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4. |
Outline of steps in the Incorporation process, checklist:
Once the previous mentioned subject have been decided, the incorporator can begin the actual process of incorporating the corporation under state law. The checklist that follows presents a composite list drawn from a number of different state statues and is intended to serve merely as a general
guideline for the incorporation process. Applicable state statues should, be consulted to
ascertain the particular information needed, the determinations required that made, and the steps required to be taken in the relevant jurisdictions.
1. Determine whether the client wants or needs a general incorporation agreement.
2. Draft Pre-incorporation agreement.
3. Prepare Pre-incorporation subscription agreements.
4. Determine where to incorporate, if qualifications in a foreign state is necessary .
5. Select a corporate name.
6. Check availability of corporate name.
7. Reserve corporate name.
8. Determine corporate purpose.
9. Decide on number of directors and number of titles of officers.
10. Choose initial directors and incorporators.
11. Determine capital structure.
12. Prepare articles of incorporation.
13. Determine registered agent and office.
14. Prepare designation of statutory.
15. Draft transmittal letter to state official to accompany articles of incorporation.
16. Prepare check for filing fees and any incorporation taxes.
17. Obtain incorporators' signature on documents.
18. Determine when to file articles.
19. File articles of incorporation.
20. Record of articles of incorporation locally (if required).
21. Determine form and content of bylaws.
22. Prepare bylaws.
23. Order corporate minute book, stock certificates and seal.
24. Determine whether the organization will be a close corporation.
25. If necessary, draft close corporation agreement.
26. Decide on necessary shareholder agreements.
27. Determine need for stock restriction agreements.
28. Prepare stock restriction agreement.
29. Determine need for stock subscription.
30. Prepare stock subscription.
31. Prepare stock certificates and stock ledger book.
32. Decide on organization method.
33. Decide whether employment contracts will be used and draft employment agreements.
34. Determine if stock options will be available.
35. Determine and prepare any desired benefit plan.
36. Determine what leases are needed and prepare lease agreements.
37. Obtain or prepare banking or borrowing resolutions.
38. Held organizational meetings of incorporators, shareholders and directors.
39. Issue stock.
40. Determine applicability of security acts.
41. Decide on tax year and accounting method.
42. Decide whether to elect S corporation status and, if so, prepare and file S election.
43. Prepare and file affidavit of fictitious name (if necessary).
44. Take steps to qualify in a foreign state.
45. Apply for state licenses, permits and identification (as required).
46. Complete and file state report of business transfer where required.
47. Apply for Federal Identification Number.
48. Register trademarks and service marks.
49. Prepare and file other corporate documents such as adoption of taxable year or election of amortization of organizational expenses.
50. Prepare federal, state and local tax returns or other documents (as required).
51. Organize corporate record book.
52. Turn corporate record book over to client.
53. Calendar annual meeting.
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4. |
Outline of steps in the Incorporation process, checklist:
Once the previous mentioned subject have been decided, the incorporator can begin the actual process of incorporating the corporation under state law. The checklist that follows presents a composite list drawn from a number of different state statues and is intended to serve merely as a general
guideline for the incorporation process. Applicable state statues should, be consulted to
ascertain the particular information needed, the determinations required that made, and the steps required to be taken in the relevant jurisdictions.
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4.1 |
Non-profit corporation, are organized in much the same way as business corporations, with two major exceptions:
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4.1.1 |
Nonprofit corporations typically have no capital stock hence have "members", not stockholders, and
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4.1.2 |
Because federal tax exempt status will be sought for most such or
organization, must be carefully drafted to include specific language
designated to ensure qualification or tax exempt status. Certain states have specialize requirements, such as, initiating investigations of persons involved with the organization and annual certification or filing of articles with bylaws with an administrative body regulating such charities.
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4.2 |
Professional corporations, The procedure for setting up a professional corporation is
essentially the same as for a general business corporation. There are, however, some differences. Such as, the following:
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4.2.1 |
Certificate of Regulatory Board, may be required from licensing agency the governs such a business. The certificate will verify, the officers, directors, shareholders licensed to practice said professional.
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4.2.2 |
Corporate name, most states have special name considerations.
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4.2.3 |
Articles of Organizations may be required to state additional information, such as the professional to do business therein.
|
4.2.4 |
Issuance of stock, may be only persons who are duly registered to render the same professional services.
