Riverside Corporate Law & Entity Formation
Creation of a Corporation
Continuity of a Corporation
Liability of a Corporation
Control of a Corporation
Taxes and Corporations
Considerations for Incorporating
Developing Articles of Incorporation
Incorporators and Registered Agents
Corporate Board of Directors
Board of Directors Duties
Corporate Officers
Corporate Shareholders
Corporate law is a branch of law that deals with how business entities are created and regulated. A corporation is a legal entity that is treated just like a person in the course of business. The corporation may sue, be sued, and enter into legally binding contracts with other corporations and individuals. The field of corporate law also seeks to govern the relationships between corporate shareholders and managers, the duties of corporate officers and directors, and some of the operations of corporations. Before corporate law can be concerned with regulating corporations, these corporations must be created. This is called entity formation and must be done legally to ensure that the corporation is legitimate. Corporations are different than sole proprietorships and partnerships in a number of ways including control, creation, liability, taxes, and continuity.
Creation of a Corporation
In order for a corporation to be formed, incorporators file for the creation of the corporation. If approved, a charter is granted that makes it legal for the group of incorporators to operate as a corporation. Corporations are more expensive to form than other types of business entities because of filing fees, attorney fees, and licensing fees. A corporation’s name must include the word Company, Corporation, Incorporated, or Limited so that it identifies the company as a recognized corporation. In addition to state approval, a corporation must also have articles of incorporation that outline the name of the business, the purpose of the business, and information about the group of people creating the business.
Continuity of a Corporation
The continuity of a business entity refers to what happens to the entity when a member or manager leaves the business. This can happen when someone leaves a corporation for another business, when someone retires, or when someone becomes ill or passes away. Corporations are almost always set up to continue operation even after one of the founders is no longer involved with the company. This is because the corporation is treated as an entity separate from all of its owners and shareholders.
Liability of a Corporation
One reason it is often beneficial to form a corporation instead of a partnership or a sole proprietorship is because doing so limits the personal liability of shareholders. With a sole proprietorship or partnership, the shareholders’ assets are not separate from the assets of the company, so these assets can be lost if a lawsuit occurs. With a corporation, the assets of the company are distinctly separate from the assets of the shareholders. This means that in the event of a lawsuit, the shareholders’ assets cannot be included with the assets of the corporation.
Control of a Corporation
Controlling a corporation is more difficult than controlling a sole proprietorship or partnership. This is because there are several groups that are involved in the control of the organization. The shareholders elect a Board of Directors who appoint officers and set goals for the corporation. The corporation’s officers manage the organization each day in a manner that will help to achieve the goals of the organization.
Taxes and Corporations
Corporations are separate taxable entities and enjoy a number of tax benefits. One benefit is that, if the corporation earns income, this income is not allocated to the shareholders. This means that the shareholders do not have increased personal income and will not have to add this income to their personal tax returns. The corporate tax rate can also be lower in some cases than the personal income tax rate.
Considerations for Incorporating
Many things need to be considered when you want to incorporate, so it is best to work with a corporate law attorney that has experience with entity formation. Working with an attorney will help you to make the best decisions and minimize any complications that can arise out of the corporation formation process. When working with an attorney, you’ll need to consider many pieces of information. One is the laws governing corporations in your state of incorporation. You’ll need to consider how these laws will affect the regulation of your company. Incorporating also means that you will need to choose a type of corporation. Depending on your individual situation, you may choose a C-corporation or an S-corporation. These entities have many similarities but differ when it comes to taxes and some other corporate matters. A corporate law attorney can best advise you on what type of entity is best for your business. You’ll also want to consider the corporation’s potential for revenue when incorporating. While it may seem like it is too early to be thinking about revenue, it is important that you do so that you can form the best entity. If you have a business that can be considered at risk for being sued, you also need to consider potential liability. Some industries have much higher lawsuit rates than others, so think about your industry and how litigation rates can affect your business entity. If you have any questions about these considerations, seek the advice of an experienced corporate law attorney. He or she can help you make decisions that will be the best for your business.
Developing Articles of Incorporation
While Articles of Incorporation are a necessary part of incorporating, they do not need to be overly complex. In fact, the Articles of Incorporation can actually be simple. The Model Business Corporation Act requires only four elements. The Articles of Incorporation must include the company’s name, the number of shares of the corporation, the name and physical address of the registered agent of the corporation, and the names and addresses of each of the incorporators.
Incorporators and Registered Agents
Three incorporators used to be the normal number of people forming a corporation. These incorporators had to be residents of the state of incorporation and may have also had to meet other requirements depending on their state. Now, one person can be an incorporator as long as he or she is a competent adult. Other corporations and attorneys may even act as incorporators. The incorporator must carry out several duties depending on the state of incorporation. These duties include signing the Articles of Incorporation, calling the first board of directors meeting, amending the Articles of Incorporation before the board meeting, receiving the corporate charter in the mail, and dissolving the corporation before the board meets. Because requirements vary from state to state, you should contact an attorney if you have any questions about being an incorporator. A qualified corporate law attorney can help you to find out what you need to do and if there are any deadlines involved.
