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LAWYER AT LARGE, LLC,
MICHAEL LYNN GABRIEL
ATTORNEY AT LAW
B.S., J.D., M.S.M., Dip.(Tax), LL.M. (Tax)
INCORPORATING A SMALL BUSINESS
TABLE OF CONTENTS
INTRODUCTION................................................................................... .3
1. COMMONLY ASKED QUESTIONS .................................................5
2. STEPS FOR INCORPORATION ......................................................44
3. S CORPORATIONS..........................................................................54
4. ARTICLES OF INCORPORATION..................................................92
5. FIRST MEETING OF DIRECTORS.................................................181
6. BY-LAWS.........................................................................................247
7. STOCK..............................................................................................277
8. BULK SALE......................................................................................296
9. SECURITIES LAWS AND COMPLIANCE.....................................302
10. AFTERWARDS: POST INCORPORATION ACTS.......................328
11. SHAREHOLDER AGREEMENT.................................................... 337
12. AMENDMENT OF ARTICLES.......................................................345
13. CORPORATE MEETINGS..............................................................355
14. ADOPTION OF MEDICAL PLAN..................................................370
15. CERTIFICATES FOR CORPORATE RESOLUTIONS...................379
INDEX ...................................................................................................390
INTRODUCTION
This book is a "How To" book on incorporation. This work covers the basic problems faced by individuals attempting to incorporate for themselves. This book is designed for use in incorporating a small corporation, usually that of one person, one family or a close group of friends. If the corporation is going to be funded by raising money from the public or persons who have not previously operated in business with the officers or shareholders of the proposed corporation, the reader should consult with an attorney specializing in security law. If the corporation seeks to raise money through the issuance of stock to strangers, there may be a security problem under either or both state and federal law.
This book assumes that the business being incorporated is either an existing partnership, a sole-proprietorship or a business to be run by family members. Since there are not many shareholders and no offering is made to the public to buy the corporate stock, the information provided in this book can be used to incorporate the business in any state.
This book covers initial steps to the incorporation and those afterward. Incorporation is easy if taken in an orderly approach and nothing fancy is sought. The steps are outlined in the order that they should be considered and done. If the reader has any doubts about how to do any aspect, he should consult an attorney
who specializes in that area. Actually, many questions that a person may have concerning the procedure of incorporation can be answered with a simple phone call to the state's department of corporations or securities.
It may seem overwhelming to incorporate a business but it should not be so. It does take time to prepare the documents and make the various decisions for the corporation, such as whether to be an S corporation, adopt a medical plan, etc. This book, however, explains in detail the steps to be followed. Also the book contains sample articles, minutes, bylaws, and stock certificates for the corporation. These items can be used in most states if the incorporator chooses not to purchase a corporate kit for the state in question (about $50).
A corporation exists when the articles of incorporation are filed and the stock issued. A shareholder owns a corporation when the stock is issued for the payment of money or transfer of property into the corporation's name. So the basic steps needed to incorporate are filing of the articles of incorporation and issuance of the stock. When those steps are accomplished, the incorporation is complete. Just two steps and, by using this book, those steps can easily be taken.
CHAPTER 1
COMMONLY ASKED QUESTIONS
There are primarily three ways that a person can carry on a business. The person can operate as a sole proprietorship (sole owner of the business), as a partnership with other partners, or as a corporation. There are different tax considerations and legal consequences involved in each form of operation.
The main advantage that a corporation has over both a sole proprietorship and a partnership is that the shareholder is not personally liable for the debts of the corporation or the actions of the employees. In a partnership or sole proprietorship, each of the partners or the owner (of the sole-proprietorship) is personally liable to pay for the resulting damages if a partner or employee does an act in the scope of his employment that injures another person.
An actual case concerns a person who owned a fast food franchise as a sole proprietorship. He believed his insurance policy was adequate to protect him from any personal liability and that incorporation was unnecessary. He hired an employee, however, who developed hepatitis and passed it to over 300 patrons. One person died, and another person had irreversible brain damage. His insurance will not cover all of the damages that will be awarded in court. He will have to pay the difference. He may be forced into bankruptcy. Had he incorporated, he would not have faced personal judgments for hundreds of thousands of dollars in damages because of the acts of an employee.
The personal limitation of liability is the main reason for incorporation. In addition, special tax treatment for small corporations makes them as attractive as partnerships. Anyone who has employees should incorporate. Corporations offer personal liability protection to both investors and employers.
After a corporation is formed, the yearly requirements for meetings and record keeping are not much more than required for any non-corporate business. The answers that follow cover most of the general questions asked by a person considering incorporation. It might actually take longer to read this chapter than it would to incorporate. Incorporation is easy and is a one-time insurance policy because it terminates personal liability for the shareholders. Here is a list of the questions and answers that follows:
1. WHAT IS A CORPORATION?
A corporation is an artificially created entity in conformity with a particular state's law. As a distinct legal entity, a corporation is considered to be separate and apart from all of the people who own, control or operate it. A corporation holds most of the rights of a legal person. It is able to execute contracts, incur debts, hold title to both real and personal property and pay taxes.
The attractiveness of corporations stems from the very fact that they are held to be separate legal entities from the owners, the shareholders, giving them unique advantages over both sole proprietorships and partnerships.
2. WHAT IS A NONPROFIT CORPORATION?
A special type of corporation is a nonprofit corporation. Its primary purpose is to provide some type of beneficial service to the public and not to obtain profit, hence the name "nonprofit." The nonprofit corporation is formed by one or more persons for the benefit of the public or the mutual benefit of its members. Most nonprofit corporations are formed for religious, charitable, literary, scientific or educational purposes.
Stock is not issued in a nonprofit corporation nor are any profits from the corporation distributed to the members. Most nonprofit corporations are required by state law to transfer their assets to another nonprofit corporation or to the state upon dissolution. A nonprofit corporation usually obtains an exemption from state or federal taxes on its operations. A nonprofit corporation is not automatically exempt from federal taxation. It must file an application with the IRS for tax exempt status and have the application approved.
Except for lack of a profit motive, a nonprofit corporation operates the same as any other corporation. While stock is not issued in a nonprofit corporation, memberships can be issued. Nonprofit corporations can sue in court, acquire property and do anything consistent with a stated nonprofit status.
3. WHAT IS A FOR-PROFIT CORPORATION??
A for-profit corporation is the normal corporation with which most people are familiar: a regular corporation existing to make money. Since a regular corporation's motives are not charitable or religious in nature, it must pay taxes on the money it earns.
Except for the profit motive and the fact that it issues ownership shares, a for-profit corporation operates nearly the same as a nonprofit corporation. Since most people are primarily interested in regular, for-profit corporations, the majority of the subsequent questions will pertain to them.
4. WHAT ARE CORPORATE POWERS?
Corporate power is the authority given to the corporation to conduct its business. Such corporate authority is granted by both the statutory law in the states where the corporation was formed and specific grants of authority to the corporation in its articles of incorporation.
The articles of incorporation for a corporation must state the purpose for which it was incorporated. For a nonprofit corporation, the articles must state its religious, charitable, literary, scientific or educational purpose. The articles of a for-profit corporation usually broadly state that it is being incorporated to conduct any type of business in the state that is legal.
Most state laws give a corporation certain powers, such as the right:
With the above powers, a corporation is able to act and do nearly everything that an individual or a partnership can do.
5. WHO IS AN INCORPORATOR?
An incorporator is the person who signs and files the articles of incorporation with the secretary of state. Filing the articles is the first and most important step in forming a corporation.
Incorporators are the founders of a corporation. Incorporators adopt the initial bylaws of the corporation and appoint the first set of directors. After the directors are appointed, the incorporators resign and turn the management of the corporation over to them.
Incorporators, along with other persons, can also be promoters of the corporation. Promoters make the initial arrangements for the money, property, and whatever else is needed to establish the corporation. A corporation is not liable for any pre-formation contract executed by any promoter unless the contract is later ratified by the board of directors or unless the corporation accepts the benefit of the contract. On the other hand, the promoter may be personally liable for any pre-incorporation contract that he executes unless the contract states that it becomes effective only when the corporation is actually formed and the board of directors has ratified it. Usually, there is no problem with pre-formation contracts because the incorporator is also the main or sole shareholder of the corporation and controls the corporation. Articles of Incorporation for use in the various states are set forth in the Articles Chapter. Similar articles can be used in all states.
6. WHO ARE DIRECTORS?
Directors are people elected by the shareholders of the corporation to manage the corporation. The board of directors is the term referring to all of the directors. Directors are not required to be shareholders of the corporation, although they usually do own stock.
Decisions concerning the management of the corporation are made by a majority vote of the directors. The board of directors appoints the officers of the corporation who run the day-to-day business of the corporation. The officers implement the wider plans and future visions of the board.
Directors are permitted reasonable compensation for their services. In small corporations, the directors usually serve without fee because they are usually shareholders and are protecting their investments.
7. WHAT DUTIES ARE OWED BY A DIRECTOR TO A CORPORATION?
A director owes the corporation a duty of loyalty. A director cannot usurp a corporate benefit: take for himself a benefit that could go to the corporation. A director owes the corporation the right of first refusal on any business opportunities that the director discovers that could affect the corporation. Example: A corporation is in the paving business. A director cannot form a competing paving business and solicit business from the corporation's existing clients.
When a director has a personal interest on a matter before the board, the director is only allowed to vote on it if:
A director is not personally liable for the debts of the corporation. A director cannot be sued by shareholders for losses incurred as a result of the director's actions or decisions provided they were undertaken in a reasonable and prudent manner.
8. WHO ARE OFFICERS?
The officers are the persons appointed by the board of directors to conduct the corporation's day-to-day business. The exact responsibility and authority of each officer is detailed in the bylaws as adopted by the incorporator and as amended by the board of directors.
Normally the corporate slate of officers consists of the president or chief executive officer, the vice president, treasurer and secretary. The officers do not have the authority to engage in major business transactions since these are entirely within the province of the board of directors.
As agents of the corporation, officers have the authority to bind the corporation by their actions. They execute contracts for the corporation and can subject the corporation to liability for damages arising from their negligent or intentional acts committed on the corporation's behalf.
As with directors, corporate officers are not personally liable for the debts of the corporation. Corporate officers remain, as individuals, personally liable for any torts (civil wrongs) they commit. Example: The president of the corporation gets involved in an auto accident while traveling on corporate business. Both the president and the corporation can be sued for damages. On the other hand, if the president signs a contract for the corporation, only the corporation can be sued for any breach of the contract.
9. WHAT IS A LIMITED LIABILITY COMPANY?
The newest development in business law is the creation of the limited liability company, the "LLC." Several states, such as Nevada, Colorado and Wyoming, have enacted legislation permitting their use.
An LLC is a cross between a corporation and a partnership. Unlike a corporation that has perpetual existence, an LLC can only exist for a maximum of 30 years before termination. Unlike partners of a partnership, yet like corporate shareholders, the owners of the LLC are not personally liable for the debts of the company. Unlike a corporation, the owners of the LLC may agree to split profits and losses other than by a pro rata division based on ownership interest. Like a corporation and a partnership, the LLC may give full management and control to just a few owners.
The LLC is not likely to replace the partnership or corporate form of business. While there may be more flexibility in the LLC form of operation, creditors and lenders do not generally appear to be favorably disposed to its use.
Still, for a small business, the LLC does offer significant flexibility and ease of operation without the restrictive compliance requirements of corporations. It can be an excellent alternative for small businesses that do not need to borrow large amounts of capital.
10. WHO ARE SHAREHOLDERS?
Shareholders are the owners of the corporation. Shareholders own the stock of the corporation and have the right to vote for the election of corporate directors. Shareholders are not personally liable for the debts of the corporation beyond the extent of their investment in the stock of the corporation.
Shareholders, in addition to electing the directors, also vote on the following:
In addition, shareholders can unilaterally hold a meeting to:
There must be an annual shareholder's meeting each year where the shareholders review and approve or reject the actions of the board of directors for the previous year. The shareholders also re-elect or replace the directors for another year. Shareholders are usually given just one vote per share of stock. A majority of the shares voting is needed to carry a resolution (the matter under vote).
11. WHAT IS A SHAREHOLDER DERIVATIVE ACTION?
If the corporation is mismanaged by the officers and directors and they refuse to take corrective action, a shareholder, even a minority shareholder, can bring a lawsuit to force the corporation to take corrective action.
Both the officers and the directors owe a duty to both the corporation and the shareholders to act responsibly when dealing for the corporation. Therefore, if the corporation is damaged by mismanagement, the shareholder may sue for damages and force the corporation to take corrective action.
Such a suit is called a shareholder derivative action. The right to bring the lawsuit derives from the fact that the corporation, in which the shareholder owns stock, is injured and the officers and directors who should act to protect it are not doing so.
12. WHAT IS MEANT BY THE LIMITED LIABILITY OF A CORPORATION?
The main advantage of a corporation is that the liability of the owners (shareholders) is limited. As a corporation, the most that its owners can lose in a lawsuit are the assets they contributed to the corporation.
This limited liability for corporate shareholders is vastly different from a partnership or sole proprietorship, where the owners are totally liable for all debts of the business. In such an instance, the creditors of the business can attach every dollar and piece of property that a partner or sole proprietor owns to recover a judgment against the partnership or sole proprietorship. Such personal attachment to satisfy corporate debts cannot be done against the assets of a shareholder.
People incorporate to acquire this umbrella of protection against unlimited liability for the debts of the business. Few people will ever invest in a business if they believe they risk losing everything they have earned or will earn in the future.
13. HOW ARE CORPORATE PROFITS TAXED?
Normally, except for S corporations, the federal government taxes corporate income twice. Corporate income is taxed when the corporation first earns it, and it is taxed again when distributed to the shareholder. The federal corporate tax rate is:
Corporations having income between $100,000 and $335,000 are taxed at a 39% rate to recover the taxes saved on the lower graduated rates.
When the after-tax income is distributed to a shareholder as dividends, the shareholder must include it on his tax return and pay additional tax on it of approximately 28%. One alternative to this double taxation is for a small corporation to pay most of the income as legitimate salary to the shareholders for work for the corporation. The salary is deductible by the corporation whereas a dividend payment is not. Thus if the income can be paid as salaries, corporate taxes are reduced.
The taxes on a regular corporation are determined in subchapter C of the federal tax code. Thus a regular corporation is called a general corporation or a C corporation. It is subject to a different taxing structure than either a partnership or a sole proprietorship. A special corporation, defined in subchapter S of the federal tax code, is an S corporation. It is taxed quite differently from a C corporation.
The income tax of a C corporation is subject to double taxation. It is taxed first when the corporation files its corporate tax return on the net earnings of the corporation. The C corporation income is taxed again when the corporation pays dividends to its shareholders. The dividends received by a shareholder of a C corporation are includible in the income of the shareholder on Schedule B of his Form 1040.
For example, assume that a C corporation has $1,000,000 in net profit. It pays approximately $340,000 in taxes. The corporation distributes the remaining $640,000 to the shareholders, who pay taxes on it again. Assuming the shareholders' tax rate is 28%, the shareholders will pay an additional $224,000 in taxes. The total tax on the corporate income is $519,200, or 51.2%, of the company's gross income. The federal government gets over half of the earnings. The state will take its share also. Little is left for the investor, the owner, the shareholder.
14. DO CORPORATIONS AFFORD ADVANTAGES IN FRINGE BENEFITS?
An individual who incorporates his own business can avail himself of several tax advantages in fringe benefits. A corporation is allowed to deduct the costs of certain fringe benefits from its pre-tax income that are not deductible by persons in a partnership or sole proprietorship.
A main area of tax advantage is retirement planning. A corporate employer may contribute, tax free, significantly more to the employees' retirement plan than a self-employed person can to his Keogh plan. In addition, employees of corporate plans may borrow as much as $50,000 of the funds contributed to a plan without penalty which is not the case with Keogh plans.
Other fringe benefits that are deductible by a corporation but not by a partnership or sole-proprietorship are health, life and disability insurance along with a $5,000 death benefit. These benefits are deductible by the corporation and usually are tax-free to the corporate employee.
15. HOW LONG DOES A CORPORATION LAST?
A corporation can have perpetual existence. A corporation can legally exist forever unless it is dissolved or terminated under state law. One of the main grounds for a corporation's existence being terminated is the non-payment of taxes.
A corporation's perpetual existence is an important advantage over other forms of business. A partnership terminates upon the death of a partner, and a sole proprietorship terminates upon the death of the owner. A corporation continues regardless of the death of a shareholder. The perpetual existence of a corporation is a most compelling feature.
The fact that a corporation continues to exist regardless of the death of its shareholders is what gives a corporation its stability. Most people are reluctant to invest in a business that is not a corporation and may terminate upon the sudden death of any partner. Most lenders will not loan money to a partnership because it will terminate upon the death of any partner. The stability of a corporation derives from its continuity of existence.
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CHAPTER 2
STEPS FOR INCORPORATION
I. INTRODUCTION
There is no mystery or difficulty in forming a corporation. In its simplest sense, a corporation is merely a license to do business in a particular manner. In that sense, the Articles of Incorporation are the application for the license and when accepted for filing by the secretary of state become the license. In fact, in legal parlance a corporation is considered "licensed to do business" upon this acceptance by the secretary of state.
The act of incorporating a business is simple. All it entails is the filing of the Articles of Incorporation and the subsequent issuance of stock. The actual act of incorporating is no more than standing before a clerk in the secretary of state's office and having the Articles stamped and filed. This can also be accomplished by mail. There are many companies that provide corporate kits which include basic Articles, minutes and bylaws specifically designed for use in just one state. The usual cost is between $50 and $100. The corporate kit does not address the many issues or provide the information contained in this book. This book provides guidance and advice on the considerations that arise in forming any corporation. The Articles contained in this book are a starting point for any incorporation. Before filing any Articles the reader should decide any additional provisions wanted in the Articles. In addition, the reader should read the state's corporation code (available in most public libraries) to assure that the state law has not changed.
This book provides the user with a detailed analysis of the problems, issues and procedures to be faced in the incorporation of any business and in particular those in a small business. There are many choices that an incorporator must face in forming a corporation. Many of those choices can be difficult, given the many options available and the particular concerns of each business. For example, whether or not to become a closely held corporation requires the shareholders to agree to operate the business pursuant to a shareholder's agreement rather than the formalized procedures of the state's corporate law. Example: Whether and when the corporation should seek subchapter S tax treatment; this election can be made at the first directors' meeting or any year subsequent. Neither this book nor any other book can replace the cold practical consideration of the actual person forming the corporation. That person knows the corporation's business purpose and how the company will be operated. The most this book can do is steer the incorporator through the major provisions and issues of concern.
This book is intended to be used to form and operate small businesses. There is no set definition of a small business. The definition varies among the states and is different under federal law. In essence it means a corporation with a limited number of shareholders. When a business qualifies as a small corporation, it has the opportunity of availing itself of special advantages. Under federal tax laws, a small business (less than 35 shareholders) may elect subchapter S tax treatment, allowing the corporation to be treated as a partnership for tax purposes. Many states have similar subchapter S laws for small corporations. Several states also permit small corporations with varying numbers of shareholders (in Delaware it is 30, but in Ohio it is unlimited provided there has never been a public offering) to elect to become closely held corporations.
This book deals only with corporations that are not and will not be required to register with the Securities and Exchange Commission and have never had a public offering of securities.
This book was written for use primarily by those individuals who seek to incorporate an existing business or one that is being started with just a few close friends or family and as cheaply as possible. This book must not be used if the corporation intends to raise money by selling its stock to strangers. It should also not be used if the corporation intends to sell its stock to more shareholders than permitted under the state law for exemption from security registration.
Whether the reader actually employs the Articles, minutes, bylaws, resolutions and agreements in this book is actually not as important as providing the reader with the information contained herein so that informed decisions can be made.
II. PROCEDURE
The steps for incorporating a business are simple: file the Articles of Incorporation and issue the stock. The corporation will go through these steps:
A. CHOOSING A CORPORATE NAME
Every corporation must have a name that denotes that it is a corporation and not a partnership or a sole-proprietorship. The name usually must contain the word "Incorporated," "Corporation" or "Limited." The name must not mislead the public into believing it is an agent of the federal or state government. The name of the corporation must not mention or suggest involvement in a regulated or licensed field unless the corporation has that license. Example: Dr. Peter Jones Medical Corporation would not be valid unless Peter Jones actually had a medical license.
