Forming a corporation in Alabama can be a beneficial move for your business, especially if you’re looking to raise money or list on a stock exchange. In fact, 28% of the largest companies in Alabama are corporations. There are two ways to form a corporation: do it yourself or hire a professional service. If you choose to go the DIY route, you’ll need to follow a step-by-step process that includes choosing a name, securing a registered agent, holding an organizational meeting, filing the Certificate of Incorporation, and obtaining an EIN. On the other hand, hiring a professional service can provide you with assistance in filing reports, organization, and privacy. Regardless of the path you choose, forming a corporation can give you the structure and protection you need for your business to thrive in Alabama. So, decide which option suits you best and get started on forming your very own corporation. Good luck!
Choosing the Right Method
When it comes to forming a corporation in Alabama, there are two main methods you can choose from: doing it yourself or hiring a professional service. Each method has its own benefits and considerations, so it’s important to weigh your options and choose the one that suits your needs best. In this article, we will explore the benefits of forming a corporation, as well as provide a detailed comparison between doing it yourself and hiring a professional service.
Benefits of Forming a Corporation
Forming a corporation in Alabama offers several benefits. One major advantage is the ability to raise money. Corporations have the option to issue stock, which allows them to raise capital by selling shares of ownership in the company. This is particularly beneficial if you are looking to attract investors or secure funding from venture capitalists.
Another benefit of forming a corporation is the potential to list on a stock exchange. By becoming a publicly traded company, you gain access to a larger pool of investors and can increase your company’s visibility and credibility. This can lead to additional funding opportunities and potential growth for your business.
Additionally, corporations have the advantage of being able to carry money over between tax years. This means that any profits or losses can be carried forward and applied to future tax returns. This can help to reduce your tax liability and provide more flexibility in managing your company’s finances.
Comparison: Doing it Yourself vs Hiring a Professional Service
Now that we’ve established the benefits of forming a corporation, let’s compare the two methods of formation: doing it yourself vs hiring a professional service.
Forming a Corporation on Your Own
Choosing and Securing Your Corporation’s Name
The first step to forming a corporation on your own is choosing and securing your corporation’s name. Your corporation’s name is an important aspect of your branding and should be unique and distinguishable. When choosing a name, you must ensure that it aligns with your branding and follows the naming guidelines and requirements in Alabama. The name must contain specific words like “corporation,” “company,” “Incorporated,” or their abbreviations. It must also be distinct from any other corporation in Alabama. You can check the availability of your desired name through an online search, and if it’s available, you can proceed with reserving the name with the Alabama Secretary of State.
Choosing a Registered Agent
A registered agent is a critical component of your corporation’s formation. They serve as the point of contact between your corporation and the state and are responsible for receiving and forwarding important legal documents. When choosing a registered agent, you have the option of appointing an individual within your company or hiring a professional service. The registered agent must be available during normal business hours to receive legal papers on behalf of your corporation. It’s important to select a reliable and trustworthy registered agent who can fulfill their duties effectively.
Holding an Organizational Meeting
An organizational meeting is a crucial step in forming a corporation. During this meeting, you will create and approve the bylaws, select the initial directors, determine the share structure, and execute an incorporator’s statement. Bylaws are the rules that govern your corporation’s operations and outline important details such as corporate governance, voting procedures, record-keeping, and dispute resolution. You will also appoint initial directors who will oversee your corporation until the first shareholder meeting. Additionally, you will determine the share structure and strategy, including the number of authorized shares and any different classes of stock. Finally, the incorporator’s statement is a document that names the initial directors and should be stored with the rest of your corporate records.
Filing the Certificate of Incorporation
The Certificate of Incorporation is the official document that establishes your corporation’s existence. It includes information such as your corporation’s name, principal address, registered agent’s name, and the number of authorized shares. You will need to file this document with the Alabama Secretary of State either by mail or online, depending on the county you are filing in. Filing fees vary, so it’s essential to check the specific requirements and fees for your chosen county.
Getting an EIN (Employer Identification Number)
An EIN, or Employer Identification Number, is like a social security number for your corporation. It is necessary for tax purposes, opening a business bank account, and legally hiring employees. You can obtain an EIN for your corporation by visiting the IRS website and completing the application process. It’s important to note that EINs are free, and you should be cautious of any services that charge a fee for obtaining one.
Choosing a Professional Service
If you prefer to have professional guidance and assistance throughout the formation process, hiring a professional service may be the right option for you. A professional service can provide several benefits, including:
Assistance in Filing Reports
Once your corporation is formed, you will have ongoing reporting requirements, such as filing annual reports and fulfilling tax obligations. A professional service can help ensure that you meet all these requirements and submit the necessary reports accurately and on time. This can save you the hassle of understanding complex filing procedures and ensuring compliance with state regulations.
Organizational Support
Forming a corporation involves various steps and decisions that can be overwhelming, especially if you’re not familiar with the process. A professional service can provide organizational support by guiding you through each step, answering your questions, and offering expert advice. They can help ensure that you complete all the necessary tasks accurately and efficiently.
Privacy and Confidentiality
Some entrepreneurs prefer to maintain a level of privacy and confidentiality in their business activities. By hiring a professional service, you can use their address as your corporation’s principal address and their name as the registered agent. This can help protect your personal information and keep it separate from your corporate identity.
Overall, hiring a professional service can provide peace of mind that your corporation is formed correctly and is in compliance with all legal requirements. They can handle the administrative tasks, allowing you to focus on other aspects of your business.
Suitability of Corporations
Now that we’ve discussed the methods of forming a corporation, let’s explore the suitability of corporations for certain business activities.
Issuing Stock
If you’re looking to raise money and attract investors, forming a corporation is an excellent choice. Corporations have the ability to issue stock, which allows them to sell shares of ownership in the company in exchange for capital. This can be particularly beneficial if you have ambitious growth plans or need substantial funding to kickstart your business.
Raising Money
Corporations have several options for raising money, including issuing stock, borrowing from banks or financial institutions, obtaining loans or lines of credit, and securing venture capital funding. The ability to raise money is essential for new and expanding businesses, as it provides the necessary capital to invest in infrastructure, marketing, research and development, and other growth initiatives.
Carrying Money over Between Tax Years
One advantage of forming a corporation is the ability to carry money over between tax years. This means that any profits or losses can be applied to future tax returns, providing flexibility in managing your company’s finances. This can help reduce your tax liability and potentially save money in the long run.
Conclusion
Starting a corporation in Alabama can be a rewarding venture with the potential for growth and success. Whether you choose to do it yourself or hire a professional service, it’s important to carefully consider your options and make informed decisions. Remember to choose a unique and distinguishable name, select a registered agent, hold an organizational meeting, file the Certificate of Incorporation, and obtain an EIN. Alternatively, if you prefer professional assistance, a professional service can provide valuable support throughout the formation process. Regardless of your choice, good luck with starting your corporation and embarking on your entrepreneurial journey!