Getting ready for seeking investment – Part 2: Proper incorporation and remaining in good standing

This article continues the series about what you need to do to get ready to seek investment online.  This is not legal advice; please speak with your attorney about your unique situation.

So after you have chosen what type of corporation you want to be, careful to balance your day-to-day operations with the requirements of the investment you want, you are done, right? Wrong.  There are still quite a few things you need to do to be ready to seek investment.  One of the first ones is actually getting incorporated and then staying in good standing.

As I mentioned last time, corporations are creatures of state law, so to incorporate you will need to comply with the requirements of the law of the state you wish to incorporate in.  Which state?  That will vary depending on what matters to you.  Different states have different laws, policies, procedures, and fees.  Also, if you choose to incorporate in a state different than the one you live and work in you will likely need a registered agent for your home state.

Registered agents serve as your point of contact with the state.  You let the state know who they are and the state sends the notifications and paperwork for your company to your agent, who forwards it on to you.  Your registered agent will also usually accept service of process for you, so if someone wants to sue you they will serve that complaint to the registered agent.  While that may not sound like a good thing it beats being sued without knowing it and losing by default because you didn’t show up to challenge the complaint.

Once you have decided on a state you need to see what that state requires for incorporation.  It will vary state to state but will probably require filing paperwork, paying a fee, and letting the state know who your registered agent is.   In addition, you will need to establish certain ground rules for your company called bylaws.  These are the rules that govern how your company operates (including things like how stock can be offered and who needs to approve before the company is sold) and are very important, so while you probably won’t have to file them with the state you should put some serious though into them.  If you are looking for help with this process there are services that specialize in helping you get incorporated or you can use a lawyer.  You can also do it yourself but be careful; a technical error here can create serious problems down the road.

If you do business in a state other than the one you are incorporated in you may also need to register with that state as a “foreign corporation” and pay a fee there.

After you are incorporated and registered you will have an ongoing obligation to the state(s) to abide by their requirements and pay the required taxes or fees.  This will allow you to remain in “good standing” and continue to operate as a corporation, which is not only important for your day-to-day operations but is also essential to your ability to raise investment.   If you aren’t certain you are in good standing you can check with the state, and if you have slipped out of good standing you can often fix the problem, althoughthere is often a late fee attached.

Once you are properly incorporated and know what you need to do to maintain good standing you can decide what type of securities offering you may want to make, but that is a discussion for another blog post.

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