In practice the main concern is whether the proposed name is so similar to an existing corporation's name as to mislead the public. No state will permit two corporations to have the same name or one so similar that they are confusing.
To avoid the possibility of having the Articles rejected because of similarity to the name of an existing corporation, the incorporator should conduct a name search with the secretary of state's office. If the name is not taken, it can be reserved for a fee for 60 days or longer. The search can be done by mailing a request with the name and a check for the search to the secretary of state. The amount of the check and where to send it can be obtained by calling the secretary of state's office. A search through the secretary of state's office can take 30 days. There are attorney service firms in the phone book of the state capitol that will do the name search and reservation within two days for about $30.
If the corporation will be doing business in other states, it must be aware that it may have to operate under a fictitious name in those states if the corporate name is substantially similar to an existing business.
B. PREPARING AND FILING ARTICLES
After the corporate name is reserved, the incorporator then prepares and files the Articles of Incorporation. Each state has it own requirements for the contents of the Articles. This book has attempted to provide a general set of Articles sufficient for most states. The reader should, nonetheless, familiarize himself with the particular corporation law of the state where the corporation will be formed.
The Articles contained in this book are skeleton Articles. They may be retyped with additional provisions added. Moreover, a particular state may require additional provisions to be added to the Articles to conform to changes in state law.
After the Articles are prepared, they are filed with the secretary of state's office. Most states require the Articles to be filed in triplicate and each signed by the incorporator. Therefore, four or more copies should be filed so the corporation will receive a conformed, file-stamped copy. The filing can be made by mail, with an enclosed self-addressed envelope, and will require 30 to 60 days to get a return. The alternative is to use an attorney service firm to file the Articles. Such a firm usually takes only a week to get the Articles filed and returned and charges about $50 for the service. The advantage of the attorney service firm is that if there is a problem, it can be corrected faster.
When the Articles are filed, the incorporator must pay the filing fee and the yearly franchise fee for the corporation. The fees vary from state to state. For example, in California the total fee is $917 ($117 filing and $800 franchise tax). The correct amount of the fees can be obtained by calling the secretary of state. If an attorney service firm is used, they will know the fees.
C. ISSUING STOCK
After the Articles are filed, the corporation exists in a de facto mode. That means the corporation exists on paper, but until stock is issued it does not exist at law (de jure). It is the fact that it has outstanding shares in the hands of shareholders that is the defining characteristic of a corporation.
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CHAPTER 3
S CORPORATIONS
This chapter assists the incorporator of a newly formed corporation or the shareholders of an existing corporation IN MAKING an informed decision as to whether or not and when to make the election to have the corporation receive S status treatment.
This chapter is not an exhaustive statement of the law and every facet of it. It is a short, concise statement of the tax law relating to S corporations. The reader will glean enough of an understanding concerning S status treatment to be able to proceed. If the incorporator is unclear on an issue, tax assistance or advice should be obtained before making an S election. Making or not making the S election is not a permanent decision by the corporation. If made, the election can always be revoked in later years. If the election is not made when the corporation is first incorporated, it can be made in later years.
This chapter is geared to the small mom-and-pop corporation. Family corporations or the corporations formed by close friends are the ones which this book seeks to reach. The more complicated corporations are apt to have more complicated tax and managerial problems and for them is required the services of a good tax professional.
I. INTRODUCTION
A regular corporation is called a C corporation, because it appears in Chapter C of the federal tax code. A C corporation is subject to a different taxing structure than either a partnership or a sole proprietorship. A special corporation called an Subchapter S, or more frequently just a S corporation, is taxed quite differently from a regular C corporation. The federal government taxes corporate income derived from regular C corporation twice. The corporate income of a C corporation is first taxed when the corporation earns it and the income is then taxed a second time when it is distributed to the shareholders as dividends. The federal corporate tax rate for a C corporation is:
When the after-tax income is distributed to the shareholders as dividends, the shareholders must include it in their tax returns and pay additional tax on it. One alternative to this double taxation for a small corporation is to pay most of the income as legitimate salary to the shareholders for work done. The salary is deductible by the corporation but a dividend payment is not. Thus, if the income can be paid as salaries, corporate taxes are reduced. A second alternative is for the C corporation to retain a reasonable amount of income in its treasury, called "accumulated earnings." A corporation is permitted to accumulate reasonable amounts of earnings for future use of the corporation. Since the earnings are not distributed as dividends, they are not taxed to the shareholders. Retained earnings also are not available for use by shareholders.
The income of a C corporation is subject to double taxation. It is taxed first when the corporation files its corporate tax return reporting the net earnings of the corporation. The C corporation income is taxed again when the corporation pays dividends to its shareholders. The dividends that the shareholder of a C corporation receives are includible in the income of the shareholder on Schedule B of Form 1040.
For example, assume that a C corporation has $1,000,000 in net profit. It pays approximately $340,000 in taxes. After the corporation distributes the remaining $640,000 to the shareholders, they must pay taxes on it again. Assuming the shareholders' tax rate is 28%, the shareholders will pay an additional $179,200 in taxes. The total tax on the corporate income is $519,200; the joint tax exceeds 51%.
II. S CORPORATION
A. DEFINITION
Subchapter S of Chapter 1 of the Internal Revenue Code (hence the name S corporations) permits qualifying C corporations to receive special tax treatment. Under the IRC, qualifying corporations may elect to be taxed in a manner similar to that of a partnership for federal income tax purposes. As an S corporation, it becomes a "pass-through" entity whereby all of its income and deductions are passed through to the shareholders. The shareholders claim their share of the corporation's income and deductions on their individual tax returns.
The S corporation is not subject to federal corporate income tax, accumulated earnings tax or personal holding company tax. The S corporation, however, may be subjected to a special tax on its passive net income. Such tax arises where the S corporation has (1) earnings and profits and (2) passive investment income.
When an existing C corporation elects to become an S corporation, there is a gains tax on any gain attributable to the appreciation in value of any asset from its conversion date to its sale date.
The requirements to become an S corporation are statutorily set. The moment that the requirements are no longer met, the S status of the corporation terminates. Only a small business corporation can elect S status. In order to be a small business corporation, the corporation must meet the following requirements:
A corporation electing S corporation treatment will have its profits and losses passed to the shareholders. Passing through the profits and losses results in the shareholders, not the corporation, being taxed on them. The S corporation income is taxed as though it were derived from a partnership or a sole-proprietorship.
The S corporation must use a calendar year for its taxable year unless a legitimate business purpose is proven to the satisfaction of the IRS.
B. TAX TREATMENT
1. FEDERAL LAW
An S Corporation is a corporation given special tax treatment under federal law. S corporation election allows the corporation to be treated for federal tax purposes as if it were a partnership. S Corporation income is attributed to shareholders in proportion to each shareholder's percentage of stock ownership. The S corporation itself pays no income tax on the federal level.
Once a valid S election is made, the S corporation will no longer be subject to corporate income tax, accumulated earnings tax or the personal holding company tax at the federal level. An S corporation may be subjected to a special tax on its passive net income. The tax arises where the S corporation has (1) earnings and profits and (2) passive investment income.
An example of how a federal S election works: An S corporation earns $1,000,000. It will pay no taxes. Each shareholder of the S corporation must include his proportionate share of the $1,000,000 on his personal income tax returns. Assuming a 28% federal individual tax rate, the S corporation and its shareholders will pay $280,000, not the total $519,200 that a C corporation and its shareholders must pay. Because of the tax advantages, every successful small corporation should consider the election to become an S Corporation.
2. STATE TAX TREATMENT OF A FEDERAL S CORPORATION
A federal S corporation election does not mean that the corporation will be treated as a partnership for state taxes. Not all states permit S corporation treatment for corporations doing business in their states. For most states, despite a federal S corporation election, the corporation will continue to be taxed as though the federal election had never been made. By denying S status to the corporation, these states retain the double tax on the corporate income. Unless a corporation does business in a state which has no income tax on corporations (not all do), it will have to file a return and pay taxes.
Only a few states, such as California, permit S Corporation tax treatment and the profits and losses of the corporation to be passed through to the shareholders. In California an election to be treated as a federal S Corporation automatically operates as a state election. A federal S corporation not wishing to be an S corporation in California must specifically inform the state that it elects not to be an S corporation for state tax purposes. Unlike federal law, California continues to impose a corporate tax on an S corporation at a reduced rate (2½%) but not less than the state's minimum tax on net income. California, however, does not impose an excessive passive income tax. Most of the states which permit S corporations require an affirmative election by the corporation for S corporation tax treatment.
C. METHOD OF MAKING THE S STATUS ELECTION
A corporation wishing to become an S corporation must have the written consent of all of its shareholders for S status. Where the stock is owned jointly by a married couple, both spouses must consent to the S status; where several own the stock jointly, all joint owners must consent to the S treatment.
The consent must be signed by each shareholder of record when the election is made. For the year in which S status is elected, each shareholder who owned any corporate stock at any time during any portion of the year before the election must consent to the election even though the shareholder may no longer be a shareholder at the time of election.
Two types of minutes for the first meeting of directors are contained in this book. In the first, the shareholders elect S status at the first meeting of directors. In the second, the S election is not made. In the event there is no election at the first meeting, the shareholders can always elect in a subsequent shareholder meeting. This book contains sample minutes for a special shareholder meeting for a non-S corporation (C corporation) to elect S status.
The corporation is required to file Form 2553, shareholders' consent to S status, with the IRS. Form 2553 can be obtained from any IRS office of by mailing by calling the IRS at 1(800) TAX-FORMS. Form 2553 and the shareholders' agreement in this book can be used to prevent any shareholder from doing something to terminate the S election. The agreement also serves as a repurchase agreement for stock (a shareholder's agreement for stock repurchase alone is in its own chapter).
The S election must be made on or before the 15th day of the third month of a corporation's tax year for the S corporation election to be effective for that tax year. A late filing of the S election is not effective for the current tax year but will be effective for subsequent tax years. For new corporations this means the election must be filed within 2½ months of incorporation to be effective for the first tax year. The election, once made, is valid and in force for as long as the corporation meets the qualification requirements for S status.
The shareholders can revoke their S election. Once an S election is revoked or terminated, the corporation must wait five years before it can re-apply for S corporate status.
Each state has its own laws concerning treatment of an S corporation. In states that have no corporate and individual tax, there is nothing to tax. In states that have a corporate tax, the state must have tax laws permitting S treatment, or the corporation and shareholders will still be taxed like a C corporation. California automatically grants S treatment to any California corporation that receives federal S status. California requires an S corporation to file Form 3560 to notify it of the S election. This book contains California's Form 3560 for reference.
Regardless of whether a state permits S corporation treatment, the federal election provides the most tax savings. Therefore, it behooves the corporation to elect federal S status regardless of whether or not it exists for state taxes. The tax consultant for the corporation can advise whether it is possible to make a state S election.
D. TERMINATION AND REVOCATION OF S STATUS
S status election can be revoked by the corporation by filing with the IRS Service Center handling its return. The revocation statement must state that the corporation is revoking its S election. The revocation statement must also state the number of shares that are issued and the total shares of outstanding stock (both voting and nonvoting). The revocation statement must be accompanied by a shareholder consent to the revocation signed by shareholders owning more than half of the outstanding stock (both voting and non-voting) at the time the revocation election was made. This book contains the minutes for a special shareholder meeting revoking an S election.
Because the requirements to be an S corporation are statutorily set, the status is automatically terminated prospectively when any of the following events occur:
Once S status is terminated, the corporation must wait until the completion of five taxable years before it can reapply for S status, unless the IRS gives special consent for an earlier reinstatement.
E. TAX RETURNS FOR S CORPORATIONS
Because an S Corporation is treated different from a regular C corporation, each must file a different type of tax return. Profits and losses of an S corporation are passed through to the shareholders and are not taxed by the federal government.
Income, losses and other K-1 items are allocated to the shareholders on a per-share-per-day basis. Each shareholder is allocated a percentage portion (based on the shareholder's ownership interest) of the pass through items for each day in the taxable year.
For example, assume that a S corporation has $750,000 income. George and Harry each own 25 shares for a full year. Mark own 50 shares for half a year and then sells them to Marcie for the other half. The allocation is made as follows:
George 25 shares x 366 days x $20.4918 = $187,500
Harry 25 shares x 366 days x $20.4918 = $187,500
Mark 50 shares x 183 days x $20.4918 = $187,500
Marcie 50 shares x 183 days x $20.4918 = $187,500
$750,000
Even though income from an S Corporation is not taxed at the federal level, Form 1120-S (an annual tax return: the U.S. Small Business Corporation Income Tax Return) must be filed. Form 1120-S must be filed within two months and 15 days of the end of the corporation's tax year.
Form 1120-S is an information return. The IRS uses the corporate return to cross-check the shareholders' returns to make sure they are actually reporting their share of S corporation income.
III. SHAREHOLDERS
RESIDENT
An S corporation is a pass-through vehicle for the income and deductions of its shareholders. The shareholder's tax at the state level depends on whether the corporation is an S or C corporation and whether the shareholder is a resident or non-resident of the corporation's state of domicile.
The United States Supreme Court in its 1920 decision SHAFFER VS. CARTER F 252 U.S. 37 made clear that a state is permitted to tax all the income of a resident from whatever source. Income from stock (dividends) is usually taxed at the residence of the stock's owner.
**** end of partial sample view of this section ****
V. FORMS AND INSTRUCTIONS
Included hereafter are the following forms and instructions discussed in this chapter:
to Elect S Status
4. S Corporation Shareholders' Agreement
5. Revocation of S Status and Letter
6. Waiver and Minutes of the Special Meeting of the Shareholders to Revoke S Status
7. Letter to California Tax Board Reference
S Corporation Election
Internal Revenue Service
RE:
Dear Sir:
I have enclosed herewith the original and one copy of Form 2553, the original and one copy of the Shareholder's Consent to the S Election and the original and one copy of Form SS-4 on behalf of , a newly formed corporation under the laws of the State of .
Please acknowledge receipt of these forms by placing your receipt on the copies and returning the copies in the enclosed self-addressed envelope.
If you should have any questions regarding this matter, then please contact me for clarification. My address and phone number are :
Respectfully,
WAIVER OF NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
The undersigned, being the shareholders of _____________________________________________, a corporation incorporated under the laws of the State of _______________________________________ , do hereby waive notice of the time, place and purpose of a special meeting of the Board of Directors of the corporation. The shareholders designate the ___________day of ___________________ at ___________as the time and _____________________________________________________________________________________as the place of said meeting the purpose of said meeting being to do the following acts: _____________________ _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ To vote as to whether the corporation should elect to become a Subchapter S corporation for federal and, if possible to make the same election for state, tax purposes and to transact such other business as related to the above acts.
Dated:
___________________________
___________________________
MINUTES OF THE SPECIAL MEETING
OF THE SHAREHOLDERS OF
_________________________________________________
A Special Meeting of the Shareholders of _______________________________________
was held on _____________________________at __________ at __________________
_______________________________________________________________________
The Shareholders present at the meeting were: ____________________________________
_______________________________________________________________________
A Waiver of Notice for this Meeting was signed by: ________________________________
_______________________________________________________________________
The President of the Corporation served as the Chairman of the Meeting and the Secretary of the Corporation served as the Secretary of the Meeting.
The next matter to be considered by the Board was whether the corporation should make the election available under Section 1362 of the Internal Revenue Code to become an "S Corporation," in accordance with the provisions of Subchapter S of the Internal Revenue Code of 1986, as amended, and under similar state law, if available. The tax benefits and effects in making such an election were discussed, in particular that the profits and losses of the corporation would be passed through the corporation directly to the shareholders. If the election is made, the corporation, except under special circumstances, would become a non-taxable entity for federal purposes and taxable for state purposes at the rate specified under state law. The Board then discussed the term of such an election. The Chairman informed the Board that any election could be revoked by the corporation in the future if deemed to be in the best interests of the shareholders. A revocation of the election would require the written consent by shareholders holding more than 50% of the corporation's outstanding stock on the date on which such revocation is made. After discussion of the matter, upon motion duly made and seconded, the following resolutions were unanimously adopted:
RESOLVED this corporation is a domestic corporation, not a member of an affiliated group of corporations within the definition of Section 1504(a) of the Internal Revenue Code of 1986 as amended (the Code), nor an otherwise ineligible corporation as defined in Sections 1361 (b) (2) and (c) (6) of the Code, and
FURTHER RESOLVED this corporation does not have more than 35 shareholders, all of whom are (1) individuals, (2) decedent's estates, (3) bankrupt's estates, or (4) trusts described in Section 1361 of the Code, and none of whom are non-resident aliens or foreign trusts, and when shares of this corporation have been sold and issued pursuant to the foregoing resolutions, this corporation will have only one class of capital stock which is issued and outstanding, and
**** end of partial sample view of this section ****
SHAREHOLDERS AGREEMENT
Agreement made this first day of _______________________________ , by and between _________________________________________________________________________being the shareholders of the capital stock of _____________________________________________________a corporation created and existing under the laws of the State of ___________________________ with its principal place of business at _____________________________________________________, hereinafter titled "the Corporation."
ARTICLE I
RECITALS
1.1 PURPOSE. The shareholders of the corporation, hereinafter titled "Shareholders," come together hereunder for the purposes of making the Subchapter S election provided under Internal Revenue Code Section 1362.
1.2 PRESERVATION OF THE S CORPORATION ELECTION. All of the Shareholders of the Corporation have agreed among themselves to have the Corporation treated as an S corporation under the Internal Revenue Code. This Shareholders' Agreement has been executed to ensure that the Shareholders remain qualified Shareholders under Internal Revenue Code Section 1361 and that no Shareholder commit any act that will terminate the Corporation's S election.
1.3 EFFECT ON OTHER AGREEMENTS. It is the desire of all of the Shareholders that this Agreement supersede and replace in its entirety any prior buy-sell agreements between any of the Shareholders as they relate to a Subchapter S election.
NOW THEREFORE in pursuance of the purpose and in consideration of the mutual agreements and covenants contained herein the Shareholders for themselves, their heirs, executors, administrators, successors and assigns do hereby covenant and mutually agree as follows:
ARTICLE II
MAINTAINING SUBCHAPTER S ELECTION
2.1 TRANSFER OF SHARES. Each Shareholder herein agrees not
to transfer any of the Shareholder's stock to any person or entity when that ownership may, in the opinion of the Corporation's President and supported by a legal opinion cause the Corporation's S corporation status to terminate. It is herein agreed by each Shareholder that any purported transfer of any shares in violation of this subparagraph shall be null and void from the beginning without notice and be of no force or effect whatsoever.
2.2 DOCUMENTATION FOR S ELECTION. Each of the Shareholders expressly agrees herein to prepare, execute and file all documents, forms and Shareholder's Consents needed now and in the future for the Corporation to make and maintain its S corporation election.
2.3 TRANSFER TO A QUALIFIED SUBCHAPTER S TRUST. Nothing in this Agreement is to be construed as preventing any Shareholder from making a lifetime or after death transfer of the Shareholder's shares to a qualified Subchapter S trust if the beneficiary of the trust makes the election under Internal Revenue Code Section 1361 (d)(2) to maintain the S status of the Corporation and to remain bound by this Agreement.
ARTICLE III.
REMEDIES FOR BREACH OF THIS AGREEMENT
3.1. LIQUIDATED DAMAGES. Each of the Shareholders hereby acknowledges, agrees and states that the inability of the Corporation to make and maintain an effective election to be treated as an S corporation due to breach of this Agreement is likely to cause substantial injury to the other Shareholders in an amount that cannot be determined at the present time. Therefore, each of the Shareholders agrees that should any Shareholder transfer any stock in violation of this Agreement or do anything that results in the Corporation not getting or losing its S corporation status that such Shareholder be required to pay to each of the other Shareholders individually the sum of ($ ) per share as liquidated damages, plus court costs and attorney's fees incurred in the enforcement of this Agreement.
3.2. STOCK PURCHASE OPTION. In addition to the remedy stated in Paragraph 3.1, if any of the Shareholders attempt to transfer their stock in a breach of this Agreement, the remaining Shareholders shall have the option to purchase all of the shares owned by the breaching Shareholder at a price calculated in the manner specified in Paragraph 3.2.1.