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5. |
Special Acts, under common law, In nearly all jurisdiction general law enacted under which
qualifies persons who comply with the provisions of such laws may form
corporations for ll purposes authorized by the statues. Each corporation created under the general laws derived its right to exist as a corporation, with all the incidents thereof, for the purpose of doing the business specified in its articles of incorporation, directly from the sovereign power.
A constitutional provision that private corporations "may be formed" under general laws, but shall not created by special acts" does not require that all private corporations must be formed under the same general law or limited to the
exercise of the same powers. One law may govern one class corporations, and other laws may govern other classes.
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5.1 |
Compliance with statue and mandatory provisions, substantial compliant with the requirements of the general incorporation law in the nature of condition
precedent is necessary to the de jure existence of a corporation. Only by substantial compliance with such statutory requirements may the
routing organization attain the legal statues that is proof against ouster the state in quo
warrant proceedings. Similarly, the rights of exemption from personal liability resulting from incorporation, being entirely statutory, can be acquired only on the terms specified by the
governing incorporation statue. However, corporations will presumed to have complied the laws relating to their incorporation. No more than a substantial compliance with the statue is exacted from persons seeking to form a corporation and their attempt is not rendered nugatory by their failure to comply with the statue literally if they comply substantially. It does not follow, however, that because a substantial compliance is
sufficient any positive statutory requirements may be omitted on the ground that it is unimportant. These are conditions precedent to acquiring a statutory right and cannot be dispensed with by the court.
Whether or not a departure from a state's general incorporation statue, will prevent the formation of the de jure corporation depends on the nature of the provision that is violated. If it is a mandatory provision, a failure to substantially comply with terms will prevent the formation of a de jure corporation, but if the provision is merely directory, a departure for its requirements will not have that consequence. There is a broad distinction between those acts made necessary by the statue as a
perquisite to the exercise of corporate powers, any material omission of which will fatal to the existence of the corporation and may be taken
advantage of collaterally in any form in which the fact of incorporation can properly be called into question, and those facts required of individuals seeking incorporate by not a made
perquisite to such exercise for the omission of which the corporation is responsible only to the government in a direct proceeding forfeit the charter.
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5.2 |
Incorporators and members, the number and qualifications of incorporate under law providing for the formation of corporation depend on the terms of the statues. The specified number of Qualified
incorporators is required.
Many statues require that the incorporators be an adult persons, under such statutes any adult person having the power to contract may form a corporation in compliance with, and in the manner
prescribed by the statue. A few corporation laws require the incorporators to be resident of a state. Some states do not require residency. Further, in the absence of statutory requirements, an incorporator need not own any portion of the capital stock.
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5.3 |
Incorporators as natural persons. When the statute require the incorporator to be a natural person, a general business corporation may not incorporate another general business corporation. Also a statute requiring two or more persons refer to natural persons.
When a state prohibits a corporation from acting as an incorporator, corporation could have its stockholders, directors, officers, acting as individuals, organize a new corporation and thereafter the first corporation could acquire the stock of the new corporation.
Where a statute uses the word "person" and provides that it "may" include a corporation, the word "may" is constructed as a
permissive. When statute does not state a natural person a domestic or foreign corporation may act as a incorporator.
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5.4 |
Special acts, formerly, such corporations were created by special group to designated persons and their associates to exercise the corporate power in the grant. Now, most corporations are formed under general laws, which state the provisions to form a corporation and purposes allowed by law. Some, states prohibit the creation of private corporations by special acts and some an exception where the objects cannot be attached under general law. The amendment or the extensions of chartersof existing corporations by special act is also sometimes forbidden. In the case of incorporation by special act, not particular form of words is necessary so long as the legislative intent to grant a corporate franchise is generally acceptable. Since the enactment of a special act creating corporation is subject to th general constitutional provisions, the act must be in compliance with a constitutional provision requiring every law to embrace only one subject, which is to be expressed in the title. The grant of a special charter to a corporation does not deny to it or to other corporations the equal protection of the laws. The grant by special acts is sometimes made conditions. Some grants it is essential that it be organized at least to the extent provided by such acts. If no requirements by the legislature of special conditions to corporate existence, the persons named become a corporation immediately upon their acceptance of the charter.
