One of the advantages of forming a corporation in the state of Maine is that they do not require privilege tax, nor do you need to pay a franchise tax. The following step-by-step guide will show you how to start a corporation in Maine.
1. Select a name for your corporation
The first step in forming any new business is deciding on a business name. When forming a corporation in Maine, you need to adhere to corporation naming requirements.
General corporate name guidelines
Keep the following naming requirements in mind when deciding on a business name for your Maine corporation:
- Your Maine corporation name must get approval from the main Bureau of financial institutions if you like to include any of the following words or phrases in your business name:
- savings bank, banker, savings, bank, trust, banking, trust company, credit union, or trust and banking company
- Your Maine corporation name must not falsely suggest an association with public institutions
- Your Maine corporation name must not promote abusive or unlawful activity
- You and Maine corporation’s name should not include obscene language
- Your Maine corporation name should not imply in any way that it is organized for unlawful purposes or any purpose if not already outlined in the Articles of Incorporation
- Your Maine corporation name must be significantly different and distinguishable from existing business entities in the state, including reserved the names
For additional guidance and direction when deciding on a corporate name for your main business, refer to the Maine state statute.
After deciding on a business name for their Maine corporation, many business owners choose to protect their business name by trademarking it. In order to do this, you may file a service mark or trademark with the Secretary of State’s office.
Your Maine corporation’s entity name is basically its legal business name. This is the name that the state of Maine will use to identify your business and is also the name that must be used on all of the company’s formation and legal documentation.
DBA (Doing-business-as) name
If your business is going to operate under a different name from its entity name or legal name, then you must register that name in the town or the city where your business is located. This is called a DBA or doing business as name.
2. Nominate a registered agent
Every corporation in the state of Maine must appoint a Maine clerk. A Maine clerk is also known as a registered, resident, or statutory agent. The role of the Maine clerk is to accept service of process, compliance documents, and government correspondence on your corporation’s behalf.
You may choose to nominate anyone as your corporation’s registered agent; however, the individual must meet the following criteria:
- The Maine clerk must be at least 18 years of age or older
- The Maine clerk must remain available during normal business hours to ensure that you don’t miss signing important legal documents
- The Maine clerk must have a physical street address in the state where business activity is conducted
- The Maine clerk must consent to the appointment
3. Appoint initial directors at the organizational meeting
A part of the Maine corporation formation process is holding an organizational meeting. This should be done prior to filing the Articles of Incorporation and should include a few other tasks such as executing an incorporator’s statement, determining your corporation’s structure, nominating initial directors for the organization, and creating and approving bylaws.
However, an essential part of this step is to appoint initial directors to oversee the corporation until the first shareholder meeting. The initial director is also known as a corporate director and is in charge of adopting, amending, and repeating operational bylaws in addition to electing, supervising, and removing corporate officers.
4. File Articles of Incorporation
In order to officially set up a corporation in the state of Maine, you need to file the Maine Articles of Incorporation. It’s often referred to as the Certificate of Incorporation. This document legally creates the Maine business and will need to include important information such as:
- The signature, address, and name of the incorporator
- The number of directors on the board of directors
- The number of authorized shares the corporation intends on issuing
- The name of the Maine clerk
- The address and name of the Maine corporation
- A statement of purpose
After compiling the relevant information, file the Articles of Incorporation online or download the Articles of Incorporation form and mail it to the following address:
Secretary of State
Division of Corporations, UCC, and Commissions
101 State House Station
Augusta, ME 04333-0101
5. Create and approve bylaws
Your Maine corporation’s bylaws are its operating procedures and internal rules. It’s often referred to as corporate bylaws.
Bylaws and not filed with the Maine Secretary of State; however, they must be created, adopted, and approved in the presence of directors or incorporators. Some of the information your bylaws must contain include:
- How contracts will be negotiated
- The date of the annual shareholder meeting
- How bylaws will be added or amended in future
- How company disputes will be handled
- How the records will be stored and managed
- How annual meetings will be held
- How voting procedures will be conducted
- How directors and officers will be elected
- How the corporation will be governed
- The roles and responsibilities of the Board of Directors
6. Select a share structure
All corporations in Maine will need to decide on a share structure. The unit of ownership of a corporation is a share of stock. Every share of stock is a percentage of ownership of the corporation.
So if your corporation issues stock or a share of stock to a shareholder, then 100% of the corporation is then owned by that stock owner. Shares may be structured into different classes, and each class is known as a share class.
