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Forming a Corporation

 
The corporation is formed by filing “articles of incorporation” with the secretary of state for the particular state that you want to use to form your entity. The corporation then has a “meeting” of its incorporator(s) and appoints directors, who then issue shares and adopt bylaws, and then the shareholders have a “meeting” to ratify the organization, bylaws, and articles and appoint directors to serve for the ensuing year. This process is “incorporation.” The initial meetings are often referred to as the “initial minutes” of the company. The “minutes” themselves are normally NOT the actual minutes of any actual meeting; they are “forms” that are followed in order to observe corporate formalities.
 
In corporate law, “formalities” are important. The theory is that the corporation is a “separate” entity with its own existence. Therefore, it needs to act as if it is separate, and act like a corporation. Even if you are the sole shareholder, sole director, and sole officer, the company needs to act like a company. At a minimum this means having initial minutes, and holding an annual meeting of shareholders and of directors.
 
The articles of incorporation are the easiest part of forming an entity. The articles are somewhat simple in many states because the states have tried to streamline the “form” for articles of incorporation. Many states actually provide a forms that can be used to file articles. In California, the state provides the “accepted form” which can be “added to” but not taken away from. To begin the incorporation process, you simply create articles of incorporation, and mail it to the secretary of state with the appropriate fee. In many states, the process can take well in excess of a month. Thus, if you need to get going in less than a month, you will need to request expedited service, and pay the expedite fee, which is often more than the original filing fee.
 
The secretary of state processes the articles of incorporation by checking the form to ensure that it complies with the standard form requirements. The state also checks the name of the corporation to ensure it is not already being used by another corporation that has been filed in that state. To avoid causing delay, it is wise to check a state’s database online to ensure that you have not selected a name that’s identical to the name of a prior registered company. Many states allow “name reservations.”  This allows you to pay a small fee to “reserve” the name prior to making your final filing. As an attorney, I have never paid the fee, nor reserved a name. The likelihood of duplication is rare, and if you file based on an expedited filing, the odds are that your filing will not be subsequent to a filing under the exact same name by a third party.
 
The secretary of state will send you at least one file-stamped copy of the articles of incorporation. The date that the document is stamped is the date of incorporation. You can then hold a series of pre-determined “meetings” that create the “initial minutes” of your formation meetings. This consists of a meeting of the incorporators, where the incorporators basically ratify the incorporation and interim directors are appointed. There is then a meeting of the “directors” to issue stock, ratify the conduct of the incorporators, ratify the articles, adopt bylaws and issue stock. Finally, there is a meeting of the shareholders, who ratify all acts of the incorporators and directors, and make directorships permanent for the ensuing year. These documents are generally “prepared” forms, and they are included if you purchase our corporate forms package.
 
Bylaws are often considered “forms” but in reality are not forms in the same sense that the “minutes” and articles are forms. Bylaws are the governing document for your corporation. The bylaws cover how your company will actually be governed. How can shares be sold? Who is in charge, and what are their powers? How is the company dissolved; when are meetings; how are meetings voted on? These and many other questions should be answered by the bylaws; most are answered in “form” bylaws that are included with our forms package. However, it is important to understand that forms may need customization to meet your particular needs. You may want a liberal provision for sale of stock, or you may want a right of first refusal. You may want to have the ability to amend bylaws with only a majority of shareholders voting, or you may want to have supermajority voting for such changes.
 
One of the most important provisions that I look for in bylaws is a provision that covers the officers and directors if there is litigation, known as an “indemnity” provision. Here is the idea. If you form a corporation, and you are the sole shareholder, you will then obtain insurance for the company and go start running your business. If you make a mistake in your business and get sued, in most cases you hope that your insurance covers the claim, but it may only cover the claim with respect to the company. If you acted negligently personally, then you may still have personal exposure. You want to be “indemnified” by the company when you get sued. This usually enables you to obtain the same insurance coverage that the company has unless you acted with gross negligence, or intentionally.
 
You can buy other forms through CheapLegalForms.biz.
 
As I mentioned earlier, there is no “structural” difference between a “C” and an “S” corporation. These are tax identifications. However, the choice to make is generally going to have some additional “forms” such as a set of minutes of a meeting that adopts the “S” status, and an IRS form 2550 where all shareholders sign that they agree to such tax treatment. The form for S election can be filed by FileOnline.BIZ for a small fee.
 
A final document that you will need in order to complete your “incorporation” and have legal existence is a federal tax identification number. It is important to note that a bank will not open a corporate account until the tax identification is filed and a tax ID number has been issued. We offer a TAX ID APPLICATION service that you may select when you incorporate with FileOnline.BIZ for a small fee. Once complete, the company has its very own “social security” number and can open bank accounts and transact business in its own name, and even build credit in its own name under its own tax ID number.
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