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| 6. |
Corporate purposes, for which corporations may be organized are, governed by the terms of the statues. Corporations may be organized for general or special purposes. "Purposes" clauses, whether contained in the legislative grant or in the articles or certificate of incorporation, refer to the aim of the
corporation's business, while "power" clauses, indicate the manner in which the purposes may be pursued.
There is no rule of law that would bar a state legislature from amending the law as to purposes for which corporations may be formed. Some
statutes may prohibit incorporation for certain purposes, but permit the continuance of previously existing corporations organized for such purposes. Any lawful purpose, corporations may be organized for any lawful purpose, except for the purpose of banking or insurance. And professional corporate form as expressly authorized. In no event, is this right authorized for purposes contrary to statues. Particular purposes, A corporation may, be organized for the very purpose of escaping of limiting personal liability of the individual stockholders, where the corporation really exists and is doing business as
permitted in law. Such as an individual to use a corporate entity to qualify for benefits under Social Security Act, to obtain tax advantage, or to transact business that, if conducted by an individual would violate the usury law.
The organization of holding company for the express purpose of gaining control of another corporation is not an unlawful object, assuming the corporation has the power to acquire stock in another corporation. Subsidiary to carry on a phase of the parent corporation is not illegal, even though it is done to escape liability for the obligations of the subsidiary corporation or because the parent corporation is not permitted to carry on such business. Determination of corporate purpose, the purpose for which a corporation was organized are determined from the law under which it was incorporated and its articles of incorporation or charter. Thus, to
assert the purposes for which the corporation was incorporated, recourse should be had to the statute under which it was formed.
Some cases indicate that the
provisions of the corporate charter or a files of incorporation are conclusive as to the purposes of the corporation. In such as case, a court, in determining the purpose for which a corporation is organized, will look to its articles of incorporation and not to a specific acts or results from an exercise or corporate powers. Under another view, such provisions are not conclusive and it may be shown by other evidence that the corporation has purposes other than those designated or specified in its charter or that it never exercised the powers or pursued the purposes of a corporation of the character stated therein. The court can take into consideration the actual conduct of the corporation and its method of operation. Still other cases support the proposition that the charter of articles of incorporation are conclusive as against the corporation in respect of its purposes, but not conclusive in those respects as against the state ir a third person.
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| 7. |
Articles of incorporation. The contents of articles of incorporation or certificate of incorporation are commonly determined by state statues, Which require, such items as the name of the corporations and its period of duration, the purposes for which it is organized, the amount of authorized capital stock and a description of any shares classifications any shareholders pre-emptive rights, the place of business. And information as to the directors and incorporators. Under the articles it is not necessary set for the corporate powers.
Statutory requirements as to the form and contents of the articles must be
substantially complied with, failure to do so can invalidate said corporation. Further, such classifications as close corporations must be so designated and any required provisions.
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| 7.1 |
Checklist of general requirements for articles of incorporations, while there are specific state statues, which designate the appropriate form and contents and states usually provide forms with this appropriate language, it is usually acceptable to provide individually prepared articles, however, when the specific language is not used in these forms, some language may be left out,
causing the filing to be rejected. It is advisable to use these forms when possible. |
| 7.2 |
Checklist of necessary information for articles of incorporation: |
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1. |
Minimum information required. |
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a. |
Name. |
b. |
Resident Agent Name and
Address. |
c. |
S
hares. |
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i. |
Number of Shares with
Par
value |
ii. |
Par value |
iii. |
Number of Shares without par
value |
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d. |
Name
(s) and
Address (es) of Board Directors/Trustees |
e. |
Purpose. |
f. |
Name (s), Address (es) and
Signature of Incorporator (s). |
g
. |
Certificate of Acceptance of
Appointment of Resident Agent |
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2. |
Other information that may be required. |
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a. |
Duration. |
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i. |
Perpetual (usual provision). |
ii. |
Lesser period. |
|
b. |
Location of principal office. |
c. |
Number of initial directors as well as their names and addresses. |
d. |
Minimum capital required to be paid in before business begin. |
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3. |
Corporate powers. |
4. |
Optional provisions affecting control and internal management of a corporation (usually part of by-laws). |
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a. |
Classes of shares. |
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i. |
Voting and nonvoting. |
ii. |
Electing directors. |
iii. |
Weighted voting with some classes having more vote power. |
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b. |
Preemptive rights of shareholders. |
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i. |
Allow preemptive rights. |
ii. |
Limited preemptive rights only. |
iii. |
Deny
preemptive rights. |
|
c. |