**** end of partial view of this section ****
CORPORATION: ___________________________
ADDRESS: ________________________________
SHAREHOLDER REVOCATION OF SUBCHAPTER S ELECTION
The undersigned Shareholders own more than one half of the Corporation's issued and outstanding shares including both voting and non-voting shares of _______________________________________________, a corporation formed under the laws of the State of __________________________ , and do hereby consent to the revocation of the "S Corporation" election provided under IRC Section 1362 (a). The revocation shall be effective on .
********************************
DATE: ________________ ________________________________
DATE: ________________ ________________________________
DATE: ________________ ________________________________
Internal Revenue Service
RE:
Dear Sir:
The S corporation election under IRC Section 1362(a) for _________________________________ , a corporation formed under the laws of the State of ______________ is hereby revoked effective _________________ . There were _________________ total shares issued and outstanding on the date of revocation including both voting and non-voting stock.
I have enclosed herewith the original and one copy of the Shareholder's Consent to the revocation of the S Election representing more than one half of the issued outstanding shares.
Please acknowledge receipt of these forms by placing your receipt on the copies and returning the copies in the enclosed self-addressed envelope.
If you should have any questions regarding this matter, then please contact me for clarification. My address and phone number are:
Respectfully,
WAIVER OF NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
The undersigned, being the Shareholders of _________________________, a corporation incorporated under the laws of the State of __________________________ do hereby waive notice of the time, place and purpose of a special meeting of the Board of Directors of the corporation. The Shareholders designate the _____________ day of _________________at _________ , as the time and ____________________ , as the place of said meeting, the purpose of said meeting being to do the following acts:
To vote as to whether the Corporation should revoke its Subchapter S status for federal taxes.
and to transact such other business as related to the above acts.
Dated: _______________________ ___________________________
MINUTES OF THE SPECIAL MEETING
OF THE SHAREHOLDERS OF
________________________________________
A Special Meeting of the Shareholders of __________________________________________ was held on ______________ at ______________ at ___________________________________________________ . The Shareholders present at the meeting were: _________________________________________________ ______________________________________________________________________________________ _____________________________________________________________________________________
A Waiver of Notice for this Meeting was signed by: __________________________________________ ____________________________________________________________________________________
The President of the Corporation served as the chairman of the meeting and the Secretary of the Corporation served as the secretary of the meeting.
As the first matter of business, the Chairman then discussed the termination of the Subchapter "S" election for the present year, and it was unanimously agreed that such course of action was appropriate.
The Chairman then pointed out that under Treasury Reg.18.1362-3 revocation is required to be made with the consent of the Shareholders who at the time the revocation is made own more than one half of the issued and outstanding stock of the Corporation. The Chairman additionally indicated that such revocation must be made by filing a statement that set forth the information required in the regulation mentioned above.
Upon motion duly made and seconded, it was unanimously
RESOLVED that the Shareholders consent to the termination of the Subchapter S election and that the corporation hereby seek to terminate the Subchapter "S" election for the present tax year and file the necessary Shareholder Consent to the Revocation with the Internal Revenue Service.
There being no further business to come before the meeting, on motion duly made, seconded and carried, the meeting was adjourned.
Dated: ____________________
__________________________________
Secretary
California Franchise Tax Board
P.O. BOX 942857
Sacramento, CA. 94527-0540
RE: ______________________________
Dear Sir:
I have enclosed herewith the original and one copy of Form
3560 on behalf of ____________________________________________ ______________, a newly formed California corporation.
A federal election has also been filed, a copy of which is attached hereto.
Please acknowledge receipt of these forms by placing your receipt on the copies and returning the copies in the enclosed self-addressed envelope.
If you should have any question regarding this matter, please contact me for clarification. My address and phone number are:
Respectfully,
**** end of sample view of chapter *****
CHAPTER 4
Articles of Incorporation
I. DEFINITION
It is the filing of the Articles of Incorporation that forms the corporation. No corporation can exist without filing articles. The articles are filed with the secretary of state for the state in which the corporation is being formed. Out-of-state corporations (called foreign corporations) are also required to register with the secretary of state so their operations can be monitored.
Each state has its own requirements as to the contents of the Articles of Incorporation for a corporation formed under its laws. The Articles of Incorporation used in this book are designed to meet the requirements of all states. The articles will definitely comply with California and Nevada law. If the articles are rejected in a particular state, the user will be told what provision needs to be changed, and the change will be easy to incorporate in the articles that will then be refiled and accepted.
This book aids the user in forming a corporation inexpensively. The normal cost of attorney fees for an incorporation is from $500 to several thousand dollars. Therefore, even if some minor retyping or additions are required, the savings make it worthwhile.
II. CONTENTS
The articles of a corporation can contain virtually anything that the corporation wants to put in them that does not violate state law. The reason the corporation might want certain matters in the articles rather than the bylaws is that once they are stated in the articles they cannot be changed without amending the articles.
Most articles, however, only contain the bare basics required under state law. All states require the articles to contain the following minimum information:
A. NAME OF THE CORPORATION
The articles must state the name of the corporation. The name of a proposed corporation must not be so similar to an existing corporation as to be confusing. Should that happen the new corporation could be sued for trade infringement. To avoid that confusion, unless absolutely sure that no other corporation has a similar name, the incorporator should contact the state's secretary of state and do a name search. Sometimes it is free, but usually the secretary of state will charge for a name search and will reserve the proposed name for the new corporation.
In each state there are attorney service companies located in the state's capital that will do the name search and reservation and file the articles for a slight fee, usually $50. This is a great bargain when the incorporator does not live near the secretary of state's office. The attorney service companies can be found in a phone book for the state capital.
B. PURPOSE
The articles must state the purpose of the corporation. It used to be that a corporation had to state specifically what type of business it was going to do. Today, most states will accept a simple statement that the corporation is formed to do any business that is legal.
The following states still require that the purpose of the corporation be stated in the articles:
Alaska Arkansas Georgia Hawaii
Massachusetts Missouri Mississippi New Hampshire
Rhode Island South Carolina South Dakota
The clause used in this book is a hybrid which requires the corporation to state initially why it is being formed and also reserves the right to engage in any lawful activity permitted under state law.
C. AGENT FOR SERVICE OF PROCESS
All states require that a corporation have an agent residing in the state to receive process (accept service of a complaint and legal notification of all orders). Usually this is no problem because the shareholders live in the state, and one of them agrees to be the resident agent. Most states, such as California, require the articles just to name the agent along with the agent's address. Nevada requires that the agent actually sign a notarized acceptance of the appointment. For states that require the agent to sign an acceptance there is a general acceptance form for the notification in this book. New York has a special requirement that the incorporator make the secretary of state the Agent for service of process. This book contains sample articles for a New York corporation. Following this Chapter is a official form for acceptance by the Resident Agent for use in Nevada. Also there is a general form for the acceptance as well. The person who will be the Resident Agent should complete the form and it should be available for filing along with the Articles even if state law does not require it.
D. STOCK
Since a shareholder must own stock, there must be some way to determine how much stock is to be issued. The articles state how much stock is authorized to be sold. Just because a corporation is authorized to issue a certain amount of stock does not mean that it is required to sell all of it.
The reason for this provision is of historical significance. At one time corporate fees were based on the number of shares authorized to be sold. The number of shares to be issued had to be known. Today, the fees cost either a fixed amount or are based on the amount of money raised from the issuance of the stock. Therefore the authorized amount does not matter. A corporation should authorize enough stock to insure the corporation will not have to amend the articles to issue more stock.
A corporation can place restrictions on its stock, make it subject to assessments, or issue the stock in various classes, such as preferred or common or voting and non-voting. These articles assume the forming of the simplest corporation. The articles do not provide for assessments or different classes of stock.
Par value is the stated value in the articles of each share of stock. The stock can be sold for more, but it cannot be sold for less without incurring severe penalties. The Par Value of the stock is important only to determine the stated capital of the corporation on its formation. The stated capital is always to remain in the corporation until dissolution or liquidation. The amounts in the corporation over the stated capital are capital surplus and can be used for any corporate purpose, including payment to the shareholders.
Since many states permit no par stock, all corporate assets in these states can be used for any proper purpose without any portion being required to be held in reserve. Because the states require very low stated capital, there is little assurance to creditors that the corporation is adequately capitalized.
As stated above, some states require the initial value of the stock to be stated in certain words. Some states, like California, no longer require that a par value (price per share) be stated in the articles. The incorporator should discover before preparing the articles if the requirement exists; call the corporation commissioner or ask an attorney or an attorney service company. Another alternative is to prepare the articles in the alternative form (both with and without par value) and file whichever one is needed.
Nearly all states have adopted the Model Business Corporation Act (or have enacted their own corporate law) that permits corporations formed in their state to issue either par or no par stock. The only jurisdictions still requiring all stock have a par value are North Carolina and the Virgin Islands.
It is important that the corporation meet the state's requirement for minimum capitalization. The corporation should receive at least $1,000 minimum capitalization for its stock. Some states base their corporate fees on the number of shares issued rather than the amount raised from the sale of the stock. Delaware minimum number of shares for minimum fees is 3,000 shares. In New York, it is 200 shares.
E. STATEMENT OF INITIAL DIRECTORS
Most states require the initial directors' names and addresses be listed in the articles. A few states make the listing of the initial directors optional.
1. STATES REQUIRING THE LISTING OF DIRECTORS
Alabama Alaska Arizona Colorado Florida Georgia Hawaii Idaho Iowa Kentucky Mississippi Montana Nevada New Hampshire New Jersey New Mexico N. Carolina Oklahoma Oregon Rhode Island S. Carolina S. Dakota Texas Utah Vermont Washington West Virginia Wyoming
This book contains sample basic articles that include clauses for those states requiring initial directors to be identified. Incorporators are not required to serve as the initial directors. Consequently, the articles have separate places for the directors and incorporators to sign even though they may be the same people.
2. STATES GIVING AN OPTION TO NAME DIRECTORS IN ARTICLES
Those states not named in subparagraph permit, as does California, the option of naming or not naming initial directors in the articles. It, generally, is a good idea to name the first set of directors in the Articles because lets third parties know who can act for the corporation. For example, banks will not open bank accounts for a corporation without proof as the authorization of a person to do so for the corporation. Banks routinely require copies of the Articles to show that authorization. If the Directors are not named in the Articles the banks will require certified copies of the corporate minutes which authorize the opening of the bank accounting and the designation of the officer who are to sign on the accounts. For this reason, the Articles in this book contain the clause for the designation of the initial Directors even though some states do not require it. For practical convenience, the clause should be used.
F. NUMBER OF SHAREHOLDERS
The number of shareholders of the corporation should be no more than 35 (counting each married couple as one shareholder). This book is intended for use in incorporating an existing business or forming a small corporation. If the number of shareholders exceed 35, the corporation might have to register with the SEC in order to sell its stock. Such registration can easily cost $100,000. In addition, a corporation with over 35 shareholders will not qualify for preferential tax treatment as a Subchapter S corporation. If the corporation is intended to have more than 35 shareholders, it should definitely consult an attorney because the incorporators are entering complex and complicated areas.
While the articles state the number of shareholders, it probably should not exceed the number permitted under state law for the limited offering exemption (Discussed in the Security Chapter). Most states will exempt from its security laws if the initial sale of a corporation's stock if the sale is made to less than a fixed number shareholders. Some states, however, limit a corporation to 5 or shareholders so as to qualify for an exemption from registration. Before the stock is issued, the corporation should contact the state's corporation commissioner and ask what the maximum number of shareholders is for the exemption and if a notice form, of some type, needs to be filed. These matters are discussed in more detail elsewhere in this book. In practice, obtaining the state exemption from registration is normally a mere formality in the situation where an existing business is incorporating or is being formed by family members or close friends.
G. TERM
One of the advantages of a corporation is that it can have perpetual existence. That means that, unlike a partnership or a sole proprietorship, it can survive the death of its owner. The articles in this book make it clear that the corporation is intended to have perpetual existence and survive the death of any shareholders.
***** end of partial sample view of this section *****
IV. FORMS AND INSTRUCTIONS
Comes now the following tables of information and Articles of Incorporation:
16. Certificate of Acceptance by Resident Agent in Nevada
These illustrative Articles of Incorporation include specific requirements peculiar to the states named. The basic Articles of Incorporation or Certificate of Incorporation forms contained in this book can be removed and amended to meet the specific requirements of the state of incorporation or for the addition of any other provisions that the incorporators may wish to include therein. The amendment is a minor task requiring the insertion of one or two clauses.
STATES REQUIREMENTS FOR THE MINIMUM NUMBER
OF INCORPORATORS
(THE NUMBER OF PEOPLE WHO MUST SIGN THE ARTICLES)
STATES PERMITTING ONE OR MORE INCORPORATORS
ALABAMA ALASKA ARKANSAS CALIFORNIA COLORADO CONNECTICUT DELAWARE FLORIDA GEORGIA HAWAII IDAHO I LLINOIS LOUISIANA MAINE MARYLAND MASSACHUSETTS MICHIGAN MINNESOTA MISSISSIPPI MISSOURI MONTANA NEBRASKA NEVADA NEW HAMPSHIRE NEW JERSEY NEW MEXICO NEW YORK N. CAROLINA OHIO OREGON PENNSYLVANIA RHODE ISLAND S. CAROLINA S. DAKOTA TENNESSEE TEXAS VERMONT VIRGINIA WASHINGTON W. VIRGINIA WISCONSIN WYOMING
STATES REQUIRING TWO OR MORE INCORPORATORS
ARIZONA
JURISDICTIONS REQUIRING THREE OR MORE INCORPORATORS
DISTRICT OF COLUMBIA NORTH DAKOTA
OKLAHOMA UTAH
STATES REQUIRING A MINIMUM OF ONE DIRECTOR
ALABAMA DELAWARE FLORIDA IDAHO
INDIANA IOWA KANSAS KENTUCKY
MICHIGAN MINNESOTA MONTANA NEBRASKA
NEW HAMPSHIRE NEW JERSEY NEW MEXICO OREGON
S. CAROLINA S. DAKOTA TEXAS WASHINGTON
W. VIRGINIA WISCONSIN
STATES REQUIRING A MINIMUM OF TWO DIRECTORS
ARIZONA
JURISDICTIONS REQUIRING A MINIMUM OF THREE DIRECTORS
The following states require a minimum of three directors unless there are less than three shareholders in which case the minimum number of directors shall equal the number of shareholders (either one or two).
ALASKA ARKANSAS CALIFORNIA COLORADO
GEORGIA HAWAII ILLINOIS LOUISIANA
MAINE MARYLAND MASSACHUSETTS MISSOURI
NEVADA NEW YORK N. CAROLINA PENNSYLVANIA
VERMONT VIRGINIA WYOMING
The following jurisdictions require a minimum of three directors:
DISTRICT OF COLUMBIA MISSISSIPPI OHIO OKLAHOMA RHODE ISLAND UTAH
North Carolina requires a corporation to have no less than three and no more than 15 directors.
WHERE TO FILE THE Articles of Incorporation
ALABAMA is unique. It and the District of Columbia are the only jurisdictions in which the incorporator does not file the articles directly with the secretary of state or the Department of Corporations. In Alabama, the incorporator files the articles along with two copies with the Probate Judge of the county wherein the corporation will have its registered office. The judge then issues a certificate of incorporation to the incorporators. Within ten days of the filing of the articles, the Probate Judge sends the original articles to the secretary of state.
ALASKA
DEPARTMENT OF COMMERCE
CORPORATIONS DIVISION
Pouch D
Juneau, AK 99811
ARIZONA
CORPORATIONS COMMISSION
Phoenix, AZ 85007
ARKANSAS
SECRETARY OF STATE
Little Rock, AR 72203
CALIFORNIA
SECRETARY OF STATE
Sacramento, CA 95814
**** end of partial view of this section *****
BASIC ARTICLES FOR THE FOLLOWING STATES AND TERRITORIES
Alabama Arizona Arkansas California Colorado Dist. of Col. Georgia Hawaii Idaho Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Mexico North Carolina N. Dakota Ohio Oregon Puerto Rico Rhode Island S. Carolina S. Dakota Texas Vermont Virginia Virgin Islands Washington Wyoming
NOTE: ARIZONA HAS A SPECIAL REQUIREMENT UNDER SECTION 10-128 THAT A CERTIFICATE OF DISCLOSURE ACCOMPANY THE ARTICLES OF INCORPORATION. THIS CERTIFICATE OF DISCLOSURE APPLIES TO THE CORPORATION'S DIRECTORS, OFFICERS ALONG WITH ANY PERSON OR ENTITY WHICH HAS 10% OR MORE OF A MEMBERSHIP, BENEFICIAL OR PROPRIETARY INTEREST IN THE CORPORATION. THE DISCLOSURE STATEMENT IS REQUIRED TO LIST WITH PARTICULARITY ANY OF THE FOLLOWING MATTERS WHICH RELATE TO ANY OF THE ABOVE PERSONS OR ENTITIES:
ACTIVITIES;
4. ANY CONVICTIONS FOR THEFT;
5. ANY CIVIL OR CRIMINAL JUDGMENTS FOR RESTRAINT OF TRADE FOR THE PREVIOUS SEVEN YEARS;
6. ANY OTHER FEDERAL INJUNCTIONS, FEDERAL JUDGMENTS OR DECREES OF ANY TYPE WITHIN THE LAST SEVEN YEARS.
A CERTIFICATE OF DISCLOSURE FOR USE IN ARIZONA FOLLOWS THIS FIRST SET OF BASIC ARTICLES BELOW.
NOTE: LOUISIANA IS ALSO UNIQUE IN THAT IN ADDITION TO THE FILING OF THE ARTICLES, THE INCORPORATORS MUST FILE THE ANNUAL REPORT WHICH ALL CORPORATIONS ARE REQUIRED TO FILE YEARLY. FOLLOWING THE ARIZONA DISCLOSURE STATEMENT IS AN ANNUAL REPORT FORM FOR USE IN LOUISIANA.
The undersigned, being the incorporators of ________________________________ a corporation to be formed under the laws of the STATE OF ARIZONA. hereby submit this CERTIFICATE OF DISCLOSURE STATEMENT.
This CERTIFICATE OF DISCLOSURE applies to the corporation's directors and officers along with any person or entity which has 10% or more of a membership, beneficial or proprietary interest in the corporation. This DISCLOSURE STATEMENT lists the following matters which relate to any of the above persons or entities:
4. ANY CONVICTIONS FOR THEFT;
5. ANY CIVIL OR CRIMINAL JUDGMENTS FOR RESTRAINT OF TRADE FOR THE PREVIOUS SEVEN YEARS;
6. ANY OTHER FEDERAL INJUNCTIONS, FEDERAL JUDGMENTS OR DECREES OF ANY TYPE WITHIN THE LAST SEVEN YEARS.
***** end of partial view of this section *****
ANNUAL REPORT
OF
___________________________________
I. NAME OF CORPORATION
The name of the corporation is __________________________________ .
II. AGENT FOR SERVICE OF PROCESS
The name and address in the State of _____________ of the corporation's agent for service of process is: __________________________________________________________________________________ (CAN NOT BE A POST OFFICE ADDRESS)
III. GOVERNING BOARD
The names and addresses of the First Board of Directors are as follows: __________________ _________________________________________________________________________ _________________________________________________________________________ (CAN NOT BE A POST OFFICE BOX)
IV. NAMES AND ADDRESSES OF THE OFFICERS
The name and address of each of the officers of the corporation are:____________________________________________________________________________________________________ ________________________________________________________________________________ (CAN NOT BE A POST OFFICE BOX)
V. THE TAXPAYER IDENTIFICATION NUMBER
The identification number of the corporation, if any is:__________________________________
VI. THE NUMBER OF ISSUED SHARES
As of the date of this Annual Report, the corporation has issued ________________________ ( ) shares of its authorized number of shares.
VII. INITIAL PRINCIPAL OFFICE OF THE CORPORATION
The corporation's principal and registered office in the state at the following address: __________ _________________________________________________________________________ _________________________________________________________________________ (CAN NOT BE A POST OFFICE BOX)
IN WITNESS WHEREOF the undersigned, as the President of this Corporation, has executed this Annual Report on ________________________________.
President
STATE OF ________________________
COUNTY OF ______________________
On _____________________ before me, _________________________________________personally appeared _______________________________________________________________________personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS MY HAND AND OFFICIAL SEAL.
Signature ______________________________
ARTICLES OF INCORPORATION
OF
GABRIEL INVESTMENT CORPORATION
I. NAME OF CORPORATION
The name of the corporation is GABRIEL INVESTMENT CORPORATION.
