CORPORATION INFORMATION

What is a Corporation?

A corporation is a separate legal entity, authorized by state statute.  The Secretary of State of each state authorizes the filing of articles of incorporation, which provide for, among other items, bylaws, stockholders, directors, officers, employees, annual meetings, resolutions and the rules and regulations by which the corporation is to operate. The corporation is a separate and distinct person; it cannot be used or operated as an alter ego of the stockholders, directors or officers. Corporate formalities must be maintained.

What is meant by Corporate Formalities?

State law and legal procedures require that certain actions of a corporation be documented. The maintenance of these records is an integral part of liability protection offered by a corporation. If these records are not maintained to document and authorize the actions of the directors, officers and stockholders of a corporation, a litigant can attempt to “pierce the corporate veil” and directly sue the directors, officers or stockholders for debts of the corporation.

What are Articles of Incorporation?

A Corporation’s “Articles of Incorporation” is the main filing document which begins the corporation’s existence under state law.  Once filed, the corporation comes into existence.

The level of complexity for a corporation’s Articles of Incorporation can range from very simple to extremely complex.  Generally, most jurisdictions require Articles of incorporation to contain, at a minimum, information about the Corporate Name, the Registered Agent, and the Corporation’s business address.  Requirements vary by state.

What are Bylaws?

Bylaws serve as the internal operating document for the corporation.  Generally, Bylaws detail the responsibilities, rights, and duties of directors, shareholders and officers.  Currently states generally do not require that Bylaws be filed.

What is a Corporate Officer?

Our forms allow you to name up to 6 officers for your corporation.  While most jurisdictions allow the same person to act in all capacities, that person has different responsibilities depending on the capacity in which he or she is acting.

• President
• Vice President
• Treasurer
• Secretary (or clerk)
• Assistant Secretary
• Assistant Treasurer

Although most jurisdictions allow one person to serve in all three capacities, the person’s responsibility and authority changes through the different officerships the person assumes.  For example, the President is typically responsible for entering into contracts on behalf of the corporation, the Treasurer is responsible for maintaining and accounting for corporate funds, and the Secretary is responsible for observing corporate formalities and maintaining corporate records.

In addition to these required officer positions, a corporation may also have vice presidents and/or assistant secretaries or assistant treasurers.

Typically, the authority and responsibilities of each officer is described in the corporate bylaws and may be further defined by an employment contract or job description.

The President.  The President has the overall executive responsibility for the management of the corporation and is directly responsible for carrying out the orders of the board of directors. He or she is usually elected by the board of directors.

The Treasurer.  The Treasurer is the chief financial officer of the corporation and is responsible for controlling and recording its finances and maintaining corporate bank accounts. Actual fiscal policy of the corporation may rest with the Board of Directors and be largely controlled by the president on a day-to-day basis.

The Secretary.  The Secretary is typically responsible for maintaining the corporate records.

What is a Corporate Director?

The Board of Directors is essentially the management body for the corporation.

Responsibilities of the Board of Directors include establishing all business policies and approving major contracts and undertakings. In addition, the Board may also elect the President. Ordinary business practices of the corporation are carried out by the Officers and employees under the directives and supervision of these Directors.

The Directors must act collectively for their votes and decisions to be valid. That’s why Directors may only act at a Board of Directors meeting. This, however, requires certain formalities. One such formality is that the Directors must all be notified of a forthcoming meeting in a prescribed manner, although this can be waived or provided for in the corporation’s Articles of Incorporation or Bylaws.

For a Directors’ meeting to be valid, there must also be a Quorum of Directors present. A Quorum is usually a majority of the Directors then serving on the Board; however, the Bylaws may specify another minimum number or percentage.

The Board of Directors must meet on a regular basis (monthly or quarterly), but in no case less than annually. These are the regular Board meetings. The Board may also call Special Meetings for matters that may arise between regular meetings. In addition, boards may call a special shareholders’ meeting by adopting a resolution stating where and when the meeting is to be held and what business is to be transacted.

