How To Form A Corporation in Montana

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 Montana

The following steps are to create a domestic Corporation, which is the most common type for businesses. The other types of Corporations in Montana 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.

Related: How To Register A Business In Montana

Steps to Forming a Corporation in Montana

Step 1: Choose a Name

The first step in forming a Corporation in Montana is selecting a name.

The name of the Corporation has to be different from other entity names in the state of Montana. Check corporation name availability in Montana.

The name of the Corporation must include one of the following designators at the end of the business name:

• Corporation
• Incorporated
• Company
• Limited
• Or an abbreviation for one of those words: Corp., Co., 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 there is a name you want but are not ready to register the Corporation, you can file for a Reservation of Name with the Montana 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 Montana Corporation isn’t using, that doesn’t guarantee the name isn’t currently in use by someone else.  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 Registered Agent

To have a Corporation in Montana, a Montana Registered Agent 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 (referred to as service of process). This can either be a Montana resident or a commercial registered agent service.

You can act as the Corporation’s Registered Agent in Montana, and you are not required to pay for a registered agent. The requirements to be a Registered Agent are that someone is generally available during normal business hours and has a physical street address in the state.  A PO Box is not allowed.

Related: Do I Need To Hire A Registered Agent In Montana?

Step 3: File the Montana Articles of Incorporation

Next, you can start filing the Articles of Incorporation with the Secretary of State. The Articles of Incorporation can only be filed on the Montana Secretary of State’s website.

The information requested includes:

• The name of the Corporation must contain the words “Corporation,” “Incorporated,” “Company,” “Limited,” or an abbreviation.
• Type of Corporation, which can either be general for profit, benefit for profit, professional, close (with or without directors), professional close (with or without directors)
• Registered Agent’s name and physical street address.
• Number of shares the corporation is authorized to issue.
• The incorporators’ names, addresses, and signatures. These can be the corporation’s owners or someone helping with the formation of the entity.
• Effective date. By default, a Corporation begins on the date the Secretary of State files the paperwork; however, a date in the future can be selected if desired.

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 but should 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). Similar to 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.

The EIN is free when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.

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 Montana 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 where it is located, various Montana business licenses and permits will likely be needed before starting your business. Some common registrations include:

Business Licenses – The state of Montana doesn’t have a general business license; however, many cities require a business license to operate.

Contractor License – Construction contractors will need to register with the Montana Department of Labor & Industry.

Professional Licensing – Some services, such as barbers, cosmetologists, massage therapists, and landscape architects, require licensing in Montana. While this isn’t a business license, it is required in order to operate.

Employees – Businesses with employees in Montana will register with the Montana Department of Revenue (DOR) to get an employer withholding tax number.

Related: How To Register A Business In Montana

Step 11: File Annual Reports

Corporations are required to submit an annual report to the Montana Secretary of State by April 15^th of each year.