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of
along with any other lawful act or activity for which a corporation may be organized under the Corporation Law of NEVADA other than the banking business, the trust company business, or similar prohibitions under the corporation law of the State of NEVADA .
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of NEVADA of the corporation's initial agent for service of process is:THOMAS A. GABRIEL, 13567 BLYTHE , ELY, NEVADA 82020
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of TEN THOUSAND (10,000) shares.
**** end of partial view of this section ****
ARTICLES FOR ILLINOIS
Illinois is unique in that it requires that the Articles of Incorporation contain a clause stating the:
"number and class of shares which the corporation proposes to issue without further report to the secretary of State and the consideration, less commissions, paid or incurred in connection with the issuance of shares by the corporation."
This clause relates back to the discussion of the limited offering exemption from security registration. The state is attempting to make sure that the security laws are not circumvented by requiring disclosure, the moment of incorporation, of how the corporation intends to sell its stock.
All other states simply require that if, only common stock is to be issued, that the corporation disclose whether it will be par or no par stock. If the corporation issued par stock, then all states require a listing of the par value to help ascertain initial capitalization.
ARTICLES OF INCORPORATION
OF
_________________________________________________
I. NAME OF CORPORATION
The name of the corporation is ___________________________________________ .
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of ________________________ _________________________________________________________________________ along with any other any lawful act or activity for which a corporation may be organized under the Corporation Law of Illinois other than the banking business, the trust company business, or similar prohibitions under the corporation law of the State of Illinois.
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of Illinois of the corporation's initial agent for service of process is:
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of ( ) shares. The stock shall be issued at par value. After the subscription price has been paid, the stock shall not be subject to assessment.
V. PROPOSED ISSUANCE OF STOCK
The number of common shares of stock which the corporation proposes to issue without further report to the Secretary of State is ( )
and the consideration, less commissions, paid or incurred in connection with the issuance of shares by the corporation will be ($ ).
VI. NUMBER OF SHAREHOLDERS
The corporation's issued shares shall be held of record by not more than persons.
VII. NO PREFERENCES, PRIVILEGES, RESTRICTIONS
No distinction shall exist between the shares of the corporation or the holders thereof.
***** end of partial sample view of this section *****
In the above states, the documents of incorporation are not called Articles but rather a Certificate of Incorporation except for Tennessee where it is called a Charter of Incorporation.
CERTIFICATE OF INCORPORATION
OF
_____________________________________
I. NAME OF CORPORATION
The name of the corporation is __________________________________________________.
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of _________________________ along with any other any lawful act or activity for which a corporation may be organized under the Corporation Law of _________________ other than the banking business, the trust company business, or similar prohibitions under the corporation law of the State of ____________________________________________ .
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of ____________________ of the corporation's initial agent for service of process are: __________________________________________________________________________ _________________________________________________________________________________
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of _______________________ ( ) shares. The stock shall be issued at ________ par value. After the subscription price has been paid, the stock shall not be subject to assessment.
V. NUMBER OF SHAREHOLDERS
The corporation's issued shares shall be held of record by not more than ________ persons.
VI. NO PREFERENCES, PRIVILEGES, RESTRICTIONS
No distinction shall exist between the shares of the corporation of the holders thereof.
VII. GOVERNING BOARD
The initial members of the Governing Board shall be styled Directors, and the number, names and addresses of the First Board of Directors, not less than ___________ ( ) are as follows: ____________________________ ____________________________________________________________________________________ ____________________________________________________________________________________
VIII. NAME AND ADDRESS OF THE INCORPORATORS
The name and address of each of the incorporators signing the Certificate of Incorporation are: ____________________________________________________________________________________ ____________________________________________________________________________________
IX. PERPETUAL EXISTENCE
The corporation shall have perpetual existence.
**** end of partial sample view of this section ****
CHARTER OF INCORPORATION
OF
I. NAME OF CORPORATION
The name of the corporation is __________________________________________________.
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of _______________________ ______________________________________________along with any lawful act or activity for which a corporation may be organized under the Corporation Law of Tennessee other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated under the corporation law of the State of Tennessee.
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of Tennessee of the corporation's initial agent for service of process are:
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of _____________________( ) shares. The stock shall be issued at ______ par value. After the subscription price has been paid, the stock shall not be subject to assessment.
V. NUMBER OF SHAREHOLDERS
The corporation's issued shares shall be held of record by not more than _______ persons.
VI. NO PREFERENCES, PRIVILEGES, RESTRICTIONS
No distinction shall exist between the shares of the corporation of the holders thereof.
**** end of partial view of this section ****
ARTICLES FOR THE STATE OF MASSACHUSETTS
Massachusetts is unique in that it requires the Articles to contain a clause stating the corporation's adopted fiscal year. (Massachusetts Statutes 156B section 13)
Normally, it is not a good idea to have the fiscal year stated in the Articles because if the corporation wishes to change it later, then it must go through the process of amending its Articles just to change the fiscal year. For this reason, most other states do not require that the fiscal year to be stated in the Articles and that is why the other Articles of Incorporation in this book do not list the fiscal year.
ARTICLES OF INCORPORATION
OF
_________________________________________________
I. NAME OF CORPORATION
The name of the corporation is ___________________________________________ .
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of _______________________________along with any lawful act or activity for which a corporation may be organized under the Corporation Law of Massachusetts other than the banking business, the trust company business, or similar prohibitions under the corporation law of the State of Massachusetts.
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of Massachusetts of the corporation's initial agent for service of process is: _________________________________________________________________________________
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of _________________ ( ) shares. The stock shall be issued at ___________ par value. After the subscription price has been paid, the stock shall not be subject to assessment.
**** end of partial view of this section ****
BASIC ARTICLES FOR THE STATE OF ALASKA
Alaska has a special requirement that the Articles contain a provision stating the names of any alien affiliates, if any.
Normally, a business which is incorporating will not have any alien affiliates so the clause will normally be marked, "NONE".
ARTICLES OF INCORPORATION
OF
_________________________________________________
I. NAME OF CORPORATION
The name of the corporation is ___________________________________________ .
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of _______________________________along with any lawful act or activity for which a corporation may be organized under the Corporation Law of Alaska other than the banking business, the trust company business, or similar prohibitions under the corporation law of the State of Alaska.
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of Alaska of the corporation's initial agent for service of process is: ________________________________________________________________________________ _________________________________________________________________________________
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of ___________________ ( ) shares. The stock shall be issued at __________ par value. After the subscription price has been paid, the stock shall not be subject to assessment.
V. NUMBER OF SHAREHOLDERS
The corporation's issued shares shall be held of record by not more than __________persons.
VI. NO PREFERENCES, PRIVILEGES, RESTRICTIONS
No distinction shall exist between the shares of the corporation or the holders thereof.
VII. GOVERNING BOARD
The initial members of the Governing Board shall be styled directors, and the number, names and addresses of the first board of directors, not less than _______ ( ) are as follows:
VIII. NAMES AND ADDRESSES OF THE INCORPORATORS
The name and address of each of the incorporators signing the Articles of Incorporation is:
**** end of partial sample view of this section ****
CERTIFICATE OF INCORPORATION FOR THE STATE OF FLORIDA
Florida requires the corporation Certificate to contain a clause that stock having unlimited voting rights will receive the net assets of the corporation on dissolution. (F.S.A. Section 607.0601). The Articles used in this book provide for only one class of stock, called COMMON SHARES. As such, the common shares will have the unlimited voting rights and upon dissolution will receive the net assets of the corporation.
Florida also requires that the Resident Agent is sign the Certificate accepting the appointment. Utah is the only other state which requires the Resident Agent to sign the Articles. Most states require the Agent a separate statement of acceptance because they realize that it is not always possible to get an agent's signature at the same time that the Articles are executed.
CERTIFICATE OF INCORPORATION
OF
_________________________________________________
I. NAME OF CORPORATION
The name of the corporation is ___________________________________________ .
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of _______________________________along with any lawful act or activity for which a corporation may be organized under the Corporation Law of Florida other than the banking business, the trust company business, or similar prohibitions under the corporation law of the State of Florida.
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of Florida of the corporation's initial agent for service of process is: ________________________________________________________________________________ _________________________________________________________________________________
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares," having a total number of ( ) shares. The stock shall be issued at par value. After the subscription price has been paid, the stock shall not be subject to assessment. The holders of the Common Stock shall have unlimited voting rights and upon dissolution will receive the net assets of the corporation.
V. NUMBER OF SHAREHOLDERS
The corporation's issued shares shall be held of record by not more than ______ persons.
VI. NO PREFERENCES, PRIVILEGES, RESTRICTIONS
No distinction shall exist between the shares of the corporation or the holders thereof.
VII. GOVERNING BOARD
The initial members of the Governing Board shall be styled directors, and the number, names and addresses of the first board of directors, not less than ___________( ) are as follows: _________________________________________________________________________ _________________________________________________________________________
VIII. NAMES AND ADDRESSES OF THE INCORPORATORS
The name and address of each of the incorporators signing the Articles of Incorporation are: _________________________________________________________________________ _________________________________________________________________________
**** end of partial sample of this section *****
BASIC MINUTES FOR A NEW YORK CORPORATION
WITH OPTIONAL CLOSELY HELD CORPORATION ELECTION
New York has a unique requirement. It is the only state which requires that the Secretary of State be named as the Agent for Service of Process. The Secretary of State will then forward the process to the post office address set forth in the Articles. This very dangerous to the corporation. In most states, a defendant has only thirty days upon receipt of service to answer a complaint or have a judgment taken against it. When service is made on the Secretary of State, the time starts to run. It is possible that most, if not all of the thirty days given to answer a complaint will run before the corporation is actually aware of the lawsuit. As such, the corporation will have little time remaining to hire an attorney and answer the complaint.
CERTIFICATE OF INCORPORATION
OF
__________________________________________________
UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW OF NEW YORK
I. NAME OF CORPORATION
The name of the corporation is _____________________________________________ .
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of _______________________ _______________________________________________________along with any lawful act or activity for which a corporation may be organized under Section 402 of the Corporation Law of New York other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated under the corporation law of the State of New York. The corporation is not formed to engage in any act requiring the consent of a state agency without such consent first being obtained.
III. AGENT FOR SERVICE OF PROCESS
The secretary of state is designated as the agent of the corporation upon whom any process on any action may be served. The person and post office address to which the secretary of state shall mail a copy of the process against the corporation served the secretary of state is: ____________________________________________________________________________ ____________________________________________________________________________
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of __________________( ) shares. The stock shall be issued at ______ par value. After the subscription price has been paid, the stock shall not be subject to assessment. This IS ( ) IS NOT ( ) to be a closely held corporation. If the corporation is to be a close corporation, it shall be managed by the shareholders who shall have all of the powers vested in the Board of Directors by the Business Corporation Law of New York.
**** end of partial view of this section ****
ARTICLES FOR THE STATE OF PENNSYLVANIA
Pennsylvania has a special requirement for the corporation to state in the "Purpose" clause that it is formed under the Pennsylvania Business Corporation Law of 1988. (PA. C.S.A. Title 15, Section 1306)
ARTICLES OF INCORPORATION
OF
_________________________________________________
I. NAME OF CORPORATION
The name of the corporation is ___________________________________________ .
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of ________________________________ _________________________________________along with any lawful act or activity for which a corporation may be organized under the Corporation Law of Pennsylvania other than the banking business, the trust company business, or similar prohibition under the corporation law of the State of Pennsylvania. This corporation is formed under the Pennsylvania Business Corporation Law of 1988.
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of Pennsylvania of the corporation's initial agent for service of process is: __________________________________________________________________________________ __________________________________________________________________________________
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of ____________( ) shares. The stock shall be issued at _____ par value. After the subscription price has been paid, the stock shall not be subject to assessment.
V. NUMBER OF SHAREHOLDERS
The corporation's issued shares shall be held of record by not more than _______ persons.
VI. NO PREFERENCES, PRIVILEGES, RESTRICTIONS
No distinction shall exist between the shares of the corporation or the holders thereof.
**** end of partial view of this section ****
ARTICLES FOR THE STATE OF UTAH
Utah has a special requirement that the resident agent actually sign the articles and state that the appointment as resident agent is accepted.
Following this chapter is a general form acceptance of the appointment of resident agent. Also following is the Official Form used in Nevada. only Florida and Utah, however, actually require the agent to sign the Articles.
ARTICLES OF INCORPORATION
OF
_________________________________________________
I. NAME OF CORPORATION
The name of the corporation is ___________________________________________ .
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of ______________________________ _______________________________________________________________________________along with any other any lawful act or activity for which a corporation may be organized under the Corporation Law of Utah other than the banking business, the trust company business, or similar prohibitions under the corporation law of the State of Utah.
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of Utah of the corporation's initial agent for service of process is: __________________________________________________________________________________ __________________________________________________________________________________
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of _____________ ( ) shares. The stock shall be issued at _______ par value. After the subscription price has been paid, the stock shall not be subject to assessment.
V. NUMBER OF SHAREHOLDERS
The corporation's issued shares shall be held of record by not more than __________ persons.
VI. NO PREFERENCES, PRIVILEGES, RESTRICTIONS
No distinction shall exist between the shares of the corporation or the holders thereof.
VII. GOVERNING BOARD
The initial members of the Governing Board shall be styled directors, and the number, names and addresses of the first board of directors, not less than ___________ ( ) are as follows: ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________
VIII. NAMES AND ADDRESSES OF THE INCORPORATORS
The name and address of each of the incorporators signing the Articles of Incorporation is:
**** end of partial sample view of this section ***
ACCEPTANCE OF APPOINTMENT
I, _______________________________________ , hereby accept the appointment as Resident Agent for _____________________________________________ in accordance with the laws of the State of Utah.
DECLARATION
The undersigned declare under penalty of perjury under the laws of the State of Utah that:
Executed on __________________ at __________________________________________ .
INCORPORATOR ________________________________________________
INCORPORATOR ________________________________________________
INCORPORATOR ________________________________________________
INCORPORATOR ________________________________________________
STATE OF ________________________
COUNTY OF ______________________
On _____________________ before me, _________________________________________personally appeared _______________________________________________________________________personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS MY HAND AND OFFICIAL SEAL.
Signature ______________________________
ARTICLES FOR THE STATE OF WEST VIRGINIA
West Virginia has a special requirement that the articles contain the name and address of the person who prepared the articles for signature by the incorporators. This person is usually one of the incorporators.
ARTICLES OF INCORPORATION
OF
_________________________________________________
I. NAME OF CORPORATION
The name of the corporation is ___________________________________________ .
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of ______________________ _________________________________________________________________________ along with any other any lawful act or activity for which a corporation may be organized under the Corporation Law of West Virginia other than the banking business, the trust company business, or similar prohibitions under the corporation law of the State of West Virginia.
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of West Virginia of the corporation's initial agent for service of process is: __________________________________________________________________________________ __________________________________________________________________________________
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of _____________ ( ) shares. The stock shall be issued at _______ par value. After the subscription price has been paid, the stock shall not be subject to assessment.
V. NUMBER OF SHAREHOLDERS
The corporation's issued shares shall be held of record by not more than __________ persons.
VI. NO PREFERENCES, PRIVILEGES, RESTRICTIONS
No distinction shall exist between the shares of the corporation or the holders thereof.
VII. GOVERNING BOARD
The initial members of the Governing Board shall be styled directors, and the number, names and addresses of the first board of directors, not less than ___________ ( ) are as follows: ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________
VIII. NAMES AND ADDRESSES OF THE INCORPORATORS
The name and address of each of the incorporators signing the Articles of Incorporation is: ______________________________________________________________________________ ______________________________________________________________________________
IX. PERPETUAL EXISTENCE
The corporation shall have perpetual existence.
X. MINIMUM CAPITALIZATION
The corporation shall not commence business until it has received over $1,000 in consideration and in exchange for the issuance of its shares.
XI. INITIAL PRINCIPAL OFFICE OF THE CORPORATION
The corporation shall maintain its principal and registered office in the state at the following address: ________________________________________________________________________________
**** end of partial sample view of chapter ****
ARTICLES FOR THE STATE OF WISCONSIN
Wisconsin has a special requirement that the Articles state whether or not the directors are authorized to determine the class or series of shares under section 180.0602(1) of the Wisconsin Business Corporation Law.
Section 180.0602(1) permits the Board to
"(a) determine with respect to any class of shares the preferences, limitations and relative rights in whole or part, before the issuance of any shares of that class.
(b) create one or more series within a class, and with respect to any series, determine the number of shares of the series, the distinguishing designation and the preferences, limitations and relative rights, in whole or part, before issuance of any shares in that series."
Section 180.0602(1) pertains to whether or not the Board is given the authority to later issue a new series of stock without Shareholder Approval. If it is, an amendment of the Articles is still required under Section 180.0602(2).
ARTICLES OF INCORPORATION
OF
_________________________________________________
I. NAME OF CORPORATION
The name of the corporation is ___________________________________________ .
II. PURPOSE
The purpose of the corporation is to engage in the lawful activity of _______________________ _________________________________________________________________________ along with any other any lawful act or activity for which a corporation may be organized under the Corporation Law of Wisconsin other than the banking business, the trust company business, or similar prohibitions under the corporation law of the State of Wisconsin.
III. AGENT FOR SERVICE OF PROCESS
The name and address in the State of West Virginia of the corporation's initial agent for service of process is: __________________________________________________________________________________ __________________________________________________________________________________
IV. STOCK
The corporation is authorized to issue only one class of shares, which shall be designated "common shares", having a total number of _____________________________ ( ) shares. The stock shall be issued at _______ par value. After the subscription price has been paid, the stock shall not be subject to assessment. The Board of Directors IS ( ) IS NOT ( ) authorized to act under section 180.0602(1) of the Wisconsin Business Corporation Law to create or determine any of the rights or terms of a class or series of shares before issuance by the corporation.
**** end of partial sample view of this section ****
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT
AS RESIDENT AGENT FOR
______________________________________
I, _________________________________________, hereby accept the appointment as Resident Agent for ______________________________________________________ in accordance with the terms of the State of _________________________________.
My address in this state is: _________________________________________________ .
The principal executive office for the corporation in the state is ________________________ _______________________________________________________________________
IN WITNESS WHEREOF, I have hereunder set my hand this ________day of ______________ .
____________________________
In the matter of ................................................
Name of Corporation __________________________________________________
I,............................................................... with address at Suite ........, Street...........................
...............................,Town of.......................... County of................... Zip Code ........., State of Nevada,
hereby accept the appointment a Resident Agent of the above- entitled corporation in accordance with NRS. 78.090.
Furthermore, that the mailing address for the above-registered office is:
In Witness Whereof, I have hereunto set my hand this ........day
of............................,199....
..............................
Resident Agent
NRS 78.090 Except during any period of vacancy described in NRS 78.097, every corporation must have a resident agent, who may be either a natural person or a corporation, resident, or located in this state. Every resident agent must have a street address, where he maintains an office for the service of process and may be different from the street address. The address of the resident agent is the registered office of corporation in this state. The resident agent may be any bank or banking corporation or other corporation located and doing business in this state.... The certificate of acceptance must be filed at the time of the initial filing of corporate papers.
**** end of sample view of chapter ****
CHAPTER FIVE
FIRST MEETING OF DIRECTORS
I. INTRODUCTION
After the Articles are filed, the next matter to be accomplished in forming a corporation is the issuance of the stock. It is the issuance of stock that actually creates the true corporate status. There must be a meeting of the directors of the corporation once it is authorized to issue its stock.
The first official meeting of the corporation is called either a "special meeting of directors" or more commonly the "first meeting of directors." It is a meeting of directors because there are no shareholders: the stock has not yet been issued. The meeting is called by the incorporators, who adopt the corporate bylaws and appoint the initial directors if they are not named in the Articles. The incorporators then resign. After the resignation of the incorporators, the directors take charge of the meeting and sign a waiver of notice that permits the meeting to proceed.
II. ACTIONS UNDERTAKEN
A. ELECTION OF OFFICERS
One of the first matters to be addressed by the corporation is the election of officers. The directors appoint the President, Vice President, Treasurer and Secretary along with any assistant officers. After their appointment, the corporate officers assume their duties as specified in the bylaws.
