Basics of Forming a Corporation
If you have decided that the limited liability and the tax structure of a corporation
are right for your business, the next step is actually forming the corporation.
The law of the state in which you incorporate will dictate exactly what you need
to do, but the steps are basically the same. The following outlines what steps you'll
need to take to form a corporation.
Articles of Incorporation
The Articles of Incorporation set out the basic information about the corporation.
This includes the name of the corporation, the purpose of the business, the number
and type of shares authorized, the names of shareholders, the names and addresses
of the initial officers and directors, the name of the authorized agent, and the
name of the incorporator. The Articles of Incorporation are filed with the State,
usually the Secretary of State's office.
Bylaws
Bylaws are the document that regulates how the corporation will be run. It covers
things such as how often and when shareholders' and board of directors' meetings
will be held. It will provide for how much notice should be given prior to a meeting
and in what manner notice will be given. This document also sets forth the rules
regarding how many shareholders or directors are needed to establish a quorum and
how much of a majority vote will be required to take certain actions. For example,
the Bylaws may state that a simple majority is all that is necessary to take most
actions, but that a two-thirds majority is required to amend the articles of incorporation.
The bylaws will also provide for the mechanism by which the bylaws may be changed.
For example, bylaws may be changed with the approval of a two-thirds majority of
the shareholders.
First Director's Meeting Minutes
The Minutes of the first meeting of the Board of Directors should be prepared in
advance. They will cover all of the business that needs to be conducted at that
first meeting. The bylaws of the corporation will be adopted. Shares in the corporation
will be issued. Authority will be granted to open a bank account and to conduct
business in the name of the corporation.
Those are just the basic steps to forming a corporation. Depending on how you want
ownership of your business to be structured, there may be other steps you should
take. You may want stock transfer agreements that set out who can own stock in the
corporation and how and under what circumstances stock can be sold. You may also
want shareholder voting agreements that specify how certain shares of stock will
be voted at shareholder meetings. These types of arrangements should be made concurrently
with the formation of the corporation.
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