Cumulative voting for directors. |
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d. |
Number of initial directors as well as their names and addresses. |
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i. |
More than
statutory quorum, including 100%. |
ii. |
Less than statutory quorum. |
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e. |
Vote of stockholders and/or directors. |
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i. |
More than statutory requirements. |
ii. |
Less than statutory requirement where statute requires more than a majority. |
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f. |
Provisions as to who may adopt and/or amend bylaws. |
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i. |
Stockholders. |
ii. |
Directors. |
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g. |
Other provisions. |
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i. |
Allowing stockholders or directors to take actions without meetings. |
ii. |
Providing for stockholder liability for corporate debts. |
iii. |
Indemnification of directors. |
iv. |
Limitations of corporate
indebt ness. |
v. |
Listing initial subscribers. |
vi. |
Listing initial subscribers to stock. |
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| 7.3 |
Nonprofit corporation, checklist. Corporations may be designated as non-profit or profit, depending on whether their purpose is to earn profit for their members. State statues differ on requirements of the content of the articles, the following is representative of the basic information usually required. |
|
1. |
Checklist, non-profit corporations: |
| |
a. Name of corporation.
b. Purpose or purposes for which organized.
c. Period of duration.
d. Registered office with registered agent.
e. Number of directors or trustees.
f. Manner of changing number of directors.
g. Names and addresses of persons who are to serve as initial directors or trustees.
h. If an existing unincorporated association is being incorporated, the name of that association.
i. Identity of distributee of corporation's net assets are not to be distributed to members.
j. Manner of amending articles.
k. Name and street address of each incorporator.
l. Optional provisions.
m. Signatures and acknowledgements. |
2. |
Federal tax aspects of exempt organizations and charitable organizations should be considered in the preparation of instruments for the formation of a nonprofit corporation. |
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| 7.4 |
Name period of duration. The name of a corporation is required to set forth in the articles of incorporation, failing to do so is fatal. Duration may be perpetual, however, if the time stated is beyond the statutes, this is fatal. Further, the corporation may not exist beyond this stated time period. |
| 7.5 |
Place of business, registered agent. A business must have both a registered office and the name of the registered agent and address stated in its articles of incorporation.
The address of where the business operates its business is not normally required, it can be the same as the registered address if in fact, operates at the location of the registered agent. This must be approved by the agent and qualify per state statutes. Example, a P.O. box normally does not qualify. Further, to operate with the same address, certain requirements are necessary, such as a
shared conference room and addressing differentiation. If statutes require an address where the business operates, the de jure corporation without an address would prevent the business from becoming a de facto corporation. |
| 7.6 |
Specification of purposes. The articles of incorporation must state the purpose of the corporation, such provisions can be
compiled with vague or general specifications of purpose. Some statutes require a more specific definition, failing to do so could be fatal.
The character of a corporation is usually determined by the object of its formation and the nature of its business as stated in the articles. Moreover, this serves to inform the public of the corporation's nature. This also assist the directors and associates of the business to clarify its scope and range of its proper activities and to assure that they will not be involved in remote and un contemplated lines of activity. The new trend is to state "any lawful activity…", founders may want more specific definition as well as investors. If the purpose is not authorized by statute, the corporation has no legal existence, even though other
incidental lawful purposes are included. If, on the other hand, a principal lawful purpose is specified, but the articles assume for the corporation the existence of powers is not permitted to exercise, this un authorization may be treated as
surplus age and the corporation regarded as entitled to exercise the lawful powers only. |
| 7.7 |
Capital
structure and shareholders. The articles of incorporation should set fourth the aggregate number of shares that the corporation will have authority to issue and, if such shares are to be divided into classes, the number of shares of each class. If the shares are to be divided into classes, the articles must designate each class and set forth a statement of the preferences,
limitations and relative rights regarding the shares of each class. Furthermore, if the corporation is to issue the shares of any preferred or special class in series, the articles must set forth the designation of each series and a statement of the variations in the relative rights and preferences as between the series insofar as the rights and preferences are to be fixed in the articles. A statement of any authority to be vested in the board of directors to establish the series and fix and determine the variations in the relative rights and preferences as between the series must also be included, and a copy of the directors resolution establishing such variations must usually be filed with the same state that the articles are filled with. Regarding , preferred stock it should express the issue, whether the issue is participating or nonparticipating in a company's equity growth, and when such issue is silent, the general rule is that on dissolution of a corporation, preferred shareholders are entitled no more than the liquidation preference stated in the articles, withholders of common stock entitled to the rest of the corporate assets. Provisions of any preemptive rights granted to shareholders must be forth in the
articles.