A registered agent must also be designated when a corporation is formed. The registered agent is the person who is authorized to receive service of process within the state that the corporation is located. This means that someone must be designated to receive legal documents in the event of a lawsuit. The registered agent must have a physical address in order to receive service; a Post Office box is not a valid registered agent address. The company’s attorney can be a registered agent as well as a company that acts as the registered agent for many corporations in the same state. If you have any questions about appointing a registered agent, it is best to consult with an experienced corporate law attorney so that your questions can be answered completely and correctly.
Corporate Board of Directors
The Board of Directors has vested control in the corporation. While the Board may often run the corporation as they see fit, they also have a responsibility to shareholders. There are many rules in place for how a Board of Directors must operate. If you have never set up or worked with a corporation before, consult with a corporate law attorney so that you can be sure everything is set up properly. One of the most important rules to remember is that the Board of Directors cannot take any action without a meeting. Because of advances in technology, meeting does not have to mean physically meeting in the same room. It can take place through a teleconference or video conference as long as all of the Board members can hear each other speaking. When the meeting takes place, a quorum must be present. In most cases, this means that a majority of the members must be present but this number can differ in some states. When a vote takes place, each director gets one vote and must be a participant in the meeting in order to use that vote. There is no proxy voting for a member of the Board of Directors. In the event of an emergency, the directors who are present may come to a decision without a meeting. This is only allowed when acting quickly is necessary to prevent harm to the corporation or to take advantage of an opportunity that could benefit the corporation greatly.
Board of Directors Duties
Directors have several duties that must be carried out in the course of being a member of a Board of Directors. These duties are in place so that the directors do what is best for the corporation and its shareholders. One of the major duties of a director is the duty of loyalty. This means that, in any conflicts of interest, the director must remain loyal to the corporation. There is also a duty of oversight for directors. This means that they cannot turn a blind eye to what is happening in the corporation. The directors have a duty to attend meetings and become informed about what is going on with the corporation. If a director does not do this, he or she has breached the duty to the shareholders of the corporation.
Directors also have a duty to be aware of the legal compliance of the corporation. This means that the director should be reasonably aware of the legal compliance of the corporation and whether or not any illegal activities are taking place. Some courts hold that the directors must have a process for monitoring legal compliance while other courts have held that the directors are only responsible for investigating compliance if something comes up to alert them to criminal activities. Another duty of directors is to become informed. This means that the directors should seek out information about financial transactions within the corporation. If you are not sure what your obligation is, consult with a corporate law attorney. He or she will be able to advise you on how to carry out your duties in a way that meets the requirements of the law.
Corporate Officers
The law does not mandate that officer positions be created within corporations, but there have traditionally been officers in every corporation. These officers include the president, vice-president, secretary, and treasurer. Four people could hold these positions or one person could hold more than one position. Some states allowed one person to hold all four positions at one time. Each of these officers has responsibilities within the corporation. The president can sign contracts on behalf of the corporation and generally has control over the daily activities of the corporation. The vice-president position is helpful if the president is unable to perform his or her duties. There may be more than one vice-president, each having duties specific to one area of the company such as finance or knowledge management. The secretary was traditionally responsible for recording meeting minutes and organizing corporate documents. This person may also co-sign corporate documents with the president. The corporation’s finances are managed by the treasurer. If you want to designate officers for your corporation, consult with a corporate law attorney to find out the best course of action to take.
Corporate Shareholders
The shareholders of a corporation have limited powers but do have involvement in the activities of the corporation. Shareholders may select directors for the Board, approve some types of transactions, and approve substantial amendments to the Articles of Incorporation. Shareholders can also have directors removed from the Board, but they must have specific accusations and allow the director the opportunity to respond to these accusations. The transactions that can be approved by shareholders are those that change the nature of the corporation. These transactions include mergers, sales of assets, and dissolution of the corporation.
The shareholders of a corporation usually have the opportunity to exercise their rights at shareholder meetings. The annual shareholder meeting takes place once a year, while special meetings may be called in the event of special circumstances. Even though these meetings involve shareholders, the Board of Directors really has a lot of control over the meeting. Because the date of the meeting is included in the corporation’s bylaws, which are written by the directors, the Board sets the date and time of the meeting. The Board does have to notify each shareholder of the meeting in writing and, if no meeting is called within 15 months of the previous meeting, shareholders can demand that a meeting be called. There is only one topic that must be discussed at an annual meeting and that topic is the election of directors. When shareholders are unable to attend the annual meeting, they can vote by filling out a form that authorizes someone to vote on their behalf. This is called proxy voting. If you have any questions about the Board of Directors and annual meetings, you should contact a corporate law attorney. The attorney you contact can describe everything you need to know so that you have the knowledge you need to make the right decisions.
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