The directors may also fix the corporate salary for the officers or, as is more usual, reserve the setting of salaries for another time. This reservation of time for setting corporate salaries is usually used in newly established corporations. They need time and capital to get in operation. Salaries are established once the corporation starts business.
B. ADOPTING STOCK CERTIFICATES
The directors must adopt the form of the stock certificates for the corporation. This is an important detail because it is the actual issuance of the stock to shareholders that completes the incorporation. The stock is the title document that the shareholders possess to evidence their ownership interest. The directors, by approving the stock certificates, approve the form of the ownership documentation. Stock cannot be sold by the corporation until the form of the stock certificates is approved.
III. AUTHORIZING BANK ACCOUNTS
The directors must authorize the President to open a corporate bank account. The directors also authorize who may be the signatory on the accounts. Usually, the directors permit the President and Treasurer to sign the corporate accounts. The directors may authorize special smaller accounts for other agents and their signatures.
IV. AUTHORIZING PRINCIPAL EXECUTIVE OFFICE
The Articles of Incorporation may list the location of the principal executive office for the corporation. The directors still should adopt a location at the first meeting for the principal executive office. This is for the future director meetings unless changed by a corporate resolution or waiver.
V. ISSUANCE OF SHARES
The corporation can only issue stock if approved by the directors. Therefore, at the first meeting the directors approve the corporation's issuance of stock pursuant to state law. The directors routinely approve a resolution where the stock issued is intended to qualify as "1244 stock" under the Internal Revenue Code. Such 1244 stock permits the share-holders, in the event of the corporation's dissolution, to take their losses on the stock as ordinary losses rather than capital losses.
The directors approve the status, common or preferred, of the stock to be issued and the number of shares that the corporation is authorized to issue.
VI. SUBCHAPTER S ELECTION
The directors may approve a Subchapter S Election at the meeting. The President is then authorized to prepare the necessary Form 2553 for signature by all of the shareholders. In addition, the shareholders will be required to sign the shareholder consent.
If the directors do not approve the Subchapter S election, the corporation is not barred from making the election at another time.
***** end of partial sample view of this section *****
X. FORMS AND INSTRUCTIONS
The forms that follow are:
1. Waiver of Notice of Special Meeting
of Board of Directors
2. Minutes of First Meeting of Directors
This set of forms also includes additional replacement sheets for a corporation that elects Subchapter S status and another replacement set for a corporation that chooses not to elect Subchapter S status. Blank forms are available for removal in the back of the book.
WAIVER OF NOTICE OF SPECIAL MEETING
OF THE BOARD OF DIRECTORS
The undersigned, being all of the directors of ________________________________________a corporation duly formed and incorporated under the laws of the State of ____________________ , do hereby waive notice of the time, place and purpose of a special meeting of the board of directors of the corporation. The directors designate the ____________day of ___________at _______ , as the time and _____________________________ ______________________ , as the place of said meeting, the purpose of said meeting being to issue stock, elect officers, adopt corporate bylaws and to transact such other business as may be necessary or advisable to enable the corporation to carry on its contemplated business.
Dated: ______________ ____________________________
MINUTES OF FIRST MEETING OF DIRECTORS
FOR CORPORATION ELECTING SUBCHAPTER S
TAX TREATMENT
These minutes are for a new business, not a existing business such as a partnership or sole-proprietorship, that is being incorporated.
This corporation is electing to be treated as a Subchapter S corporation from its very beginning.
(sample)
ACTION OF INCORPORATOR
AND
MINUTES OF SPECIAL MEETING OF THE BOARD OF DIRECTORS
HOPELAND CORPORATION
The incorporator of HOPELAND CORPORATION took, and has taken, the following action for the corporation on this 15TH day of JUNE, 2015 .
A special meeting of the board of directors of HOPELAND CORPORATION , a corporation incorporated under the laws of OHIO was held at 3336 LOVELAND ROAD, YOUNGSTOWN, OHIO on JUNE 15, 2015 pursuant to a Waiver of Notice signed by all of the directors.
There were present NINA RODDY, JAMES RODDY and PAUL RODDY , constituting all of the board. NINA RODDY was chosen as the Chairman and PAUL RODDY was chosen Secretary of the meeting.
The Chairman then stated that the next matter of business to come before the meeting was the election of officers of the corporation to hold office until their respective successors are elected and shall qualify.
The following persons were nominated and duly elected by affirmative vote of all of the directors to the offices of the corporation set forth before their respective names.
President NINA RODDY
Vice President PAUL RODDY
Secretary JAMES RODDY
Treasurer NINA RODDY
The Chairman reported that the Articles of Incorporation of the corporation were filed in the office of the Secretary of the State of OHIO on JUNE 1, 2015 . The Secretary was instructed to cause a copy of the Articles of Incorporation to be inserted in the minute book preceding the bylaws and minutes of this meeting.
The Secretary was instructed to insert in the minute book the original bylaws adopted on JUNE 15, 2015 , by the incorporators named in the Articles of Incorporation. The Secretary was further instructed to cause the minute book containing the original bylaws, certified by the Secretary or by an assistant Secretary to be a true copy thereof, or a copy of the bylaws as amended to date and certified in the same manner, to be kept at the principal office of the corporation for inspection by the shareholders at all reasonable times during office hours as provided by law.
After discussion on the matter of salaries for the officers and upon motion duly made, seconded, and carried, it was:
RESOLVED that the officers of this corporation shall serve without salary until fixed by the board of directors.
The Secretary thereupon presented to the meeting a form of certificate for shares of the corporation, and upon motion duly made, seconded, and carried, it was:
RESOLVED that the certificates to represent the shares of this corporation shall be in the form of the specimen certificate presented to this meeting, and that the Secretary hereby is instructed to insert said specimen certificate in the minute book of this corporation immediately following the minutes of this meeting.
The Secretary was authorized and directed to procure the proper corporate books.
**** end of partial sample view of this section ****
MINUTES FOR CORPORATION WHICH DOES NOT
ELECT TO HAVE SUBCHAPTER S TAX TREATMENT
AT ITS FIRST MEETING OF DIRECTORS
These minutes start at the end of the Section 1244 resolutions and before the §1362 paragraph and replace those of the preceding set (the first six pages which is identical for both sets). They are for a new corporation starting to do business and not an existing business which is being incorporated.
Such a corporation retains the right for future years to elect Subchapter S treatment if it do desires. For example, in five years, the corporation may decide to become a S corporation. It can then do so by adopting a corporate resolution and with the consent of the shareholders. The procedure for such a subsequent election is set forth later in this book. If an election is subsequently made, then from that point forward the corporation will be treated as a S corporation. The election for Subchapter S treatment can be made no later than 75 days of the beginning of each tax year or the election will not be effective for that tax year but will begin with the next tax year.
SAMPLE
The President stated that NINA RODDY had offered to purchase FIVE HUNDRED TEN THOUSAND (510,000) shares of the corporation for FIVE THOUSAND ONE HUNDRED Dollars ($5,100).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of OHIO and upon payment of FIVE THOUSAND ONE HUNDRED Dollars ( $5,100), to issue to NINA RODDY ( 510,000) shares of the corporation.
The President stated that PAUL RODDY had offered to purchase TWO HUNDRED NINETY THOUSAND (290,000) shares of the corporation for TWO THOUSAND NINE HUNDRED Dollars ( $2,900 ).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of OHIO and upon payment of TWO THOUSAND NINE HUNDRED Dollars ($2,900) to issue to PAUL RODDY 290,000 shares of the corporation.
The President stated that NOT APPLICABLE had offered to purchase ________________ shares of the corporation for _________________________________Dollars ($ )
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of _________________and upon payment of _______________________ Dollars ($ ) to issue to ______________________________ shares of the corporation.
The President stated that NOT APPLICABLE had offered to purchase __________________ shares of the corporation for _______________________________Dollars ($ ).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of _________________and upon payment of _______________________ Dollars ($ ) to issue to ______________________________ shares of the corporation.
The President stated that JAMES RODDY had offered to purchase TWO HUNDRED THOUSAND (200,000) shares of the corporation for one hundred percent (100%) of his interest in the property to be transferred into the corporation's name described in the written offer of JUNE 15, 2015 .
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of OHIO to issue to JAMES RODDY TWO HUNDRED THOUSAND (200,000) shares of the corporation.
***** end of partial sample view of this section ****
MINUTES FOR AN EXISTING BUSINESS THAT IS INCORPORATING
AND WHICH ELECTS SUBCHAPTER S TAX TREATMENT
AT THE FIRST MEETING OF DIRECTORS
These minutes start at the end of the section 1244 resolutions and after the §1362 paragraph and replace all of the pages following pages from the first set of minutes. (The first eight pages of the first set minutes are the same for both sets.)
This set of minutes is for an existing partnership or sole-proprietorship that is incorporating and seeks Subchapter S treatment from the very beginning.
The next matter to come before the meeting was the offer of NINA RODDY AND PAUL RODDY doing business under the name of RODDY BOOKEEPING to transfer to this corporation the business and all of the assets of the business in consideration of the assumption of certain liabilities of the business and the issuance by this corporation to NINA RODDY FIVE HUNDRED TEN THOUSAND (510,000) shares of the corporation, PAUL RODDY TWO HUNDRED NINETY THOUSAND shares of this corporation, NOT APPLICABLE shares of this corporation's stock.
Upon motion duly made, seconded and carried, it was:
RESOLVED it is deemed to be in the best interest of the corporation to accept the offer, and
RESOLVED FURTHER that the President and Secretary are authorized, upon compliance with the securities laws of the State of OHIO to issue to NINA RODDY FIVE HUNDRED TEN THOUSAND (510,000) shares of the corporation, and
RESOLVED FURTHER the President and Secretary are authorized, upon compliance with the securities laws of the State of OHIO to issue to PAUL RODDY TWO HUNDRED NINETY THOUSAND (290,000) shares of the corporation, and
RESOLVED FURTHER that the President and Secretary are authorized, upon compliance with the securities laws of the State of to issue to NOT APPLICABLE shares of the corporation, and
RESOLVED FURTHER that upon filing of the Notice of Creditors of Bulk Transfer by NINA RODDY and PAUL RODDY and the completion of the statutory period, the corporation shall deliver the certificates of stock representing 510,000 shares of stock to NINA RODDY , 290,000 shares of stock to PAUL RODDY upon delivery of the assets of said business and the execution of all documents as are necessary and required to effect the transfer of said business to this corporation.
The President stated that NOT APPLICABLE had offered to purchase ________________ ___________________shares of the corporation for __________________Dollars ($___________).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of _______________ and upon payment of _____________________Dollars ($ ) to issue to ________________________shares of the corporation.
The President stated that N/A had offered to purchase ________________________shares of the corporation for _______________Dollars ($ ).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of ____________ and upon payment of _______________ Dollars ($ ) to issue to ______________________ shares of the corporation.
The President stated that N/A had offered to purchase ___________________ shares of the corporation for _________________Dollars ($ ).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of _________________ and upon payment of ___________________Dollars ($ ) to issue to___________________________________ shares of the corporation.
The President stated that N/A had offered to purchase __________________ shares of the corporation for __________________ Dollars ($ ).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of _________________ and upon payment of ___________________Dollars ($ ) to issue to___________________________________ shares of the corporation.
The President stated that JAMES RODDY had offered to purchase TWO HUNDRED THOUSAND (200,000) shares of the corporation for one hundred percent (100%) of his interest in the property previously transferred into the corporation's name.
Upon motion duly made, seconded, and carried, the President and Secretary were authorized upon compliance with the securities laws of the State of OHIO to issue to JAMES RODDY TWO HUNDRED THOUSAND (200,000) shares of the corporation.
Upon motion duly made, seconded, and carried, it was:
RESOLVED that for the purpose of authorizing this corporation to do business in any state, territory or dependency of the United States or any foreign country in which it is necessary or expedient for the corporation to transact business, the proper officers of this corporation be and they hereby are authorized to appoint and substitute all necessary agents or attorneys for service of process, to designate and change the location of all necessary statutory offices and under the corporate seal to make and file all necessary certificates, reports, powers of attorney, or other instruments, as may be required by the laws of such state, territory or dependency or country to authorize this corporation to transact business therein, and whenever it is expedient for this corporation to cease doing business therein and withdraw therefrom, to revoke any appointment of agent or attorney for service of process, and to file such certificates, reports, revocation of appointment or surrender of authority as may be necessary to terminate the authority of this corporation to do business in any such state, territory, dependency, or country.
Upon motion duly made, seconded, and carried, it was:
*** end of partial sample view of this section ***
MINUTES FOR AN EXISTING BUSINESS WHICH IS INCORPORATING BUT DOES NOT ELECT TO OBTAIN SUBCHAPTER S TREATMENT AT THE FIRST MEETING OF DIRECTORS
These minutes start at the end of Section 1244 resolutions and before the §1362 paragraph and replace from thereon the pages of the first set of minutes. The first six pages of the first set is identical for both sets.
These Minutes are for a new corporation an existing business which is being incorporated which does not elect Subchapter S election from the date of its incorporation.
Such a corporation retains the right for future years to elect Subchapter S treatment if it do desires. For example, in five years, the corporation may decide to become a S corporation. It can then do so by adopting a corporate resolution and with the consent of the shareholders. The procedure for such a subsequent election is set forth later in this book. If an election is subsequently made, then from that point forward the corporation will be treated as a S corporation. The election for Subchapter S treatment can be made no later than 75 days of the beginning of each tax year or the election will not be effective for that tax year but will begin with the next tax year.
The next matter to come before the meeting was the offer of NINA RODDY AND PAUL RODDY doing business under the name of RODDY BOOKEEPING
to transfer to this corporation the business and all of the assets of the business in consideration of the assumption of certain liabilities of the business and the issuance by this corporation to NINA RODDY FIVE HUNDRED TEN THOUSAND (510,000) shares of the corporation, PAUL RODDY TWO HUNDRED NINETY THOUSAND shares of this corporation, NOT APPLICABLE shares of this corporation's stock.
Upon motion duly made, seconded and carried, it was:
RESOLVED it is deemed to be in the best interest of the corporation to accept the offer, and
RESOLVED FURTHER that the President and Secretary are authorized, upon compliance with the securities laws of the State of OHIO to issue to NINA RODDY FIVE HUNDRED TEN THOUSAND (510,000) shares of the corporation, and
RESOLVED FURTHER the President and Secretary are authorized, upon compliance with the securities laws of the State of OHIO to issue to PAUL RODDY TWO HUNDRED NINETY THOUSAND (290,000) shares of the corporation, and
RESOLVED FURTHER that the President and Secretary are authorized, upon compliance with the securities laws of the State of to issue to NOT APPLICABLE shares of the corporation, and
RESOLVED FURTHER that upon filing of the Notice of Creditors of Bulk Transfer by NINA RODDY and PAUL RODDY and the completion of the statutory period, the corporation shall deliver the certificates of stock representing 510,000 shares of stock to NINA RODDY , 290,000 shares of stock to PAUL RODDY upon delivery of the assets of said business and the execution of all documents as are necessary and required to effect the transfer of said business to this corporation.
The President stated that NOT APPLICABLE had offered to purchase __________________ shares of the corporation for _______________________________Dollars ($ ).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of _________________ and upon payment of ___________________Dollars ($ ) to issue to___________________________________ shares of the corporation.
The President stated that N/A had offered to purchase __________________________shares of the corporation for _______________________________ Dollars ($ ).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of _________________ and upon payment of ___________________Dollars ($ ) to issue to___________________________________ shares of the corporation.
The President stated that N/A had offered to purchase _______________________shares of the corporation for _______________________ Dollars ($ ).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of _________________ and upon payment of ___________________Dollars ($ ) to issue to___________________________________ shares of the corporation.
The President stated that N/A had offered to purchase ______________________shares of the corporation for __________________________ Dollars ($ ).
Upon motion duly made, seconded, and carried, the President and Secretary were authorized, upon compliance with the securities laws of the State of _________________ and upon payment of ___________________Dollars ($ ) to issue to___________________________________ shares of the corporation.
The President stated that JAMES RODDY had offered to purchase TWO HUNDRED THOUSAND (200,000) shares of the corporation for one hundred percent (100%) of his interest in the property previously transferred into the corporation's name.
Upon motion duly made, seconded, and carried, the President and Secretary were authorized upon compliance with the securities laws of the State of OHIO to issue to JAMES RODDY TWO HUNDRED THOUSAND (200,000) shares of the corporation.
Upon motion duly made, seconded, and carried, it was:
RESOLVED that for the purpose of authorizing this corporation to do business in any state, territory or dependency of the United States or any foreign country in which it is necessary or expedient for the corporation to transact business, the proper officers of this corporation be and they hereby are authorized to appoint and substitute all necessary agents or attorneys for service of process, to designate and change the location of all necessary statutory offices and under the corporate seal to make and file all necessary certificates, reports, powers of attorney, or other instruments, as may be required by the laws of such state, territory or dependency or country to authorize this corporation to transact business therein, and whenever it is expedient for this corporation to cease doing business therein and withdraw therefrom, to revoke any appointment of agent or attorney for service of process, and to file such certificates, reports, revocation of appointment or surrender of authority as may be necessary to terminate the authority of this corporation to do business in any such state, territory, dependency, or country.
Upon motion duly made, seconded, and carried, it was:
RESOLVED that the Treasurer's action in paying all fees and expenses incident and necessary to the organization of the corporation be and hereby is approved. And further, that the Treasurer be authorized and directed to procure and pay for the proper corporate books.
The Secretary presented a seal conforming to the bylaws, and on motion duly made, seconded, and carried, it was:
RESOLVED that the seal, an impression of which is hereon imprinted, be adopted as the corporate seal of this corporation.
Upon motion duly made, seconded, and carried, it was:
RESOLVED that any officer of the corporation be and hereby is authorized to execute contracts on behalf of the corporation.
The next item to come before the meeting was the adoption of a fiscal year for the corporation and upon motion duly made, seconded, and carried, it was:
RESOLVED that a calendar year of January 1 to December 31 be and hereby is adopted as the fiscal year of the corporation.
The Secretary was instructed to file with the minutes of the meeting the Waiver of Notice of this meeting.
There being no further business to come before the meeting, upon motion duly made, seconded, and carried, the meeting was thereupon adjourned.
Secretary of the Meeting
***** end of sample view of chapter *****
CHAPTER 6
BYLAWS
I. DEFINITION
Bylaws are the corporate rules adopted for the general day-to-day management and operation of the corporation. At the first meeting of directors, when the corporation is formed, the bylaws are adopted by the incorporator. While the articles of incorporation establish the governing structure of the corporation, the bylaws regulate the management of the business and conduct of the corporation. The bylaws prescribe the rights and duties of the members of the corporation towards the corporation and among themselves in relationship to the management and its affairs.
In its decision Casady v. Modern Metal & Spinning Mfg. (1961) 188 Cal.App.2d 728, the California Court of Appeals stated the position of most states: bylaws are to be construed as a contract between the shareholders and the corporation and also as a contract with the shareholders.
Bylaws are an attempt to cover the many areas of potential conflict within a corporation by the assignment of duties and responsibilities. Bylaws can be general in nature or closely tailored to the needs and desires of the shareholders. Most bylaws will contain or mention most of the issues covered in the sample bylaws in this book.
Bylaws are not set in concrete. Shareholders can alter or amend the bylaws by holding a meeting and doing so. The purpose of bylaws is to establish the procedure for the daily administration and management of the corporation. As the corporation grows and develops, the bylaws may be amended to keep pace with new requirements.
II. ADOPTION
A. AUTHORITY TO ADOPT
The corporation may adopt, amend and repeal the corporate bylaws. Common law recognized that a fundamental element of corporate law was that a corporation has the inherent right to make bylaws that are not inconsistent with federal or state laws. A corporation may not adopt bylaws that are in conflict with the articles of incorporation, and bylaws must be reasonable concerning the overall circumstances of the situations which they address.
While a corporation has the right to adopt bylaws, it is not required to do so. Should a corporation fail to adopt any bylaws, the authority to perform those acts that are normally governed by the bylaws is vested in the board of directors.
The failure of a corporation to adopt bylaws can have disastrous results. The worst scenario that could result from the failure to adopt bylaws is a court finding that a real corporation was never intended to be created. The prime proof of the existence of a corporation is the manner in which it is operated. A business that acts as a partnership will be treated as a partnership even though it is incorporated. Not having bylaws is evidence that a corporation really was never intended.
