Incorporated Business forms

Formation

• Articles of Incorporation/Charter/Certificate of Incorporation

  • 1) The name of a corporation,

  • 2) registered agent in the state,

  • 3) the number of authorized shares and the par value of the stock, and

  • 4) the name and mailing address of the incorporator 

• Organizational meeting

  • Adopt bylaws

  • Elect board

• Parent company (engages in own business) v. Holding company (holds stock of other companies

• Subsidiaries v. Divisions

How to form a corporation

• 1. Pick an available name

  • The end must end in “corporation,” “incorporated,” “company,” “limited,” or an abbreviation of those (i.e. corp., co., inc.)

• 2. Prepare and file the Articles of Incorporation in your state

  • The articles must contain specific info required by state statute, e.g.:

    • Corporate name, # of shares, # of shares of different classes, the address of the corporations registered office

• 3. You must have a registered agent

  • The registered agent is the “go to” person for the corporation, and receives all official communications, such as letters from the State Corporate Commission and service of process

• 4. Draft by-laws for the corporation

• 5. Prepare offers to purchase stock for all shareholders, setting forth the price and number of shares to be purchased

• 6. Have an organizational meeting and prepare meeting minutes

• 7. Obtain an Employer Identification Number from the IRS and to decide how it wishes to be taxed

8. The corporation should be sure to have annual shareholder and director meetings, and to file the required annual report with the State Corporate Commission on time

Capitalization - Equity securities

• = ownership interest

  • Preferred

    • Limited to no voting rights

    • Right to dividends

    • Take before common stock in case of bankruptcy

  • Common 

    • At least one class

    • Can have voting rights for different classes

    • Take after bond holders and preferred in bankruptcy

Capitalization - Debt securities

• Debt securities

  • Bond holder is a creditor

  • fixed-income securities

  • Convertible security note

Shareholders - Management

• No limit on the number of shareholders or who can be a shareholder

• Voting on Directors and Fundamental corporate changes

• At least annual meetings

• Public corporations v. Private corporations

• Close corporations or closely held corporations

  • Few shareholders - Some states cap number of shareholders

  • Not publicly traded

  • Shareholders directly involved in management

  • Shareholders in a close corporation can choose not to have a board of directors, not have shareholder annual meetings’, directors’ meetings, issue formal stock certificates, or even keep formal records.

  • Stock transfer restrictions

  • Shareholders are employee managers (officers and board members)

  • Most corporations are considered close corporations

Board of Directors - Management

• Manages the macro affairs of the business 

• Acts through resolutions

• Deciding when to issue stock, pay dividends or engage in buybacks 

• Inside Directors v. Outside Directors

• Large and small (1 or more)

• All board members must be natural persons

• Can be compensated

corporate officers - management

• “C suite”

• Duties or job responsibilities of these officers are determined by the bylaws or board of directors 

• Can be removed with or without cause 

• Directors determine corporate officers’ compensation 

  • Stock v. cash

  • Structure pay to incentivize

Internal Liability

• Internal Liability

  • Fiduciary Duty (breach of fiduciary duty is a cause of action)

    • Derivative lawsuit

    • Direct lawsuit

  • Officers and Directors personal liability can be limited

    • By articles

    • Insurance

    • Indemnification

      • Mandatory: where manager wins suit; or required pursuant to manager’s employment contract

      • Prohibited: where manager loses suit and acted in bad faith

      • May: depending on language of articles and employment contract and manager acted in “good faith” and believed their conduct was in the “best interests of the corporation.”

External Liability

• Shareholders have limited personal liability

  • Piercing the corporate veil

Double Tax

Gross income Net income (credits and deductions) Corporate Tax Rate Applied (21%) [may have state corporate tax as well] Can 1) elect to retain after tax earnings and reinvest them into the corporation, 2) pay dividends or return capital (i.e. redemption of capital) to its shareholders money returned to shareholders is taxed as personal income of shareholder

S corps

• Pass-through taxation and limitation of liability

• Requirements:

  • There can only be one class of stock

  • There can be no more than 100 shareholders

  • Shareholders cannot be partnerships or certain other entities

  • Shareholders must be U.S. citizens or residents

  • All shareholders must agree that the company will be an S Corporation

Benefit Corporations (B Corp)

• A public benefit corporation or B corp is a for-profit corporation that in addition to making a profit seeks to make a material positive impact on society and the environment. 

• Separate than CSR

• (athelta & patagonia)

Professional Corporations (PC)

A profession corporation or professional service corporation is a corporate entity whose shareholders are required to be from the same profession or rather provide a common service.