not mutually exclusive; the incorporator can be a director and a shareholder, for example.
Articles of Incorporation
State law requires new corporations to provide basic information about the entity in the form of articles of incorporation. Each state has its own requirements, but the articles must typically list the name and address of the corporation, a general business purpose, the name and address of a person or business within the state that can accept official mail and the number of shares of stock the corporation is authorized to issue. A few states require the articles to list the names and addresses of one or more directors, but the majority simply require an incorporator to sign the document and file it with the appropriate filing fee.
States do not require new corporations to provide a list of shareholders when the incorporator prepares the articles of incorporation, so multiple ownership isn't an issue when setting up a new corporation. Instead, the incorporator and any directors are required by state law to hold an initial organizational meeting after filing the articles. At this meeting, all or part of the shares that were authorized in the articles are divided between the owners in exchange for their investment in the company. The percentage of outstanding shares that each shareholder owns represents his ownership percentage in the corporation, and the corporation is required by law to keep a record of its shareholders.
Terry Masters has been writing for law firms, corporations and nonprofit organizations since 1995. Her online articles specialize in legal, business and finance topics. She holds a Juris Doctor and a Bachelor of Science in business administration with a minor in finance.