All things considered, there is no valid justification for a corporation not to adopt bylaws. Not adopting bylaws may result in the corporation losing its shield against personal liability for the shareholders. Simply considered, there just is no reason to endure such a risk.
B. WHO AND HOW ADOPTED
Bylaws can be adopted in one of three ways. The first is by the incorporator adopting the initial bylaws at the first meeting of directors. Most bylaws are originally adopted by the incorporator at this meeting. In fact, the minutes of the first meeting of directors that are contained in this book call for the incorporator to adopt the original bylaws for the corporation. The second method of adopting bylaws is through a meeting of shareholders; on vote, a majority of the shareholders approve the bylaws. The third method of adopting or changing by-laws is through a meeting of the board of directors of the corporation wherein a majority of the board adopts, amends or repeals the bylaws.
There are some bylaws, however, that can only be changed by the shareholders. A Bylaw changing the number of directors for a corporation can only be changed by a majority vote of the shareholders. In like manner, shareholders alone determine if the board of directors can be changed from a variable board to fixed board or vice versa.
The articles of incorporation may require more than a simple majority of votes in approving any change of the bylaws. In addition, the Articles may restrict or eliminate the power of the board of directors to adopt, alter, amend or in any way affect the bylaws.
The original or a copy of the bylaws that are certified to be a true copy of the bylaws executed by the corporate secretary or assistant secretary is prima facie evidence of the adoption of those bylaws and the matters stated in them.
*** end of partial sample view of this section ***
_____________________________________
Section 1. PRINCIPAL OFFICE. The principal office of _______________________________ hereinafter referred to as the corporation shall be in the City of ______________________________________or such other place as designated by resolution of the Board of Directors of the corporation.
Section 2. OTHER OFFICES. The Board of Directors may also elect to open other offices of the corporation both within and without the State of ___________________ to conduct the business of the corporation.
Section 1. ANNUAL MEETINGS. At least one meeting of the shareholders will be held each year. This annual meeting will be held at the principal office of the corporation designated in Article 1, or such other place as chosen by the Board of Directors.
The annual meeting of shareholders shall be held on a date and at a time designated by the Board of Directors beginning inn the year . The purpose of the annual meeting will be to transact any and all business of the corporation including but not limited to the election of the Board of Directors and the ratification of the acts of the Board of Directors undertaken since the last meeting of shareholders.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called for any purpose or purposes by:
All requests for a special meeting of shareholders must state the reason for which the special meeting of shareholders is being sought. Requests to have a special meeting of shareholders will be considered served on the Board of Directors of the corporation if they are given to any member of the Board of Directors or any officer of the corporation by either personal delivery or certified mail.
Upon receipt of a valid request for a special meeting of shareholder, the Board of Directors, will schedule a special meeting at a date not less than thirty (30) days and no more than sixty (60) days from the receipt of the request. The Board of Directors shall given notice of the special meetings to all shareholders entitled to vote.
If the Board of Directors fails to give the notice of the special meeting, the person or persons making the request for the special meeting may set the date and time of the special meeting and give the notice themselves.
Section 3. NOTICES OF MEETINGS. Notices of all shareholder meetings shall be in writing and must be signed by the President, Vice-President or Secretary of the corporation. All notices of a shareholder meeting must contain a statement as to the purpose for which the meeting is to be called and any special business which is to be conducted therein. The notice must also state the date, time and place of the meeting. The notice must be either delivered or mailed to each shareholder, at least fifteen (15) days before the meeting. If the notice is mailed, then it must be sent to the last known address of the shareholder as it appears on the corporation's books. Upon such mailing, the service shall be deemed complete. If the corp[oration does not have an address of a shareholder or knows that the address it has is no longer valid, it shall give notice to that shareholder by publishing it at least once in a newspaper of general circulation in the County of the corporation's principal office.
Personal delivery of a notice to any officer of a corporation, a member of an association, or any partner of a partnership which is a shareholder shall constitute valid service on the corporation, partnership or association. If a shareholder transfers his or her shares in the corporation after notice of a meeting has been given, the corporation is not required to give a notice of the meeting to the new shareholder.
The officer of the corporation giving notice of the meeting shall file a declaration with the minutes of the corporation stating that notice of the meeting has been duly given to all shareholders entitled to vote.
If a meeting is adjourned, after being properly called, for less than thirty (30) days, no new notice need be given to the shareholders. If a meeting is adjourned for more than thirty (30) days, a new notice of the date, time and place or the resumption of the meeting must be given to the shareholders.
Section 4. BUSINESS AT THE MEETING. At a special meeting of shareholders, the business transacted therein shall be limited to that which is stated in the notice of the meeting unless all of the shareholders are present and all agree to additional business being conducted.
Section 5. QUORUM FOR MEETING. If shareholders representing a majority of the corporate shares, issued, outstanding and entitled to vote are present either in present or by proxy, then a quorum shall exist for conducting the meeting. If, however, a quorum does not exist either in person or by proxy, then a valid meeting can not be held.
If a quorum is present when the meeting is called, then the shareholders may continue to hold meeting and transact business until adjournment, even if some shareholders leave so that a quorum is no longer present, provided a majority of shareholders who constituted the initial quorum still remain.
Section 6. MAJORITY RULES. At a duly called meeting with a present quorum, the vote of shareholders holding a majority of the voting shares of the corporation, either in person or by proxy, shall determine the passage of any corporate resolution or other business matter unless either state law or the Articles of Incorporation requires a different percentage of vote.
Section 7. RECORDS DATE. Only those persons or entities who are shown to be the owners of corporate stock in the records of the corporation on the day of any meeting of shareholders, or such other day as fixed by the Board of Directors, shall be entitled to vote.
The Board of Directors may set a time up to sixty (60) days prior to:
Only those persons or entities of record on the date fixed by the Board of Directors shall be entitled to receive notice of the shareholders' meeting and vote therein, receive corporate dividends or other distributions, or exercise any rights in the corporation.
Section 8. CUMULATIVE VOTING. Unless precluded by state law or the Articles of Incorporation, every shareholder shall be entitled to exercise the right of cumulative voting. As such, at each meeting of shareholders wherein directors are to be elected, each shareholder shall be entitled to as many votes as shall equal the number of the shareholder shares multiplied by the number of directors to be elected. The shareholder may cast all of such votes for a single director or may distribute them among any or all of the directors to be elected as the shareholder may decide.
Section 9. PROXIES. At any shareholder meeting, a shareholder may be represented by a person or persons tom vote for the shareholder. A proxy must be in writing and designate under what terms the person holding the proxy may vote. A proxy shall not be valid for more than ninety (90) days after the date of its execution unless the shareholder executing it specifies the time for which it will last, but in no event shall it remain in force for more than two years from the date of its execution. Once duly created, a proxy shall remain in effect until it expires, is revoked, or another proxy is subsequently given to another person.
Section 10. ACTION TAKEN WITHOUT A MEETING. Except for the election of directors, shareholders can, without a meeting, undertake any business that would otherwise require a meeting if authorized by the written consent of shareholders holding a majority of voting power, unless state law or the Articles of Incorporation requires a higher voting percentage.
Section 11. CONSENTS TO MEETINGS. The actions undertaken at a meeting of shareholders, which was not properly called and noticed, shall nevertheless be valid if:
All such waivers and consents must be filed with the corporate books and made a part of the minutes of the corporate meeting therein. A shareholder's attendance of a meeting which was not properly called and noticed shall constitute a waiver of notice unless an objection is made on the record at the meeting.
Section 12. CONDUCT OF MEETING. The President, if present and if not then the Vice-President, shall call a meeting of shareholders together and preside over the meeting as the Chairman. If neither the president or the vice-president are present, the shareholders shall appoint a person to serve as the chairman. The Secretary of the corporation, if present and if not a person chosen by the shareholders, shall serve as the secretary of the meeting of shareholders.
Section 13. SHAREHOLDER'S AGREEMENTS. If the corporation subsequently elects to become a close corporation, if permitted under state law, then the corporation may be managed by shareholder agreements. In such a situation, two or more shareholders may, through a written agreement, agree among themselves that their voting rights will be exercised in accordance with the terms of the agreement and shall modify the provisions governing shareholder meetings and actions undertaken therein.
A shareholder agreement can only act to modify, alter or amend these By-laws if the corporation elects to become a close corporation. In order to receive close corporation status, the corporation must comply with appropriate state law including the amendment of the Articles of Incorporation, if appropriate, and any necessary corporate filing. All shareholder agreements shall terminate upon the corporation ceasing to be a close corporation. A shareholder agreement shall not waive the statutory requirements for a close corporation along with corporate law regarding distributions, mergers, reorganizations or dissolutions.
Except where prohibited by statute or the Articles of Incorporation or by state law, a shareholders' agreement may alter these By-Laws but to the extent that the By-Laws are not altered or amended, they shall remain in full force and effect.
Section 1. NUMBER OF DIRECTORS. The number of directors which will compose its Board of Directors shall be . All directors shall be of legal age and at least one director shall be an American citizen. The directors shall be elected at the annual meeting of shareholders except where a vacancy is filled pursuant to section 4 below. Each director shall hold office until a successor is elected or appointed. Directors do not need to be shareholders of the corporation.
Section 2. STANDARD OF CARE. Each director shall perform his or her duties, including those of being a member on any corporate board, in good faith. Each Director shall execute all duties through the use of the standard as to what, in the director's opinion, is in the best interests of the corporation. In making all decisions, a director shall utilize such reasonable care and inquiry as a reasonably prudent person in a like situation would employ.
Section 3. TREATMENT FOR CLOSE CORPORATION. If a corporation elects to be treated as a close corporation under applicable state law, if appropriate, the shareholders may then enter into shareholder agreements to manage the corporation. The shareholder agreements may provide for the exercise of corporate powers along with the management of the corporation. When the shareholders, by virtue of shareholder agreements are responsible for the management of the corporate affairs, the shareholders who are a party to the shareholder agreement will be liable for managerial acts undertaken pursuant to the shareholder agreements that would be imposed on the Directors had they undertaken the same in the absence of a shareholder agreement. Directors shall be relived of liability for actions undertaken pursuant to a shareholder agreement.
**** end of sample view of chapter ****
CHAPTER SEVEN
STOCK
The most important characteristic of a corporation is that its ownership is reflected by a stock certificate. All rights in a corporation that a shareholder may possess derive from the fact that the shareholder owns stock certificates in the corporation.
A stock certificate is a title document, much in the same vein as a deed is a title document to a piece of real property. A stock certificate states on its face that a certain person or entity is to be treated as owning and controlling the number of shares designated on the stock certificate.
Control of a corporation is usually determined by a majority vote of the outstanding issued shares of a corporation. Stock can be issued as either voting or non-voting shares. It can also be issued as common (that is with ordinary rights) or preferred (with special rights) usually being guaranteed dividends, special voting rights, or special conversion rights to turn the preferred stock into common stock or bonds.
This book contains general stock certificates for the corporation that can be used for the corporation to be formed. Fancy engraved stock certificates can be purchased from any printer, usually for $10 per 20. The stock certificates in this book are sufficient for the normal small corporation. All that has to be done is for the stock certificate to be completed. As an example there follows a sample certificate for ABCDE CORPORATION issuing 500 shares to Jane A. Doe. The sale of the shares is reflected on the stock certificate. The stock certificate must be signed by both the president and secretary. (The certificate should be signed in blue ink to show that it is an original stock certificate and not a copy).
Following this chapter is also a stock register for the corporation. The stock register is important because it states who the owner is for each stock certificate that is issued. It is from the stock register that the shareholders eligible to vote at shareholder meetings are determined. Under the bylaws, only the registered owners on a certain date before a shareholder's meeting can exercise voting privileges even though the person may no longer own the stock. For example, assume that the bylaws state that only a person shown as the owner five days before the meeting can vote. George sold his stock to Mary three days before the meeting. Mary cannot vote, but George still can vote. As can be seen, it is very important to keep the stock book up to date.
On the back of each certificate is a shareholder transfer statement. Whenever the shareholder transfers shares of stock, the shareholder completes the back of the certificate. The new owner then submits the certificate to the corporate secretary who cancels the stock by writing canceled on it and issues a new certificate to the new owner. For example, assume that George owns certificate Number 5 and sells it to Mary. The corporation will cancel George's certificate and issue Mary certificate Number 8.
STOCK REGISTER
***end of sample view of section ****
OF
______________________________________
AUTHORIZED CAPITAL______________________
STATE OF __________________________________
CERTIFICATE NUMBER _____________________
THIS CERTIFIES THAT ___________________________________________
Is the record holder of __________________________________ ( ) shares of common stock of
transferable only on the books of the Corporation by the holder thereof in person or by Attorney In Fact upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers this ______ Day of ___________ A.D. _____________ .
_____________________________
PRESIDENT
_____________________________
SECRETARY
**** end of sample view of chapter ****
CHAPTER EIGHT
BULK SALES
When one or more shareholders are transferring the assets of a prior business to a corporation in return for stock, the corporation should be aware of the State's Bulk Sales Law. Virtually all states have adopted the Uniform Commercial Code in some fashion, giving notice to creditors of a bulk transfer of assets of a business.
The purpose of the Bulk Sales Law is to prevent business owners from attempting to defraud or avoid creditors by transferring all or substantially all (the bulk) of the assets of the business to another person or entity. The law also seeks to prevent the situation wherein the business sells its assets in a bargain or "sweetheart sale" (below fair market value) whereby the owner of the business still retains some degree of control. For example, the Bulk Sales Law applies for the sale of business assets to another business that the owner also controls.
For most incorporations of existing businesses, there is no desire or plan to defraud creditors. These incorporations simply change the form of the business; they do not attempt to dissociate themselves from the debts of the prior business. Where the corporation assumes the debts of the unincorporated business and receives its assets, the compliance with any Bulk Sales Law is a mere formality. The corporation will be responsible for the debts of the business transferring the assets to the extent of the value of the assets transferred.
The concern arises when the business transferring all of its assets to the corporation has debts that the corporation does not assume. The corporation should consult an attorney to ensure it will not become liable for those debts if it takes the assets from the other business. The Bulk Sales Law of each state was enacted to help settle such disputes.
If the business transferring the assets has any outstanding debts the corporation will not assume, the Bulk Transfers Act of the Uniform Commercial Code requires a corporation to do the following before it can safely issue its stock:
After the Notice is given to the creditors, if the creditors do not object to the transfer, the corporation can take possession and title to the assets free of all creditors claims.
If, however, creditors for the prior business present claims against the property then special rules apply. Section 6-106 Commercial Code reads as follows:
(1) The notice to creditors (Sections 6-105) shall state:
(a) that a bulk transfer is about to be made; and
(b) the names and business addresses of the transferor and transferee, and all other business names and addresses used by the transferor within three years last past so far as known to the transferee; and
(c) whether or not all of the debts of the transferor are to be paid in full as they fall due as a result of the transaction, and if so, the address to which creditors should send their bills.
(2) If the debts of the transferor are not to be paid in full as they fall due or if the transferee is in doubt on that point then the notice shall state further:
(a) the location and general description of the property to be transferred and the estimated total of the transferror's debts;
(b) the address where the schedule of property and list of creditors (Section 6-104) may be inspected;
(c) whether the transfer is to pay existing debts and if so the amount of such debts and to whom owing;
(d) whether the transfer is for new consideration and the time where creditors of the transferor are to file their claims; [and]
(e) if for new consideration the time and place where creditors of the transferor are to file their claims.]
(3) The notice in any case shall be delivered personally or sent by registered or certified mail to all persons shown on the list of creditors furnished by the transferor (Section 6-104) and to all other persons who are known to the transferee to hold or assert claims against the transferor. As amended 1962.
If the corporation wants the property of a prior business in exchange for its stock and creditors are asserting their rights, the corporation must either pay the creditors (which amounts to paying twice for the property) or deposit the shares with the court and let the court decide who owns them. If the court decides, the corporation may find itself with entirely unexpected shareholders with whom the other shareholders cannot operate. Therefore, in the event of a bulk transfer dispute the corporation must seek expert, experienced advice before proceeding with the transaction.
The next page is a typical Bulk Transfers Act "Notice to Creditors of Bulk Transfers."
RECORDING REQUESTED BY
WHEN RECORDED MAIL TO
____________________________________________________________________________________ Space above the line is for Recorder's use
NOTICE is hereby given to the CREDITORS of __________________________________________
Transferor (s), whose business address is _______________________________________________ ,
County of ________________ , State of _________________________________ .
The property is described as general: ALL STOCK IN TRADE, FIXTURES EQUIPMENT AND GOOD WILL OF THAT:
_______________________________________________________________________________ TYPE OF BUSINESS
BUSINESS KNOWN AS _________________________________________________ NAME OF BUSINESS
and located at __________________________________________________________________,County of _____________________ State of ______________________ .
The Bulk Transfer will be consummated on or after the __________ day of ________ , 199__ at OFFICE NAME _________________________________________________________________, STREET ADDRESS _______________________________________________________________ County of ____________State of _______________.
So far as known to the Transferee(s), all business names and addresses, used by the Transferror(s) for the three years past are(same, put same, if none, put none, if any, list them).
BUSINESS NAME _________________________________________________________________ STREET ADDRESS____________________________________________________________________ COUNTY _________________________ STATE ___________________________
BUSINESS NAME _________________________________________________________________ STREET ADDRESS____________________________________________________________________ COUNTY _________________________ STATE ___________________________
Dated: _____________________
TRANSFEREE___________________
TRANSFEREE __________________
CERTIFICATE OF ACKNOWLEDGMENT OF NOTARY PUBLIC
STATE OF ________________________
COUNTY OF ______________________
On __________________before me, ________________________________________ personally appeared _____________________________________________________________________________ personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies) and that by his/her/their signature(s) on he instrument the person(s), or the entity upon which the person(s) acted, executed the instrument.
WITNESS MY HAND AND OFFICIAL SEAL.
Signature
CHAPTER 9
SECURITY LAWS AND COMPLIANCE
I. INTRODUCTION
Stock in a corporation is considered securities under both state and federal law. A corporation's sale of its stocks requires the stock be registered and a permit (license) for the sale be obtained unless the stock is exempt from registration. The costs for registering a security under federal law can easily exceed $100,000 and a year or longer to complete.
Both state and federal security laws provide exemption from registration for certain kinds of stocks. These exemptions are available only to small businesses that have not attempted to sell their securities through a public offering (public advertisement or solicitation). Exemptions for both state and federal security laws apply when the corporation is a new business being formed or an existing business (whether sole proprietorship or partnership) is being changing into a corporation. The corporations's shareholders are the prior owners and possibly some of those who have worked closely with the prior business. In such a situation, there is no need for a public solicitation or advertisement. Therefore, exemptions from registration under both state and federal security laws will apply.
This book is not intended to be used by anyone desiring to raise money for a corporation through a public offering. Anyone intending to do so must consult with an attorney. There probably is not an exemption from registration under state or federal law. Even if a corporation is exempt from the registration requirement for the sale of its securities, the corporation will still be governed by the anti-fraud provisions of the Securities and Exchange Act.
II. EXEMPTION UNDER FEDERAL LAW
The Securities and Exchange Act of 1933 specifies that the sale in the United States of any security (including stocks of a corporation) must be registered with the Securities and Exchange Commission unless the security is exempt. The Securities and Exchange Act (the Act) lists several exemptions that are available for small businesses and small private offerings.
A. INTRASTATE EXEMPTION
Section 3(a)(11) of the Securities and Exchange Act offers an intrastate exemption from registration for any offer or sale of securities to residents of a single state who reside in the same state where the corporation was formed and does business. The Securities and Exchange Commission interprets the intrastate exemption to have four requirements:
(1) The corporation must be doing business in the state in which it was formed. This is defined to mean the corporation must have substantial operational activities in the state.
(2) All the offers and sales of stocks must be to residents of the corporation's state of incorporation.
(3) The stock may not be resold by the shareholder to out- of-state purchasers until at least nine months after the last sale of the corporation.
(4) No public solicitation or advertisement is permitted under this exemption.
This is the most commonly used exemption from federal registration. Usually a corporation is established to change the legal form of operation for an existing business or to begin a new business with family shareholders or close friends. Normally, all of the shareholders will reside in the same state and qualify for the intrastate exemption. If not, the exemption is not available for the corporation; however, other exemptions from registration for the sale of the stocks may still be available.
