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 Nebraska
The following steps are to create a domestic Corporation, which is the most common type for businesses. The other types of Corporations in Nebraska 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: Nebraska Business Checklist
Steps to Forming a Corporation in Nebraska
Step 1: Choose a Name
The first step in forming a Corporation in Nebraska is selecting a name.
The name of the Corporation has to be different from other entity names in the state of Nebraska. Check corporation name availability in Nebraska.
The name of the Corporation must include one of the following designators at the end of the business name:
- Corporation
- Incorporated
- Limited
- Or an abbreviation for one of those words: 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 file an Application for Reserved Name with the Nebraska 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 Nebraska 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 Nebraska, a Nebraska 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 (service of process). This can either be a resident of Nebraska or a commercial registered agent service.
You can act as the Corporation’s Registered Agent in Nebraska, 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 Nebraska?
Step 3: File the Nebraska 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.
The information requested includes:
- The name of the Corporation must contain the words “Corporation,” “Incorporated,” “Limited,” or an abbreviation.
- Principal office address and mailing address if applicable.
- Information regarding the shares of the Corporation. This section includes the class of stock (common stock is most common), the number of shares authorized, and the par value of those shares.
- Registered Agent’s name and physical address
- The principal purpose of why the Corporation is being organized.
- Name, address, and titles of the Corporation’s Officers and/or Directors.
- The name and address of the incorporator(s). This can be one of the corporation’s owners or someone helping with the formation of the entity.
The Nebraska Articles of Incorporation can be uploaded or submitted by mail. The mailing address is:
Nebraska Department of State
1201 N Street, Suite 120
Lincoln, NE 68508
Step 4: Publish a Notice of Incorporation
A Notice of Incorporation will need to be published in a legal newspaper of general circulation in the county where the Corporation’s principal office is located. The ad will need to run for three successive weeks after submitting the Articles of Incorporation, per Nebraska Code §21-2,229. In the ad, the Corporation’s name, number of authorized shares, registered agent’s name and office address, and name and address of incorporation will need to be listed.
After the ad runs, proof of publication will need to be filed with the Secretary of State.
Step 5: 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 6: 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.
Meeting minutes should be taken to protect 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 7: 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 8: 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.
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 9: 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 10: 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 Nebraska Certificate of Good Standing may be needed to prove the business entity is active and in good standing with the state.
Step 11: 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 Nebraska doesn’t have a general business license; however, many cities require a local business license to operate.
Nebraska Tax Application – Business registration with the Nebraska Department of Revenue for a Tax ID Number is required for all businesses. This is most commonly used to register for a Nebraska Sales Tax Permit for businesses making retail sales of products and providing certain services.
Professional Licensing – Some services, such as food establishments, acupuncturists, and barbers, require licensing in Nebraska. While this isn’t a license for the business, it is required for operation.
Zoning – Before starting a business (even if it’s home-based), check local zoning regulations to ensure the business can legally operate at the location.
Related: How To Register A Business In Nebraska
Step 12: File Biennial Reports
Corporations are required to submit a biennial report to the Nebraska Secretary of State. The report is due every other even-numbered year between January 1st and April 1st.