Additionally, each of these classes holds different rights and privileges. You may have multiple classes, with each class holding any number of shares.
7. Obtain an EIN
An EIN is an Employer Identification Number. It is also referred to as a Federal Tax Identification Number and allows you to open a business bank account for your corporation, hire employees and make use of it for tax purposes.
The EIN is issued by the IRS or federal government and is used to identify business entities in each state. Essentially it’s more or less a Social Security number, but for your business. In order to obtain an EIN, you’ll need to apply online on the IRS website.
The application does not cost anything, and the quickest way to obtain your EIN is by making the application online. Alternatively, if you prefer to mail or fax the application, you need to download IRS Form SS-4 and mail it to the following address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Or have it faxed to this number: Fax: (855) 641-6935
8. File Maine state taxes
Depending on the type of corporation you’ve formed, the nature of your business, and where it is located, you may be liable for one or more forms of corporate tax:
- Corporate income tax: All business entities formed in the state of Maine who is receiving Maine-source income are liable for income tax. Maine corporations may also be liable for Maine’s alternative minimum tax.
- Maine sales tax: Every business in the state of Maine that sells products will need to register for a seller’s permit via the Department of Revenue’s website. This ensures that you receive a certificate allowing you to collect sales tax on taxable goods.
- Maine employer taxes: Any business in Maine that hires employees will need to register for Maine employer taxes. This must be done through the Revenue Services website and may include Maine employee withholding tax, disability insurance, and unemployment insurance tax as well.
9. Maine business licenses and permits
To legally operate your business in the state of Maine, you must not only comply with federal laws but state laws as well. State regulations may require that you obtain specific licenses and permits before being allowed to operate your business legally in the state.
Maine does not have a general business license; however, depending on the city that you’re operating in, you may require one.
- Professional license: Professional corporations will need to obtain a professional license prior to offering their services in the state. Some of the professions that require licensing in the state include forestry, door-to-door home repair sellers, electricians, and more.
- Resale certificate: Businesses that purchase merchandise and products to resell must obtain a Maine reseller’s certificate. This ensures that you do not pay sales tax for merchandise that is being resold to customers.
10. Annual report requirements in Maine
Corporations that form and operate in the state of Maine must file the Maine annual report by the 1st of June. This must be done in the year after the corporation and by the 1st of June of each subsequent year. The annual report may be submitted online.
11. Costs of starting a corporation in Maine
The filing fees below apply to all Maine corporations:
- Name reservation: $20
- DBA name: $10 – $20
- Articles of Incorporation: $145
- Annual report: $85
- Maine Certificate of Good Standing: $30
Next steps after forming a corporation
After completing the steps mentioned above, there are still a few additional steps that you need to carry out to ensure that your business is running smoothly and will remain successful in the long run.
Consider electing S corporation status
All corporations in Maine will be taxed as C corporations by default. This is unless you decide to elect S corporation status.
C corporations are liable for double taxation. This means that the corporation pays taxes on profits and also on their distributions. S corporations, on the other hand, avoid double taxation. For small businesses, this tends to be the best choice.
Open a corporate bank account
Businesses that tend to mix business and personal finances together risk of losing their limited liability protection. Therefore, your business should have its own bank account. Aside from protecting your personal assets and offering you liability protection, a corporate bank account allows you to pay bills, hold funds and accept payments easily.
Get business insurance
Running any business comes with its own inherent risks. For example, an employee could get injured on-site, a client could file a lawsuit, or a natural disaster could ruin your property. Therefore, it’s essential that you obtain business insurance to protect your business and your personal assets and business assets.
Personal liability insurance is basically protection for your financial assets in the event that someone is hurt or their property is damaged, and you are being held legally responsible.
C corporations are liable for double taxation. However, when you incorporate as an S corporation, you are only liable for single taxation. So an S Corp does not pay a corporate income tax, which is the advantage over a C corp.
C corporations are considered separate legal entities from their owners. C corporations have a basic operational business structure consisting of officers, directors, employees, and shareholders.
The difference between the above-mentioned business structures is that a nonprofit is formed to serve the general public, whereas a limited liability company is formed to earn a profit for its members, and a sole proprietorship is a business that is also formed for profit but is owned and operated by a natural person.
Corporate records are records required by business entities in the US to demonstrate that they are operating in line with the IRS and state laws where the business is formed. They must include a copy of the corporate bylaws, Articles of Incorporation, minutes of shareholder and director meetings, and a stock register keeping track of stock transactions.