B. EXEMPTION UNDER REGULATION D
Section 3(b) of the Securities and Exchange Act grants the SEC (Securities and Exchange Commission) authority to adopt special exemptions for the issuance of securities to a maximum of $5,000,000. The SEC adopted Rules 504 and 505 of Regulation D. Section 4(2) grants the SEC authority to issue special exceptions for "transactions by an issuer not including any public offering," and the SEC defines this type of exemption under Rule 506.
Rule 504 of Regulation D exempts from registration the sale of securities (such as corporation's stocks) when:
Rule 505 of Regulation D exempts the sale of a corporation's stock when:
Rule 506 of Regulation D also exempts certain offerings from registration. A corporation, to be exempt form registration of sale of its stocks, must conform to specific requirements:
This chapter has an example of a Shareholder's Subscription Certificate that should be executed and filed with the corporations books for each sale of a corporation stock. This certificate is sufficient to satisfy the requirement that the investor is sophisticated and accredited. This subscription agreement should be used by every corporation to protect against allegations of fraud. Generally, when a business fails the shareholders try to get their money back. it is not uncommon in such situations for disgruntled investors to claim that they were innocent dupes and tricked into investing in the business. Using a subscription certificate is evidence, though not dispositive, that the shareholder was given all of the available necessary to make an informed decision. Use of the form limits the success of suit for security fraud by upset shareholders.
When substantial amounts of capital are sought to be raised through the sale of corporation stocks that are exempt under Rules 504, 505 or 506, the corporation should consult an attorney.
Although qualified offerings are exempt under Rules 504, 505 or 506, the corporation must nonetheless file a Form D with the Securities and Exchange if interest are sold to out of state shareholders. It is envisioned that the limited partnership to be formed using this book will use the intrastate exemption instead and not be required to file the Form D.
This book assumes that the corporation will be a small business with less than 35 shareholders (for exemption from federal registration) who will be intimately associated with the day-to-day operations of the company. Consequently, the exemptions will apply. If substantial amounts of capital are to be raised through the sale of stocks that are exempt under Rules 504, 505 or 506, the corporation should consult an attorney. Although qualified offerings are exempt under Rules 504, 505 or 506, the corporation must nonetheless file a Form D with the SEC.
This book is written for corporation's where:
(1) The shareholders will participate in the daily management of the business or reserve sufficient review powers in the operating agreement to be able to oversee effectively the conduct of the managing shareholders.
(2) The corporation is not selling its stock to raise money.
It is envisioned that the corporation to be formed using this book will use the intrastate exemption and will not be required to file Form D.
C. EXEMPTION UNDER STATE LAW
As with federal law, nearly all states require that any corporation wishing to sell corporation stocks in the state either obtain a permit to sell the corporation stocks or that the corporation stocks be exempt from registration. Most states have similar limited offering exemptions that permit a corporation to sell a corporation stock in the state without having to obtain a permit. Most states also have laws which exempt from registration any security where the corporation has either registered the security with the SEC or has filed Form D for a federal exemption under Rule 504, 505 or 506.
In addition to an exemption based upon a federal filing, all states have limited offering exemptions. corporations not engaged in a public offering may sell corporation stocks without a permit. Even though the sale of the corporation interest is exempt, many states require that the corporation file some type of notice with the Secretary of State or security commissioner and pay a small fee. Although notice is for tax purposes, it also serves other informational needs.
Most states do not require a corporation issuing exempt stocks to file any notification documents. To determine if a notice requirement exists, the person forming the limited partnership can ask the state's department of corporations (or equivalent agency) if there is any state requirement that a form be filed when a newly formed corporation makes a limited exempt offering. If there is a requirement, the agency will supply the necessary form on request. This information can also be obtained from the attorney the corporation is consulting. The laws governing the limited offering exemptions for each state are:
ALABAMA
Section 8-6-11. Sales of the securities are exempt if sold to less than 10 persons within twelve months, no commissions are paid on the sales and no public solicitations or public offerings are employed.
ALASKA
Section 45-55-140. Sales of securities are exempt if sold to less than 10 persons within 12 months, the sales do not exceed $100,000, no commissions are paid on the sales and no public solicitation is employed.
ARKANSAS
Section 23-42-504. Sales of securities are exempt if sold to less than 25 persons within a year, no commissions are paid on the sales and no public solicitation is presented. Proof of the exempt nature of the transaction must be filed with the Secretary of State. The state has also adopted the Uniform Federal-State Limited Offering Exemption 14(b) (14) which basically provides for a state exemption if the issuer received a federal exemption by filing a Form D.
ARIZONA
Section 44-1844. Sales of securities are exempt if sold to less than 10 persons within 24 months, no commissions are paid on the sales and no public solicitations or public offerings are employed.
CALIFORNIA
Corporation Code section 25102(f). Sales to no more than 35 persons are exempt if no commissions are paid on the sales and no public solicitation or public offering is employed. The corporation is required to file a Notice of Transaction with the Corporations Commissioner. The Notice is to be filed within 15 days of the sale. The fee for filing the Notice is usually about $25.00. This book has a copy of the notice form. As can be seen from the form, there is no requirement that the identity of the shareholders be revealed. Failure to file the Notice does not invalidate the exemption.
California has also enacted a new intra-state offering exemption under Section 25102(n). Under this exemption, if the offeror satisfies the same requirements as necessary for a Federal Regulation D exemption, the offeror can sell to an unlimited number of people in California and can engage in limited advertising in a newspaper. The advantage of this offering is that the offeror, if the sales are limited only to California, can advertise in a limited fashion which it can not do in a Federal Regulation D offering if the sales are made in other states. The costs for a Regulation D or 25102(n) offering is around $20,000 when an experienced security law firm is utilized. Most offerings in California rely on the 25102(f) exemption is used because it extremely cheap and fast even though the number of sales is limited to 35 persons.
COLORADO
Section 11-51-308. Sales of securities are exempt if sold to less than 25 persons prior to formation and afterward if the offer of sales is not made to more than 20 persons and the actual sales are made to not more than 10 persons per 12-month period, no commissions are paid on the sales and no public solicitation or public offering is employed.
**** end of partial sample view of this section ****
SHAREHOLDER'S SUBSCRIPTION CERTIFICATE
FOR
KEPTON MINING CORPORATION
This certificate is for use with security offerings exempt from registration under SEC Rules 504, 505 or 506. This certificate must be used for the sale of a corporation stock.
The statements contained herein are made and given by the undersigned hereinafter referred to as "the Subscriber" to KEPTON MINING CORPORATION , a Corporation duly formed and existing under the laws of the State of COLORADO hereinafter referred to as "THE Corporation" as a condition for the purchase of TWENTY PERCENT (20%) stock of the corporation hereinafter referred to as "the Securities."
I. NAME AND ADDRESS OF THE SUBSCRIBER.
Name: ABNER TIMMONS
Social Security Number: 444-333-2222
Residence Address: 237 Tyler Rock
Denver, Colorado
Business Address:
II. SUBSCRIBER'S REPRESENTATIONS AND UNDERSTANDING.
A. PURCHASE FOR OWN ACCOUNT.
The Subscriber hereby expressly represents, warrants and covenants with the Corporation that the Securities are being purchased in the Subscriber's own name and account or for a trust account in which the Subscriber is trustee, and no other person has any interest or right with respect to the Securities.
B. FOR INVESTMENT PURPOSES ONLY.
The Subscriber expressly states that the Subscriber is acquiring the Securities for investment and not with a view for sale in connection with any distribution of Securities. The Subscriber hereby acknowledges and understands the following:
III. NO PUBLIC OFFERING WAS MADE REGARDING THE OFFERING.
The Subscriber expressly states that the Subscriber has not seen nor received any advertisement nor general solicitation with respect to the sale of the Securities ("the Offering").
IV. CONSIDERATION FOR THE SECURITIES.
The total consideration that the Subscriber shall pay for the Securities both in cash and other property shall be:
Consideration Amount: $200,000
Other Property: none
V. SUBSCRIBER'S KNOWLEDGE AND EXPERIENCE.
The Subscriber represents and warrants as follows:
I HAVE INVESTED IN THE MINING BUSINESS IN THE PAST
I HAVE KNOWN THE GENERAL PARTNERS FOR MANY YEARS
I HAVE REVEIWED THE MINING CLAIMS OWNED BY THE CORPORATION AND I BELIEVE THEM TO BE VALUABLE
The subscriber's business or financial experience is as follows (if none, state None): I HAVE WORKED IN THE MINING INDUSTRY FOR TWENTY EIGHT YEARS
VI. FINANCIAL ADVISORS.
The Subscriber represents and warrants that the Subscriber has consulted with such financial advisors as are listed below and that each is capable of evaluating the merits and risks of the investment, that each such person has had access to the Corporation's records, has had an opportunity to verify the accuracy of all information obtained and is satisfied that sufficient information necessary to make an informed decision has been received. By reason of the business or financial experience of my professional advisor named below, the Subscriber is capable of evaluating the merits and risks of this investment and/or protecting his own interest in connection with this investment.
NAME OF FINANCIAL ADVISOR (IF NONE, STATE NONE): none
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CHAPTER TEN
AFTERWARDS: POST INCORPORATION ACTS
This chapter is to remind the reader of the various acts that may be required after the incorporation is completed. Most lawyers and most corporate executives are familiar with the acts herein that may have to be performed. This chapter summarizes the general requirements most often encountered by a newly incorporated business. There is no way that this chapter will be able to cover each item in detail. References are made to appropriate code sections when available.
Many of the post incorporation acts pertain to tax filings. The treasurer and president should work closely with the corporation's tax advisor to established the appropriate accounting procedures for the corporation. Some matters can be handled by the corporation's accountant or bookkeeper while other matters can only be handled by the officers. An understanding of what is expected and by whom is of great importance for the smooth operation of the business.
I. STATE LICENSES
A state may require a state license be obtained in order to do a certain type of business regardless of whether the business is conducted in a corporate form or not. For example, a state may require anyone disposing of hazardous waste to have a state license or permit to do so. The fact the company doing the hauling may or may not be a corporation is irrelevant. It is important that the corporation obtain all the necessary licenses and permits for the operation of its business in the state.
State permits are not transferable. If a partnership that has the necessary permits and licenses to do business incorporates, the new corporation must apply for new state licenses and permits in its own name. The corporation is a legal entity in its own right, and it is treated separately and apart from the shareholders and any business they might have previously conducted.
II. LOCAL BUSINESS LICENSES
Many states, usually those that have corporate taxes, permit counties, parishes, cities and other governmental entities to raise revenue by taxing corporations doing business in their jurisdictional area. The taxing usually takes one of two forms. The first is a license fee for a permit to do business. The second is a corporate income tax that the city and the county may charge to grant a business license. The corporation should always consider whether there is a city or county business license required. Such licenses will be required regardless of whether the business is a corporation.
III. EMPLOYER IDENTIFICATION NUMBER
The corporation, as all employers, is required to obtain from the IRS a federal employer's identification number (EIN). The Application for Employer Identification Number Form SS-4 must be filed within seven days after the first payment of earnings to an employee. There is no filing fee for the form, and the IRS will give the corporation an identification number upon filing. This identification number will be used on all tax returns.
The SS-4 form and the instructions for it can be obtained by any IRS office or by mail by calling 1-(800) TAX-FORMS. If the corporation makes a Subchapter S election, the SS-4 can be sent to the IRS with the Form 2553.
IV. ESTIMATED TAX
A. FEDERAL INCOME TAX
Under IRC Section 6655, corporations are required to pay installments on estimated income tax to the IRS. Corporations are required to make their estimated payments to an authorized commercial bank depository or a Federal Reserve Bank by the statutory payment dates. Federal Deposit Form 8109 must accompany the payment. Instructions for the estimated tax payments are provided in IRS Form 1120-W (Worksheet), "Corporation Estimated Tax."
B. STATE ESTIMATED TAX
A corporation, in complying with the tax law of any state in which it does business, will be taxed even though it might be formed out of state. For example, while Nevada has no corporate income tax, its neighbor, California, does. A Nevada corporation doing business in California must pay California tax on that portion of its income derived from its California operations.
California and most states that have corporate income taxes require a corporation doing business to pay estimated income taxes.
V. PERSONAL PROPERTY TAXES
Many states, such as California, tax the personal property of a corporation located within the state. This tax is in addition to its income tax, business license and sales and use taxes. To avoid this tax some airlines doing business in California actually fly to Las Vegas or Reno just to park their aircraft so they will not be taxed in California. A corporation should be aware of the personal property tax that a state may charge for corporate assets located in the state. The same tax rates generally apply for the personal property of a partnership or sole-proprietorship.
VI. SALES AND USE TAXES
If the corporation expects to engage in the business of selling tangible personal property, it must determine if it needs to obtain a sales and use tax permit. States that have sales taxes presume that all gross receipts of personal property are subject to the sales tax. As with personal property taxes, the form of the business is not a factor. As long as goods subject to the tax are sold, sales tax must be charged.
VII. ANNUAL STATEMENT OF OFFICERS
After a corporation is formed, it files an annual statement of the officers and directors with the secretary of state. The purpose is simply for the state to remain informed on the corporation. The form is usually mailed to the corporation each year. The corporation must then complete it and mail it back, usually with a small fee.
VIII. PAYROLL WITHHOLDING
A corporation, as with any other employer, must withhold from all employees' salary income tax and social security tax. Instructions for federal withholding are in IRS Circular E, "Employer's Tax Guide." The corporation must have each employee complete the Employee's Withholding Allowance Certificate W-4.
The withheld income and social security taxes are deposited in an authorized commercial bank depository or a Federal Reserve Bank with a Federal Deposit Form 8109. An "Employer's Quarterly Federal Tax Return" (Form 941) is required to be filed by the corporation before the end of the month following each quarter.
If the taxes are not withheld or paid, any person whose duty it is to make the payments will be 100% liable for the taxes. This can work a manifest injustice, but it remains the law.
In states that have income taxes, such as California, there must be state payroll withholding as well. It is important that the corporation understand tax obligations for each state in which it will operate.
IX. FEDERAL UNEMPLOYMENT TAX
Any corporation that has an employee at least part of one day every week during the current or preceding calendar year, or has paid wages of $1,500 or more during any calendar year is subject to the Federal Unemployment Tax (FUTA).
The corporation may receive credit against FUTA for taxes paid into a state's unemployment fund. The taxes are deposited in an authorized commercial bank depository or a Federal Reserve Bank with Federal Deposit Form 8109. An "Employers Annual Federal Unemployment Tax Return" (Form 940) must be filed by the corporation by January 31 of each year. More information can be obtained from the IRS's "Employer's Tax Guide."
X. UNEMPLOYMENT COMPENSATION INSURANCE
Many states, such as California, require that employers provide unemployment and disability insurance for their employees. Employers must make annual contributions to a state fund based on a percentage of the employee's payroll for a year.
The disability coverage is paid by withholding from the employees' wages. Some states, like California, permit the employer to elect private disability insurance covered by a state approved voluntary disability program. If such an election is made, the employees are not required to pay disability taxes to the state.
XI. WORKER'S COMPENSATION
All states have enacted Worker's Compensation laws. Under these laws, an employer is liable for any injuries to a worker on the job regardless of negligence by either the employer or the employee. The employee, however, cannot sue the employer for punitive damages regardless of how egregious the employer's conduct was in causing the injury.
The employer must either carry workers compensation insurance through a state fund or carry it through an approved private insurance carrier. In some states, the employer may be permitted to be self-insured provided the employer is considered large enough and stable enough to do so.
Failure to carry the insurance could be disastrous for a corporation. It could mean that an injured employee could sue the corporation for punitive damages whereas, if the insurance was in place, the suit could not be made.
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CHAPTER ELEVEN
SHAREHOLDER AGREEMENT
Shareholders are frequently concerned about what will happen to the corporation in the event a shareholder should die or a shareholder should transfer stock. The small corporation may get new shareholders. The remaining original shareholders may find themselves having to do business with people that they do not like and with whom they do not wish to associate.
A common resolution is for the shareholders to enter a shareholders agreement. The general form of this agreement gives surviving share-holders the first right of refusal of purchase of the shares of the corporation from the estate of the deceased shareholder; the usual sale price is book value.
In the same vein, a shareholder wishing to sell stock must first offer it to the other shareholders for the price that it would be sold to a third party. If the remaining shareholders do not elect to buy the stock, the selling shareholder can sell it for the price offered to the shareholders.
Following this chapter is a shareholder agreement governing these situations. The shareholder agreement can be as complicated as the parties wish and can include voting trusts, tax allocations and any other agreement of the shareholders.
There is also a shareholder agreement following the Subchapter S Election. This shareholder agreement requires the shareholders not to do anything to jeopardize the S election. Sale of the stock is prevented only if it would result in termination of the S election. In the event of violation of the terms of the shareholder agreement, the non-violating and non-breaching shareholders can purchase the breaching shareholder's stock for book value as calculated under the agreement.
Shareholder agreements provide for the continuity of the corporation. They add a degree of stability to the corporation. Many small corporations are family affairs with usually a father and one or more children working in it. Often bad feelings arise when a parent dies and the parent's interest in the business is inherited by children or grandchildren who have not participated in the business. The children who have participated in the business along with the other nonfamily shareholders may not want to share the benefit of their work with the new shareholders. Many small corporations have dissolved because the corporation could not integrate the new shareholders.
The shareholder agreement in this chapter can be used as written or can act as a skeletal form for the parties to fashion their own agreement concerning this sensitive area.
SHAREHOLDER AGREEMENT
Agreement made this___________ day of ______________ , by and between _________________ ___________________________________________________ being the Shareholders of the capital stock of ___________________________________________________________________ , a Corporation created and existing under the laws of the State of __________________________________with its principal place of business at _______________________________________________, hereinafter titled "the Corporation."
WHEREAS the parties hereto believe that the maintenance of harmonious management is in the best interest of the Corporation and the Shareholders, and
WHEREAS it is the purpose of this Agreement (a) to require that the shares of a living Shareholder who desires to dispose of any of the Shareholder's capital stock in the Corporation be offered first to the other Shareholders, (b) to provide for purchase by the surviving Shareholders of the stock interest of a deceased Shareholder, and (c) to provide the funds necessary to purchase such interest,
NOW THEREFORE in pursuance of this purpose and in consideration of the mutual agreements and covenants contained herein, it is hereby mutually agreed as follows:
ARTICLE 1
Purchase During Life
No Shareholder during his lifetime shall in any way transfer or dispose of any portion of his capital stock by sale or otherwise unless the Shareholder shall first offer to sell such stock to the other Shareholders. Such offer shall be in writing and a copy of said offer shall be sent to the Secretary of the Corporation. If such other Shareholders elect to purchase any or all of such shares, the purchase shall be at a price determined in accordance with the provisions of ARTICLE 3. In the event the other Shareholders have rejected said offer in whole or in part, either by written rejection or failure to purchase all of said stock within thirty (30) days after receipt of the Shareholder's offer to sell, the offering Shareholder shall be entitled to sell to any person all or any portion of the remaining shares so offered.
ARTICLE 2
Purchase at Death
Upon the death of a Shareholder, the Shareholder's estate or the Shareholder's successor-in-interest by reason of form of ownership shall sell and the surviving Shareholders of the Corporation shall buy all of the Shareholder's shares of capital stock in the Corporation at a price determined in accordance with the provisions of ARTICLE 3.
ARTICLE 3
Purchase Price of Stock Interest
The price to be paid for the purchase of shares of stock of the Corporation, as provided in ARTICLES 1 and 2, shall be determined periodically by mutual agreement of the Shareholders. The initial purchase price of the stock is hereby agreed to be ______________________________ DOLLARS ($__________) per share. This price shall be redetermined within thirty (30) days following the close of each fiscal year of the Corporation and shall be based upon the net book value of the Corporation. Until such redetermination, the prior value shall continue in effect, provided, however, in the event the Shareholders have not agreed to such a redetermination within a period of eighteen (18) months prior to the death of a Shareholder, the price shall be fixed by arbitration in the following manner: One arbitrator shall be named by the surviving Shareholders and one by the representative of the decedent's estate within thirty (30) days after qualification of the executor or administrator of the estate of the deceased Shareholder; if the two arbitrators cannot agree upon the price of each share within thirty (30) days after their appointment, the probate court shall appoint a third arbitrator and a majority shall decide within thirty (30) days thereafter and shall be final on this issue.
ARTICLE 4
Termination of Agreement
This Agreement shall terminate upon the dissolution, receivership. insolvency, or bankruptcy of the Corporation.
