A corporation is a business structure that provides personal liability protection by separating the owner’s personal assets from the business’s assets. Thus, a corporation is liable for the business’s actions and finances, while the owners (known as shareholders) are not.
Corporation Pros
- Corporations provide liability protection for the shareholders
- A corporation can raise non-debt financing by selling shares of the business
- Taxation may be lower than a sole proprietorship or partnership
Corporation Cons
- Corporations are more complex and expensive to set up than sole proprietorships, partnerships, and Limited Liability Companies (LLCs)
- At a minimum, corporations are required to hold an annual board of directors meeting and shareholders meeting, take minutes at the meetings, issue shares, etc., to maintain the entity’s liability protection.
Generally, Corporations are chosen over Limited Liability Companies when a significant amount of funding is being raised from investors. However, due to the cost and complexity of a Corporation, most small businesses are better off forming an LLC.
Related: How To Form An LLC In Kansas
The following steps are to create a domestic Corporation, which is the most common type for businesses. The other types of Corporations in Kansas include a foreign Corporation (an out-of-state Corporation wanting approval to physically operate in the state), a professional Corporation (designated for Corporations offering professional services), or a non-profit Corporation.
Steps to Forming a Corporation in Kansas
Step 1: Choose a Name
The first step in forming a Corporation in Kansas is selecting a name.
The name of the Corporation has to be different from other entity names in the state of Kansas. Check Kansas Corporation name availability.
The name of the Corporation must include one of the following designators at the end of the business name:
- Association
- Company
- Corporation
- Incorporated
- Limited
- Or an abbreviation of one of those words, such as – Co., Corp., Inc., or Ltd.
A comma may be used after the business name and before the designator. For example, “Common Grounds Coffee Inc.” and “Common Grounds Coffee, Inc.” are both acceptable.
If you want a name but are not ready to register the Corporation, you can reserve it with the Kansas Secretary of State. The name reservation will hold a name for up to 120 days.
While a Corporation has to select a unique name that another Kansas Corporation isn’t using, that doesn’t guarantee the name isn’t currently in use by someone else. So before registering a Corporation name, be sure to do a trademark search to verify it is available for you to use.
Step 2: Choose a Resident Agent
To have a Corporation in Kansas, a Kansas Resident Agent (called a Registered Agent in many states) must be identified to act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the Corporation (also referred to as an agent for service of process). This can either be a resident of Kansas or a commercial Resident Agent service.
You can act as the Corporation’s Resident Agent in Kansas, and you are not required to pay for a Resident Agent. The requirements to be a Resident Agent are generally available during normal business hours and have a physical street address in the state. A PO Box is not allowed.
Related: Do I Need a Resident Agent in Kansas?
Step 3: File the Kansas Articles of Incorporation
Next, you can start filing the Articles of Incorporation with the Secretary of State. The Articles of Incorporation can be filed on the Secretary of State’s website or with Form CF 51-01.
The information requested includes:
- The name of the Corporation must contain the words “Association,” “Company,” “Corporation,” “Incorporated,” “Limited,” or an abbreviation.
- Resident Agent’s name and registered office address. This must be a physical address, and PO Boxes may not be used.
- The mailing address of the Corporation.
- Tax closing month. Many corporations will use a calendar year, which will be December.
- The purpose of why the Corporation is being organized. Include a brief description of what the Corporation will do.
- Information regarding the shares of the Corporation. This section includes the number of shares authorized, the class of stock (common stock is most common), and the par value of those shares.
- The incorporators’ names, addresses, and signatures. These can be one of the corporation’s owners or someone helping with the formation of the entity.
- Name and mailing address for each board member.
- Duration of the Corporation. Most will choose perpetual as the end date of the business hasn’t been determined. Some businesses (such as an investment fund or real estate investment) will already have a final date in mind.
- Effective date. If you want to finalize the paperwork of the Corporation but not have it start for up to 90 days in the future, enter the future date. Otherwise, choose upon filing.
The Kansas Articles of Incorporation can be filed online or submitted by mail. The mailing address is:
Kansas Office of the Secretary of State
Memorial Hall, 1st Floor
120 S.W. 10th Avenue
Topeka, KS 66612-1594
Step 4: Create Corporate Bylaws
Bylaws are the general guiding principles and procedures for the business’s operations. For example, the bylaws may include the name of the corporation’s officers, the responsibilities of the board members, terms of office, procedures for removing or adding a new director or shareholder, policies for authorizing new shares, when shareholder and director meetings will be held, and more.
Step 5: Hold the Initial Board of Directors Meeting
During the first board meeting, the board of directors will, at minimum, elect the corporation’s officers (the President, Vice President, Treasurer, and Secretary). They will also typically review and approve corporate bylaws, choose a bank, issue shares of stock, and decide whether the Corporation will be taxed as a C corporation or S corporation.
It’s critical to remember that taking meeting minutes at all meetings is necessary to protect the shareholders from lawsuits and court actions. The minutes provide a written record of all decisions and actions taken during the meeting. Minutes aren’t filed with the state; however, they need to be stored along with other corporate documents.
Step 6: Issue Shares of Stock
The corporation can exchange shares of stock in exchange for money or services. The number of shares of stock issued cannot be more than the number of authorized shares listed in the Articles of Incorporation.
Step 7: Obtain an EIN
The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Like an individual’s social security number, the EIN identifies the Corporation for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file tax returns, and more.
Step 8: Elect the Corporation’s Form of Federal Income Taxation
By default, a new corporation will be taxed by the Internal Revenue Service (IRS) like a C-Corporation. C-Corporations pay corporate taxes on their profits, and the owners pay personal income taxes on their dividends.
A Corporation can elect to be taxed as an S-Corporation. S-Corporations are taxed as “pass-through entities,” meaning the Corporation does not file corporate taxes. Instead, the profits (or losses) “pass through” to the shareholders, who then report this income on their individual taxes.
For most small businesses, the S-Corporation tax election is the most beneficial because it eliminates the double taxation of the C-Corporation. This tax election can be changed; however, it is highly recommended to talk with an accountant before making this decision.
Step 9: Open a Bank Account
Opening a bank account for your Corporation is important for liability protection as the bank account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original Articles of Incorporation showing the creation of the Corporation in addition to the bylaws.
- Driver’s licenses of the members.
- Depending on the age of the Corporation, a Kansas Certificate of Good Standing may be needed to prove the business entity is active and in good standing with the state.
Step 10: Apply for Business Licenses and Permits
Depending on what your business does and its location, various business licenses and permits will likely be needed before starting your business. Some common registrations include:
Business Licenses – The state of Kansas doesn’t have a general business license; however, many cities require one to operate.
Business Tax Application – Businesses must register for a Kansas Business Tax License (Form CR-16) with the Kansas Department of Revenue. The Business Tax Application allows for the registration of several licenses, such as sales tax and withholding tax.
Professional Licensing – Some services, such as contractors, bakeries, bed and breakfasts, kennels, and businesses selling on the internet, require licensing in Kansas. While this isn’t a license for the business, licensing is required to operate.
Related: How To Register A Business In Kansas
Step 11: File Annual Reports
Corporations are required to submit an annual report to the Kansas Secretary of State. The annual report due date is the 15th day of the fourth month following the end of their taxable year. Many Corporations elect calendar year taxation, which makes December their tax closing month. This means they have to file their annual report by April 15th of each year.
