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Business formation documents: Everything you need to know

February 22, 2024
Minh Mai

Do you know where the saying “hanging up your shingle” comes from? In the early 1800s, doctors, lawyers, and other business owners would use shingles for signboards to announce the establishment of their new businesses. Back then, that’s about all it took.

Today, there’s a whole lot more paperwork involved. Whether you’re opening a dog-walking business or a private spaceflight company, there are numerous business formation documents you’ll have to complete before you can start doing business.

To help you navigate this process, here is everything you need to know about the different types of business formation documents and their role in legally establishing a business.

What are business formation documents?

Business formation documents encompass the legal paperwork required to start a new business. These documents serve as the foundation for the business, outlining its purpose, ownership structure, management responsibilities, and other essential details.

The exact documents required will depend on the type of business structure that you choose, as well as the state where your business is located. They can include documents such as Articles of Incorporation, a certificate of formation, or an LLC operating agreement.

There are several reasons why business formation documents are important. For one, they’re a legal requirement, and you won’t be able to file taxes or open a business bank account without them. Business formation documents also help clarify the business’s ownership structure and provide liability protection to the owners.

Common types of business formation documents

There are numerous types of business formation documents you may need to complete, depending on your location and business type. The documents required for starting a limited liability company (LLC) or forming a corporation in New York, for example, might be different than those in California.

With that said, here are the most common types of business formation documents:

  • Articles of Incorporation: This document contains essential information about a corporation, including the business name, purpose, registered agent, stock structure, and initial directors.
  • Articles of Organization: Like the Articles of Incorporation, but for LLCs, it includes details like the LLC's name, purpose, registered agent, management structure, and member information.
  • Operating agreement: LLCs and partnerships use this document to outline ownership structure, management responsibilities, profit-sharing arrangements, voting rights, and procedures for dispute resolution.
  • Additional permits and licenses: Depending on where your business is located and the nature of its operations, you may need to secure additional permits and licenses, such as business licenses, health permits, zoning permits, and an alcohol or tobacco license.

Why do you need business formation documents?

Most customers aren’t in the habit of asking to see a company’s business formation documents, so why are they necessary for operating a business? Here's why completing these legal documents is a mandatory process for any new business.

Establish legal identity and protect personal liability

When you register a business with the state, you are establishing a legal entity that is separate from you as the business’s owner. This may not seem like a very important distinction if you are the company’s sole owner, but it can have major implications when it comes to your personal liability.

If your company is sued or defaults on its debts, for example, the suing party or creditor can only go after your company’s assets — not your personal assets. Your company may be on the hook for these expenses, but your personal liability is limited.

That’s where the name limited liability company (LLC) comes from, though other types of business entities, such as C-corporations (C-corps) and S-corporations (S-corps), can offer this same protection.

Compliance with laws

The most straightforward reason why business formation documents are necessary is the simple fact that they are a legal requirement. Every state has a different process for forming a new business. But completing some type of business formation documents is always a mandatory part of this process.

Following proper filing procedures ensures that your company can legally conduct business operations, open bank accounts, and comply with tax requirements. If you try running a business without completing these filing procedures first, it won’t be long before you run into legal issues.

Clarify management and ownership structure

Business formation documents, like operating agreements and shareholder agreements, outline the governance of the business. They detail the roles, responsibilities, and rights of each member or owner.

This brings clarity to your management and ownership structure and can be crucial for preventing disputes and ensuring smooth operations.

Facilitate business transactions and funding

Business formation documents play a central role in a range of business processes. Completing these documents (and keeping them organized and accessible) can help streamline processes like applying for loans, seeking investments, or undergoing audits.

Investors and financial institutions will typically want to see these documents before they are willing to provide a business with funding. It allows them to confirm the company’s legitimacy and assess its financial health, and you are going to have a much easier time securing funding with them than without them.

A step-by-step guide to your business formation documents

Forming a new business isn’t an overly complex process, but there are several steps you will have to complete. To walk you through the process, here is a step-by-step guide to completing business formation documents.

Determine your business structure

The first step to forming a new business is choosing your business structure. The options you have available include:

  • Sole proprietorship: This is the simplest business structure and it’s appropriate for businesses with a single owner and operator. Forming a sole proprietorship requires minimal paperwork and formalities, but it doesn’t offer liability protection for the owner.
  • Partnership: Partnerships are used for businesses that are owned and operated by two or more people. They can be general partnerships (where all partners are equally liable) or limited liability partnerships (where some partners have limited liability). Either way, partners are still personally liable for the company’s debts and obligations.
  • Limited liability company (LLC): An LLC is a hybrid business structure that combines elements of a partnership and a corporation. Owners or "members" of an LLC have limited liability for the company's debts and obligations. Forming an LLC requires Articles of Organization and often an LLC operating agreement.
  • Corporation: A corporation is a legal entity that its shareholders own, and these shareholders have limited liability for the company’s debts and obligations. Corporations can issue stock and raise capital more easily than other structures, and forming a corporation requires filing Articles of Incorporation with the state.
  • Nonprofit corporation: Nonprofit corporations exist for a purpose other than generating a profit. You can structure them as a corporation or an LLC, but you must adhere to specific regulations to maintain tax-exempt status. This includes having a clear mission statement and operating in accordance with that mission.

