If you own a business in Indiana, or are planning to start one, you may be considering forming a corporation. If you are forming a corporation in Indiana, there are certain procedures which must be followed to properly form the organization. This article will walk you through the process of forming and maintaining a corporation in Indiana.
What is a corporation?
A corporation (or “C-corporation”) is a company or group of people authorized to act as a single entity, and treated as a legal person, under the law. Ownership of a corporation is in the hands of shareholders, who each own a number of shares in the company. Although corporations enjoy many of the rights and responsibilities that individuals possess, they are considered separate and distinct from their owners. A corporation has the right to enter contracts, sue and be sued, borrow money and make loans, and even own assets. Corporations are also subject to pay taxes.
The most prominent feature of a corporate structure (and one of the main reasons it is so appealing to business owners) is limited liability – that is, the owners of the corporation (shareholders) may receive the corporation’s benefits of dividends and stock appreciation, but they are not held personally liable for the corporation’s debts.
All of the information presented in this article pertains to standard corporations, or “C-Corporations.” Another special type of corporation that exists is the Subchapter-S Corporation, or “S-Corporation.” This corporate form, often used by small businesses, operates differently from a C-Corporation, and is beyond the scope of this article. If you are interested in the benefits and requirements of an S-Corp, check with the Secretary of State’s Business Services Division for more information.
Is a corporation right for me and my business?
While the corporate form can be an advantageous business form for some companies, it is not for everyone. Additionally, bear in mind that corporations require a high degree of formal maintenance, and annual costs to maintain the corporation and keep it in good standing can be significant. However, for some businesses, the benefits of structuring as a C-Corp far outweigh the costs. Your company might benefit from corporate formation if some or all of the following apply to you:
- You need, or will be seeking, venture capital for financing
- You want limited personal liability for yourself and other potential shareholders
- You are aiming for aggressive growth, and want company earnings to stay in the business
- You want some flexibility, for tax purposes, in distributing earnings between the company and shareholders
- You want to be able to offer stock options to employees
- You plan for your business to own real estate
- You want the ability to provide, through your company, significant health, education, and/or other benefits to your employees
- You want to be able to sell your business in an efficient way
The corporation formation process
The process of forming your Indiana corporation can be broken down into a number of clearly-defined steps:
- Choosing your corporate name – Your first step will be to come up with a name for your corporation. The name you choose must be recognizably different from any other corporation’s name in the state, and must end with the word “Incorporated,” “Corporation,” “Company” or “Limited,” or have the abbreviation “Corp.,” “Inc.,” “Co.,” or “Ltd.” Once you have a corporation name in mind, you can check to see if any other companies are already using it by searching the Indiana business name database. If your name is free, you can reserve it for up to 120 days by filing an Application for Exclusive Use of a Corporate Name with the Indiana Secretary of State.
- Filing Articles of Incorporation – Your next step in the corporate formation process is to prepare and file Articles of Incorporation. The articles for your corporation must include the name and address of the corporation, the name and address of an agent for service of process (see next step), the name and address of each incorporator, and finally, the number of shares the corporation is authorized to issue. While the articles can be filed by mail, you may also file them online through the Indiana Secretary of State’s IN-Biz platform.
- Appointing a registered agent – All corporations in Indiana are required to have a “registered agent” who will receive service of process in the state on behalf of the corporation. A registered agent is an individual who agrees to receive such papers in the instance that the corporation is sued. The registered agent you choose must have a physical street address in the state of Indiana, and should agree to accept service of process for your corporation before being appointed. The registered agent you choose may be either an individual residing in Indiana, or a business entity authorized to do business in the state.
- Creating corporate bylaws – Corporate bylaws are not legally required to form a corporation. They are not filed with the state, but rather are internal documents that remain within the corporation. However, despite the fact that they’re not mandated by law, it is very beneficial to develop and maintain bylaws for your corporation. Bylaws establish key policies and rules for your corporation, set out operating processes, and show key parties (e.g. banks and the IRS) that the corporation is a legitimate organization. Bylaw forms and templates are readily available online.
- Obtaining a federal identification number – Corporations are required by the IRS to have a separate and distinct federal tax identification number for the business. This is also known as an Employer Identification Number, or EIN, and can be thought of as a “social security number” for your business, which you will use to file tax returns, open up a bank account, and otherwise identify your corporation as a unique entity. Securing an EIN is free and fairly simple, and can be done online at the IRS website, after your corporation has been authorized by the state. In most cases, you will need your EIN to set up a bank account and establish other important initial accounts, so it is best to obtain this as soon as you receive validation for your corporation from the Secretary of State.
- Appointing a board of directors and holding the first meeting – A corporation requires a board of directors. In a fully-formed corporation, this board is elected by shareholders at the corporation’s annual meeting. However, for new corporations, a temporary board must be established to sit until the first annual meeting. The incorporator (the person who is responsible for and signed the Articles of Incorporation) should appoint the initial board of directors. The incorporator should then complete and sign an “Incorporator’s Statement,” which details the names and addresses of each director serving on the initial board of directors. This document does not need to be filed with the state, but should be kept in the corporation’s book of records. Once the board of directors is in place, the first board meeting should be held, during which the directors can appoint corporate officers, approve and adopt the corporate bylaws, choose a bank, authorize the issuance of stock (as well as the official stock certificate form and corporate seal), and address other initial startup concerns.
The corporate maintenance process
Once you have your corporation set up, it is important to remember that maintenance of this business form is an ongoing process. One of the things that sets the corporation apart from other business formation types is the amount of work and reporting that is required in order to keep the corporation valid in the eyes of the state. While the corporate form offers many advantages, a business owner thinking about this formation type should seriously consider whether they will have the time or resources to adequately maintain the corporation to legal standards. Failure to keep up these requirements could lead to severe consequences, such as an invalidation of the corporation’s status, and personal liability for the business owners and officers. The exact details and extent of corporate maintenance duties are beyond the scope of this article, and you should seek legal counsel for the individual needs of your corporation. However, some of the key maintenance activities include:
- Complying with Indiana’s Biennial Report requirements – All corporations that do business in the state of Indiana must file what is called a Business Entity Report. This report details the ongoing status of the corporation, and must be filed with the state every two years from the anniversary of the corporation’s founding. The report may be submitted online or by mail.
- Maintaining tax filings and payments – Keeping up with your federal and state tax filings will be a critical piece of your corporation management.
- Keeping adequate minutes and record books – Your corporation will need to carefully document all board meetings, and other items of significance that occur throughout the fiscal year.
What about corporations from other states doing business in Indiana?
If you already have a corporation which was organized in another state, but you seek to do business in the state of Indiana, that is possible. Corporations organized in other states are referred to as “foreign corporations.” In order to do business in Indiana, foreign corporations must register with the Indiana Secretary of State, and appoint a registered agent, physically located in Indiana, to receive service of process in the state. Foreign corporations should file what is called an Application for Certificate of Authority of a Foreign Corporation to register with the state. This application will need to be supplemented by a certificate of existence from the corporation’s home state (usually issued by the Secretary of State), which can be no more than 60 days old. That form can be accessed here. Currently the filing fee for this application is $90.00.
If you are considering forming a corporation in Indiana, or you already have an out-of-state corporation but wish to do business here, there is much to think about and many legal questions to answer. Contact us if you need sound advice, or assistance with your corporate-related matter.
NOTE
This article primarily references Indiana law. Please check the laws of your local jurisdiction if you live in another state.
The articles in this blog are for informational purposes only. No attorney-client relationship is established through the publication of these articles.