Corporation with more than one class of shares, will find the most difficult statements in the articles are those are those dealing with capital structure and
stockholder rights, which constitute the financial framework of the corporation. There are almost an unlimited variety of
designation preferences, limitations, and relative rights and priorities, that may be created in the articles. Incorporators should carefully survey future prospects at this point in corporate planning. Further, there the original capitalization and apportioning capitalization between stock and securities may have important tax consequences which should be
concise. |
| 7.8 |
Optional provisions. Some corporate statutes permit the inclusion optional provisions in the articles of incorporation. It has been said that corporate stockholders may by contract embody in the charter a provision departing from the rules of the common law, provided it does not transgress a statutory enactment or public policy settled by the common law or implicit in the general corporation law.
Checklist of optional provisions:
The following matters may be considered and included in the articles:
1. A provision allowing a person interested in a transaction with the corporation to be or remain a director of the corporation.
2. Conditions or limitations on the authorized activities or purposes of the corporation.
3. Limitations on the authority of shareholders, directors or officers.
4. Provisions for indemnification (reimbursements).
5. Waiver of preemptive (proportionate share equity) rights (lined or denied).
6. Restrictions on issuance of convertible obligations.
7. Right to repurchase shares.
8. Quorum requirement for shareholders, if other than those present in person or by proxy, and directors, if other than majority of the authorized number.
9. Voting requirement for shareholders and directors, of other than majority of quorum.
10. Prohibition of action by shareholders or directors without a meeting.
11. Classification of directors.
12. Grounds and voting requirements for removal or directors.
13. Shareholder vote, if other than the statutory majority, to both required for authorizing recapitalizations, substantial sale of assets,
acquisition for other corporations, merger, consolidation and other reorganization.
14. Provision for breaking deadlocks.
In reference to the above, the incorporator must be aware of statutes limiting or
governing such activities. Further, certain restrictions or provisions are better suited in the
corporations bylaws. |
| 7.9 |
Signature of incorporators and filing of articles. The statutes regarding the proper signing by the incorporator (s) must be followed the filing will be fatal. Filing procedures must be followed by statutes is a conditions to the de jure existence of the corporation, there is a de jure corporation where articles of incorporation are not filed. |
| 7.10 |
Amendments. Any amendment of articles that changes the character of the corporation, increases its powers, or is
fundamental must be filed as required by statutes, failure of filing an amendment that does not
fundamentally change the corporation and which has been agreed by the designated voters of the corporation should not affect the
corporate powers. Statutes establish requirements to the wording of instruments which are intended to amend articles and must be followed. |
| 7.11 |
Fees. State statutes require the payment of an incorporation filing fee and forbid the corporation to exercise corporate powers until such fees are paid. Filing fees are not taxes even though some states might require an additional payment of an additional and annual franchise tax and the procedure for assessment and collection of the annual taxes.
Further, many states assess the filing fee in relationship to the number of shares issued or with the par value, non-par are given a present value for assessment. Therefore, a corporation could save this initial by filing with a nominal value and increase this value via director / shareholder meetings. |
| 7.12 |
Certificate of Incorporation. The secretary of state will issue an original Certificate of Incorporation, upon acceptance of the corporate filing of incorporation. Such certificate is conclusive proof that all conditions have been complied with and that the corporation has been incorporated under the statutes. Under state law, is a certificate of incorporation has been issued, the existence of the corporation cannot be challenged.
Most states will not issue copy the Certificate of Incorporation in the event it is lost, instead a statement of good standing is issued. |
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