The first meeting of the Board of Directors is important because the Bylaws, the Corporate Seal, Stock Certificates and Record Books are adopted.

Board members, like officers, have a fiduciary duty to act in the best interests of the corporation and cannot put their own interests ahead of the corporation’s. The Board must also act prudently and not negligently manage the affairs of the corporation. Finally, the Board must make certain that it properly exercises its authority in managing the corporation and does not abrogate its responsibilities to others.

This means that the board must be very careful to document that each Board action was reasonable, lawful and in the best interests of the corporation. This is particularly true with matters involving compensation, dividends and dealings involving Officers, Directors and Stockholders. The record or Corporate Minutes of the meeting must include the arguments or statements to support the Board action and why must detail why the action was proper.

Do I need a Corporate Seal?

While many jurisdictions have abolished the requirement of maintaining a corporate seal, many corporations still prefer to maintain a corporate seal as a formality.

What is a Federal Employer Identification Number?

If you plan on opening a bank account under your corporate name, most banks will require that your corporation have a Federal Employers Identification Number.
A Federal Tax Identification Number (also known as an “EIN Number” ) is a number assigned to a corporation or L.L.C. by the Federal Government for purposes of taxation. The Federal Tax ID Number is to a corporation or L.L.C. as a Social Security Number is to an individual. Most banks require that a corporation or L.L.C. obtain a Federal Tax Identification Number as a prerequisite to opening a bank account regardless of whether the company will have employees.

Does the corporation have to issue stock?

Shares of stock represent ownership of the corporation. Where no shares are issued, no individual owns the corporation. Thus, shares must be issued to those individuals who will own the corporation. While most states have created many exceptions and exemptions from registering a stock issuance with the State or with the SEC for most small businesses, it may be wise to contact the appropriate entity to determine whether you must file a notice of stock issuance on a state or Federal Level.

What is Par Value?

A business corporation must sell shares of stock in order to capitalize the corporation, that is, provide the corporation with its own capital, separate from the money of its owners. This separation provides part of the support for shielding the shareholders from personal liability for the debts and obligations of the corporation.

Shares of stock sold by the corporation represent proportionate ownership interests held by shareholders in the corporation. “Par value” is a dollar value assigned to shares of stock which is the minimum amount for which each share may be sold. There is no minimum or maximum value that must be assigned. Shares may also have “no par value,” which means that the Board of Directors will assign a value to the stock below which the shares cannot be issued.

There is no minimum number of shares that must be authorized in the articles of incorporation. One or more shares may be authorized. However, the corporation may not sell more shares than it is authorized to issue and it must receive consideration in exchange for its shares.

Must I file a D.B.A. (‘Doing Business As’)?

Individuals and unincorporated entities that regularly conduct business using an assumed name (often referred to as a “d.b.a.”) must file a fictitious business name certificate with the county clerk in each county in which business premises are maintained. If corporations, limited liability companies or limited partnerships (entities created by filing with the secretary of state) do business with a name that is different than the name set forth in the organizational documents, they must file fictitious business name certificates in the county or counties where they do business.

If I incorporate, will doing so prevent others from using my company name?

Incorporating will not keep another business from using your name. Generally, every business must protect its own business name and the good will that it has acquired from the sale of its goods or services in a specific geographic area. Filing articles of incorporation only prevents the secretary of state from filing a document to create another corporation, limited liability company or limited partnership that has the same, a deceptively similar, or similar name as the entity already in existence.

Can I protect a trade name nationwide?

There is no national registration of trade names. Generally, businesses, including corporations, protect their trade names by registering their trade name as a service mark or trademark if the trade name also functions as a service mark or trademark. Because of the legal complexities involved, we recommend that businesses obtain private counsel to get advice on how to protect a trade name in interstate commerce.

Do you have more questions? Just call us! (702) 214-9400