As you can see, the business structure that you choose will have a big impact on the required business formation documents. But it also affects other areas, such as personal liability, ownership structure, and tax burden. Be sure to do plenty of research beforehand to choose the structure that is best suited for your business.

Obtain your EIN

Once you've decided on a business structure, the next step is to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This unique nine-digit number is a lot like a social security number for your business, and you’ll use it for tax purposes, hiring employees, opening bank accounts, and more.

The U.S. government requires partnerships, corporations, and any businesses that hire employees to obtain an EIN.

You can apply for an EIN online through the IRS website, or you can complete Form SS-4 and send it to the IRS via fax or mail. When applying online, you will receive your EIN immediately. If you apply by mail, it will take at least four weeks to receive your EIN.

File Articles of Organization/Incorporation

For businesses structured as LLCs or corporations, filing Articles of Organization (for LLCs) or Articles of Incorporation (for corporations) is a crucial step. These documents formally establish your business with the state and outline key details regarding its structure, ownership, and management.

To complete these business formation documents, start by carefully researching your state’s requirements. In most cases, you’ll file Articles of Organization/Incorporation through the Secretary of State. However, some states require you to file with a different agency, such as the State Department of Revenue.

Once you research which document you need to complete and locate the necessary form, you will then need to choose a business name for your company. Your business name should be appropriate and not already registered in your state.

From there, you can complete the form by filling out all the required business information, including things like the company’s address and contact information, its purpose, and its intended duration. After completing the form, you’ll need to submit it to the appropriate state agency for processing. You may have to pay a filing fee as well.

Draft an operating agreement

Although it isn’t always a legal requirement, drafting an operating agreement is a beneficial step and is especially important for LLCs and partnerships. 

These documents cover key details like ownership percentages, management responsibilities, profit distribution, and dispute resolution procedures. So they can help companies avoid misunderstandings and conflicts.

To draft an operating agreement for your business, start by deciding which key provisions to include, such as:

  • Ownership structure
  • Management structure
  • Profit and loss allocation
  • Voting rights
  • Decision-making procedures
  • Transferability of interests
  • Dissolution and termination

Once you’ve decided on the provisions for your operating agreement, you can use a template to create the document yourself or get help drafting it from a legal professional.

Secure permits and licenses

Depending on where you are located and your business operations, you may have to obtain additional permits and licenses before you are ready to open your new business’s doors. Business licenses and sales tax licenses are mandatory in many states, and you may need to acquire a business license at the city or county level as well.

There’s a long list of other licenses and permits that a business could potentially need depending on its industry and operations. This includes everything from a freight broker license to a land use permit to a pharmacy license.

To avoid ending up on the wrong side of the law, be sure to determine the exact licenses and permits your business will need and work with the appropriate agencies to acquire them.

How to navigate state or federal requirements

When forming a new business, most of the requirements you need to follow will be at the state level. Since these requirements can vary a lot from one state to another, it’s important to thoroughly research state-specific regulations and requirements for business formation documents.

There are some cases where you will need to register your business with the federal government as well. For example, businesses engaged in interstate commerce may need to register with federal agencies like the Department of Transportation (DOT) or the Federal Communications Commission (FCC). 

Businesses operating in regulated industries, such as banking and healthcare, typically need to register with federal agencies like the Securities and Exchange Commission (SEC) or the Food and Drug Administration (FDA).

If you aren’t sure how to navigate these state and federal requirements, it may be a good idea to work with a business formation service. For a fee, these services will complete all business formation documents on behalf of your company, and some services will assist with acquiring additional licenses and permits as well.

How Stable simplifies the process for a business entity

Stable is a virtual address service that is optimized for modern businesses. With a virtual address from Stable, you receive a real street address for your company, and our secure mail processing centers sort, process, and store all of your business mail. 

We’ll scan your mail so you can access it online, and you can also take advantage of Stable’s other mail management services, like mail forwarding, storage, and secure shredding.

In addition to streamlining mail management once your business is up and running, a virtual address from Stable can assist with the business formation process as well. It lets you manage all of the business formation documents you receive by mail conveniently and securely, ensuring that nothing slips through the cracks.

Stable also offers outstanding support services and a long list of helpful resources geared toward business owners, like change of address assistance and registered agent services. At Stable, we are committed to helping entrepreneurs and business owners navigate the complexities of business formation by providing detailed guidance and support every step of the way!

Work with Stable to support your business formation journey

Properly managing business formation documents is a vital first step to starting a new business. It ensures legal compliance and sets the foundation for operational success.

If you want to securely and conveniently manage all of the essential documents that your business receives, a virtual address from Stable can help. With Stable, you can manage your business mail from a secure online portal, plus get access to services like mail forwarding, shredding, storage, and remote check deposits.

Sign up for Stable today to set your new business up for success!

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