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 Rhode Island
The following steps are to create a domestic Corporation, which is the most common type for businesses. The other types of Corporations in Rhode Island 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: Rhode Island Business Checklist
Steps to Forming a Corporation in Rhode Island
Step 1: Choose a Name
The first step in forming a Corporation in Rhode Island is selecting a name.
The name of the corporation has to be different from other entity names in the state of Rhode Island. Check available corporation names in Rhode Island.
The name of the Corporation must include one of the following designators at the end of the business name:
- Corporation
- Incorporated
- Limited
- Company
- Or an abbreviation of one of those words – Corp., Inc., Ltd., or Co.
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 the Application for Reservation of Entity Name (Form 620) with the Rhode Island 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 Rhode Island Corporation isn’t using, that doesn’t guarantee that the name isn’t currently used 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 Rhode Island, a Rhode Island Registered Agent (referred to as a resident agent in some states) must be identified to act as a central point of contact for receiving legal documents, tax notices, summons, subpoenas, etc., on behalf of the Corporation. This can either be a resident of Rhode Island or a commercial registered agent service.
You can act as the Corporation’s Registered Agent in Rhode Island, and you are not required to pay for a registered agent. The requirements to be a Registered Agent include someone generally present at a registered address in the state during normal business hours. A PO Box is not allowed.
Related: Do I Need To Hire A Registered Agent In Rhode Island?
Step 3: File the Rhode Island Articles of Incorporation
Next, you can start filing the Articles of Incorporation with the Department of State. The Articles of Incorporation can be filed on the Secretary of State’s website or Form 100.
The information requested includes:
- The name of the Corporation must contain the words “Corporation,” “Incorporated,” “Limited,” “Company,” or an abbreviation.
- 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 per share.
- Initial Registered Agent’s name and physical address.
- The incorporator’s name, address, and signature. This can be one of the corporation’s owners or someone helping with the formation of the entity.
The Rhode Island Articles of Incorporation can be filed online or submitted by mail. The mailing address is:
Rhode Island Department of State
Division of Business Services
148 W. River Street
Providence, Rhode Island 02904-2615
Step 4: Create Corporate Bylaws
Bylaws are the general guiding principles and procedures for a 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 organizational 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). 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 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 Rhode Island 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 Rhode Island doesn’t have a general business license; however, many cities require one.
Sales Tax Permit: Businesses making retail sales and providing certain services will need to register for a Rhode Island Sales Tax Permit with the Rhode Island Division of Taxation by filing the Business Application Form (BAR).
Professional Licensing: Some professions and occupations, such as accountants, landscapers, auto body repair, and brewpubs, require licensing in Rhode Island. While this isn’t a license on the business, licensing is required in order to operate.
Related: How To Register A Business In Rhode Island
Step 11: File Annual Reports
Corporations will submit a Rhode Island corporation annual report to the Rhode Island Department of State by filing Form 630. The annual report is due each year on April 1st.