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CHAPTER TWELVE
AMENDMENT OF ARTICLES
The matters stated in the articles of incorporation cannot be changed unless an amendment to the articles of incorporation is filed. Yet, the amending the articles is different from amending the bylaws. The matters covered in the articles are those items required by law to be stated. They are public information readily available to anyone upon request. Bylaws on the other hand are just the internal procedures adopted for operation of the company and can be changed at any time by a majority vote of the directors. The provisions in the bylaws are optional whereas certain provisions in the articles are mandated by law in order to define the rights and privileges of the shareholders.
Amendments of the articles take two forms. Amendments before stock is issued simply require the filing of certificates of amendment. The certificate states that no stock has been issued and lists the changes to be made in the articles. Some states, such as Nevada, require a state approved form be used for the amendment of the articles. Following this chapter is the form used in Nevada for the amendment of the articles for a corporation before stock is issued. In most states, however, no set form is used as long as the basic information is imparted. Following this chapter is the form of a Certificate of Amendment for states which do have approved forms, such as California.
An amendment to the articles after stock is issued requires a special meeting of the shareholders to approve amendment and the filing of a Certificate of Amendment. Nevada and a few other states require their own approved forms be used for a corporation that has issued stock. Following this chapter is the Nevada form for a Certificate of Amendment. Most states do not require approved forms to be used. Also following this chapter is the form for a Certificate of Amendment for states such as California. California, for one, does not have an approved form for amendments by a corporation which has issued stock.
For reference purposes on the following form, the corporation amending the articles is a California corporation.
Some states, such as Nevada, requires the signatures to the certificate to be notarized. Other states, such as California, only require a declaration under penalty of perjury that the certificate was properly executed. The certificates to cover both eventualities contain both the declaration and the notary statement.
Now follow the following forms:
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
____________________________
The incorporators of _________________________________________________________ certify that:
Article _______ is amended to read as follows: ______________________________________________ _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
_________________________________
_________________________________
_________________________________
DECLARATION
The undersigned declare under penalty of perjury under the laws of the State of _____________ that:
Executed on __________ at _________________________________
______________________
_______________________
STATE OF __________________
COUNTY OF ________________
On _______________ before me, _________________________________________personally appeared _____________________________________________________________ personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instruments the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS MY HAND AND OFFICIAL SEAL.
________________________________________
Signature
**** end of sample view of chapter ****
CHAPTER THIRTEEN
CORPORATE MEETINGS
One of the most important functional differences between a corporation and a partnership is that a corporation must have annual and special meetings of both the shareholders and the Directors to approve the business operations of a corporation.
The sole exception for the meeting requirement is a corporation in which the shareholders have elected closely held status treatment. A closely held corporation is permitted to replace the meeting requirements incumbent on larger corporations with a shareholder agreement. The shareholder agreement can outline business management of the corporation without the formal requirement of meetings.
If a corporation does not comply with the statutory requirements for a corporation, the shareholders will not be shielded from personal liability for the corporation's debts. Essentially, the law forbids commingling of corporate assets with shareholders' assets and always requires the business to be conducted in the corporate form. In other words, if the corporation acts like a partnership or sole-proprietorship, it will be treated as one, and the shareholders will be treated as partners with a partner's liability for the corporation's debts.
To avoid liability for the corporate debts, the shareholders must ensure the corporation is run as a corporation. To do that, there must be at least one annual meeting of shareholders each year. At the meeting, the Directors are elected for the next year, and the acts taken the previous year by the corporation are either approved or rejected. Following this chapter are sample annual minutes for the shareholders. Additional resolutions may be added as needed, but it will meet the yearly requirements for an annual meeting.
Following this chapter also are the sample minutes for the annual meeting of Directors. Unlike an annual meeting of shareholders, no notice need be given for this meeting because the bylaws state on what date and time the meeting is to be held. At this meeting, the Directors elect the officers of the corporation for the next year and approve or disapprove the acts taken by the officers in the previous year.
Special business of the corporation is required to be handled by a special meeting of the board of Directors. Such special business consists of the purchase of real estate and borrowing money. Following this chapter is the form for a special meeting of Directors. For a completed sample of a special meeting of Directors see the Corporate Resolution chapter approving the purchase of real property.
Special meetings of shareholders can also be called when necessary, such as when the Directors want specific approval for their actions. Following the Subchapter S chapter is the sample form for special meetings of shareholders electing and revoking a Subchapter S tax treatment.
The forms on the following pages are:
WAIVER OF NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
The undersigned, being the Shareholders of _________________________________ , a corporation incorporated under the laws of the State of _________________________ , do hereby waive notice of the time, place and purpose of the annual meeting of the Shareholders of the corporation. The Shareholders designate the _______ day of ______________at __________as the time and ______________________________ ____________________________________________________as the place of said meeting, the purpose of said meeting being to elect Directors and to transact such other business as may be necessary or advisable to facilitate and to enable it to continue its contemplated business.
The undersigned Shareholders hereby approve and adopt the minutes adopted at such above designated meeting.
Dated: ______________ ______________________
MINUTES OF ANNUAL MEETING
OF SHAREHOLDERS OF
____________________________________
The Annual Meeting of Shareholders of _________________________________________, a Corporation, was held on ___________________________ at ___________________________________________ , the time and place prescribed for the purposes of electing a Board of Directors, considering reports of the affairs of the corporation, and transacting other business within the powers of the Shareholders.
The meeting was called to order by __________________________________ the President of the Corporation. As authorized by the Bylaws, the President presided as the chairman of the meeting and the Secretary presided as the secretary of the meeting and recorded the minutes.
Call and notice of the meeting being dispensed with by the Bylaws, and the meeting being held at the time and place prescribed by the Bylaws, the Chairman declared that the meeting was lawfully and properly convened.
The following roll of holders of all of the outstanding shares of the Corporation was called, and the Secretary declared that a quorum was present.
ROLL OF SHAREHOLDERS________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
SHAREHOLDER PRESENT NUMBER OF SHARES PROXY HOLDER
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
TOTAL
The Secretary was directed to prepare a written Waiver of Notice, consent to meeting, and approval of minutes to be signed by each Shareholder not present at the meeting and to be filed with the minutes.
On motion duly made, seconded and carried the minutes of the last meeting of Shareholders held on were unanimously approved after the reading of the minutes had been dispensed without objection.
The Chairman then called for nominations for Directors to serve for one year or until their successors are elected and qualified. The Secretary nominated the following persons:
The Chairman called for further nominations, but none were made. The above persons were elected Directors of the Corporation.
Thereupon, the Chairman presented to the meeting all papers and documents pertaining to corporate actions undertaken since the last meeting of Shareholders, all of which were laid upon the table and publicly declared by the Chairman to be open for inspection by the Shareholders.
Upon motion duly made, seconded and carried, it was
RESOLVED that all purchases, contracts, contributions, compensations, acts, decisions, proceedings, elections, and appointments by the Board of Directors and the officers of the Corporation since the last meeting of Shareholders on _____________________, be and the same are hereby approved and ratified.
There being no further business to come before this meeting, on motion duly made, seconded and carried, the meeting was declared adjourned.
Secretary of the Meeting
MINUTES Of ANNUAL MEETING OF DIRECTORS
OF
____________________________________
The Annual Meeting of Directors of ___________________________________________________, a Corporation, was held on ______________ at ____________________________________________ .
No notice of this meeting was required pursuant to the Bylaws of the Corporation which sets the time of the annual meeting of Directors.
The Directors present at the meeting were __________________________________________ __________________________________________________________________________ , who together constituted a quorum, being the majority of the authorized number of Directors of the Corporation.
The meeting was called to order by ___________________________________________, who presided as the Chairman of the meeting. _______________________________________________ presided as the Secretary of the meeting and recorded the minutes.
The minutes of the last meeting of the Board of Directors held on ____________________________ were read to those present, and there being no objections, corrections or modifications thereto offered, the same were approved.
The Chairman then announced that the next item of business was the election of officers of the Corporation. After discussion, and upon nomination duly made and seconded, the following persons were elected as officers of the Corporation:
PRESIDENT _________________________________
SECRETARY ________________________________
TREASURER ________________________________
Whereupon the Chairman then presented to the meeting all papers and documents pertaining to corporate actions undertaken since the last meeting of Directors, all of which were laid upon the table and publicly declared by the Chairman to be open for inspection by the Directors.
Upon motion duly made, seconded and carried, it was
RESOLVED that all purchases, contracts, contributions, compensations, acts, decisions, proceedings, elections, and appointments by the Board of Directors and the officers of the Corporation since the last meeting of Directors on _________________________, be and the same are hereby approved and ratified.
There being no further business to come before this meeting, on motion duly made, seconded and carried, the meeting was declared adjourned.
Secretary of the Meeting
WAIVER OF NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS OF
___________________________________
The undersigned, being the Shareholders of ______________________________________________ , a Corporation incorporated under the laws of the State of ________________ , do hereby waive notice of the time, place and purpose of a special meeting of the Board of Directors of the Corporation. The Shareholders designate the __________day of _______________ at _____________, as the time and __________________________ _________________________________________________________as the place of said meeting, the purpose of said meeting being to do the following acts:
and to transact such other business as related to the above acts.
Dated: _________________ ___________________________
MINUTES OF THE SPECIAL MEETING
OF THE SHAREHOLDERS OF
_______________________________________
A Special Meeting of the Shareholders of __________________________________________was held on ______________ at ___________ at ______________________________________________________.
The Shareholders present at the meeting were: ____________________________________________ __________________________________________________________________________________ __________________________________________________________________________________
A Waiver of Notice for this Meeting was signed by: ____________________________________________ __________________________________________________________________________________ _________________________________________________________________________________
The President of the Corporation served as the Chairman of the meeting and the Secretary of the Corporation served as the Secretary of the meeting.
As the first matter of business, the Chairman stated ____________________________________________ __________________________________________________________________________________ _________________________________________________________________________________
After motion duly made, seconded and carried, it was
RESOLVED: ___________________________________________________________________ __________________________________________________________________________________ _________________________________________________________________________________
There being no further business to come before the meeting, on motion duly made, seconded and carried, the meeting was adjourned.
Dated: _______________ ___________________________ Secretary
WAIVER OF NOTICE OF SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
________________________________
The undersigned, being the Directors of ______________________________________________ , a Corporation incorporated under the laws of the State of ________________________________ do hereby waive notice of the time, place and purpose of a special meeting of the Board of Directors of the Corporation. The Directors designate the _________day of _______________ at ________ , as the time and as the place of said meeting, the purpose of said meeting being to do the following acts: _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________and to transact such other business as is related to the above acts.
Dated: ________________________ ____________________________
MINUTES OF THE SPECIAL MEETING
OF THE DIRECTORS OF
________________________________________
A Special Meeting of the Directors of _______________________________________________ was held on ________________ at ________________, at __________________________________.
The Directors present at the meeting were: __________________________________________________________________________ __________________________________________________________________________ ___________________________________________________________________who, together, constituted a quorum, being a majority of the authorized number of Directors of the Corporation.
A Waiver of Notice for this Meeting was signed________________________________ by:____________________________________________________________________
______________________________________________________served as the Chairman of the meeting and __________________________________________served as the Secretary of the meeting.
As the first matter of business, the Chairman stated
**** end of sample view of chapter ****
CHAPTER FOURTEEN
ADOPTION OF MEDICAL PLAN
One of the major reasons for incorporating is to be able to provide fringe benefits with pre-tax dollars. If the corporation provides the medical insurance, the insurance or reimbursement payments are paid from the corporate income. The payments are deducted from gross corporate income as ordinary business expenses. The employee of a regular C corporation usually does not have to include the value of medical insurance as compensation on his return. Thus, the employee receives a fringe benefit free or without paying the full value for it.
When the employee is a shareholder of an S corporation and owns more than 2% of the corporate stock, the value of the medical insurance is attributed to the employee as income. Consequently it is no benefit to the shareholders of an S corporation to adopt a medical plan unless they can get better group rates or it is necessary to provide coverage for nonshareholder employees. Many states are considering requiring employers to provide medical insurance for their employees.
Following this chapter are the minutes of a special meeting of directors for a corporation wherein a basic medical and reimbursement plan is adopted. The corporation need not use these minutes but may adopt its own plan or not adopt one at all. The important thing to remember is that the whatever plan is used, it must not discriminate between the coverage for highly paid and non-highly paid workers.
The forms that follow are:
1. Waiver of Notice of Special Meeting of
Board of Directors
2. Minutes of Special Meeting of Board of
Directors
WAIVER OF NOTICE OF SPECIAL MEETING
OF THE BOARD OF DIRECTORS
The undersigned, being the Directors of _____________________________________________ , a Corporation incorporated under the laws of the State of ____________________, do hereby waive notice of the time, place and purpose of a special meeting of the Board of Directors of the Corporation. The Directors designate the __________day of __________at ______________ as the time, and _____________________________ ____________________________________________ as the place of said meeting, the purpose of said meeting being to do the following acts: vote on whether or not the Corporation should adopt a Medical Expense and Reimbursement Plan and to transact such other business as related to the above acts.
Dated: _________________ ____________________________
MINUTES OF THE SPECIAL MEETING
OF THE DIRECTORS OF
_______________________________________________
A special meeting of the Directors of ________________________________________ , was held on _________at ___________at ______________________________________________________.
The Directors present at the meeting were: ________________________________________________ __________________________________________________________________________________________________________________________________________________________________________________ who, together, constituted a quorum, being a majority of the authorized number of Directors of the Corporation.
A Waiver of Notice for this meeting was signed by: ____________________________________________ _____________________________________________________________________________________
_____________________________________________________served as the Chairman of the meeting and _________________________________________________served as the Secretary of the meeting.
As the first matter of business, it was proposed by the Chairman that the Corporation consider adopting a medical expense and reimbursement plan for its employees. Such a plan would cover qualified employees, their spouses and dependents and relieve some of the worry caused by the expenses of injury or illness. The Chairman suggested that it would be in the best interests of the Corporation and should minimize employee turnover and maximize employee efficiency.
After discussion and motion duly made, seconded and carried, it was:
RESOLVED; that the Board of Directors in order to maximize employee efficiency, productivity, improve employee health, welfare and morale finds that it is in the best interests of the Corporation for the Corporation to adopt a Medical Expense Payment and Reimbursement Plan. The plan will be created pursuant to Section 105(b) of the Internal Revenue Code of 1986 as amended.
FURTHER RESOLVED that the Plan adopted herein shall reimburse qualified employees for the medical expenses incurred them. Coverage under the Plan shall also extend to a qualified employee's spouse, children and dependents (as defined in Section 152 of the Internal Revenue Code, provided those persons are members of the employee's household at the time any such medical or dental expenses are incurred).
There shall be two types of benefits payable under the Plan. These benefits are:
(1) Elective Plan Benefits which are defined as being those benefits paid with respect to preventive or non-life threatening medical services such as dental, vision, psychological, orthodontia and other elective cosmetic surgery.
(2) Basic Plan Benefits which are defined under the Plan herein adopted as those benefits that are not elective benefits.
RESOLVED FURTHER that qualified employees shall include all of the employees of the Corporation with the exception of those employees who fall within any of the following excluded classes:
**** end of sample view of chapter ****
CHAPTER FIFTEEN
CERTIFICATES OF CORPORATE RESOLUTIONS
The officers of a corporation have only the authority to act on behalf of the corporation that is bestowed upon them by the board of directors and the corporate bylaws. For that reason, many businesses and third parties require a certificate of corporate resolution executed by the corporate secretary stating that the board of directors had expressly granted an officer the power to execute a particular contract.
To get the certificate the board of directors must hold a special meeting to grant the officer the specific power to do the intended act. Certificates of Corporate Resolutions are usually required when a corporate officer seeks to borrow money for the corporation, purchase property on credit for the corporation or lease property for the corporation. A corporation is not bound by any acts of an officer to whom it did not give the authority, either express or implied. Consequently, third parties, particularly landlords and lenders, will not enter contracts with a corporation without first having a certificate of corporate resolution stating that the corporation approves the officer's execution of the contract.
Following this chapter are the minutes for a special meeting of directors authorizing the corporation to purchase a specific piece of real property and the certificate of corporate resolution documenting that approval. The basic form of these minutes and the certificate, included hereafter, can be used for any transaction for which a certificate of corporate resolution is needed.
ABCDE CORPORATION
WAIVER OF NOTICE OF SPECIAL MEETING
OF THE BOARD OF DIRECTORS
The undersigned, being the Directors of ABCDE CORPORATION
, a Corporation incorporated under the laws of the State of CALIFORNIA , do hereby waive notice of the time, place and purpose of a special meeting of the Board of Directors of the Corporation. The Directors designate the 25TH day of JUNE 2015 at 10.00 A.M. as the time, and 1999 TRUXTUN, UKIAH, CALIFORNIA as the place of said meeting, the purpose of said
meeting being to do the following acts: vote as to whether the Corporation should execute a contract for the purchase of real property and to transact such other business as related to the above acts.
Dated: _________________ _____________________
MINUTES OF THE SPECIAL MEETING
OF THE DIRECTORS OF
ABCDE CORPORATION
A special meeting of the Directors of ABCDE CORPORATION was held on JUNE 25, 2015
at 10.A.M. at 1999 TRUXTUN, UKIAH, CALIFORNIA .
The Directors present at the meeting were: JOAN A. DOE, MARK K. SMITH and JOHN Q. JONES
who together constituted a quorum, being a majority of the authorized number of Directors of the Corporation.
A Waiver of Notice for this meeting was signed by: JOAN A. DOE, MARK K. SMITH and JOHN Q. JONES
MARK K. SMITH served as the Chairman of the meeting and JOAN A. DOE served as the secretary of the meeting.
As the first matter of business, the Chairman stated that the Corporation should consider the purchase of the real property described below.
Upon motion duly made, seconded and carried it was,
RESOLVED that this Corporation purchase the real property hereinafter described from GEORGE QUICK, HORACE EMMET, PETE D.
HOWELL and BEATRIZ F. HOWELL for a total sales price, including fees and costs, of $432,545.35.
RESOLVED FURTHER that the President and Secretary of this Corporation be and they hereby are authorized and directed to
execute and deliver any and all documents and papers necessary in connection therewith and to affix the seal of the Corporation thereto.
The property covered by the sale is as follows:
Parcel 21 as numbered and designated upon Parcel Map of Minor Subdivision No. 13-91, filed for record 1-28-92 in Map Case of the County Recorder's Office of Mendocino County, California.
There being no further business to come before the meeting, on motion duly made, seconded and carried, the meeting was adjourned.
Dated: JUNE 25, 2015 Joan A. Doe, Secretary
RESOLUTION OF THE BOARD OF DIRECTORS
OF
ABCDE CORPORATION
AUTHORIZING THE PURCHASE OF REAL ESTATE
RECITALS
WHEREAS the California Corporation Code empowers Corporations organized under the General Corporation Law to PURCHASE AND OWN REAL PROPERTY , and WHEREAS the Articles of Incorporation and Bylaws of this Corporation expressly provide that the powers of the Corporation are to be exercised by the Board of Directors, and
WHEREAS the Board of Directors deem it to be in the best interests of the Corporation for the economical transaction of its business to PURCHASE THE REAL PROPERTY DESCRIBED BELOW , therefore be it:
RESOLUTION
RESOLVED that this Corporation purchase the real property hereinafter described from GEORGE QUICK, HORACE EBBET, PETE D. HOWELL and BEATRIZ F. HOWELL for a total sales price, including fees and costs, of $432,545.35.
RESOLVED FURTHER that the President and Secretary of this Corporation be and they hereby are authorized and directed to
execute and deliver any and all documents and papers necessary in connection therewith and to affix the seal of the Corporation thereto.
The property covered by the sale is as follows:
Parcel 21 as numbered and designated upon Parcel Map of Minor Subdivision No. 13-91 filed for record 1-28-92 in Map Case of the County Recorder's Office of Mendocino County, California.
CERTIFICATE
I, JOAN A. DOE , hereby certify:
That I am the duly qualified and acting Secretary of ABCDE CORPORATION , a California Corporation.
That the foregoing Resolution of the Board of Directors of ABCDE CORPORATION , was duly adopted by the Board of Directors of this Corporation at a special meeting duly called and held on JUNE 25, 2015 at the Corporation's principal place of business in MENDOCINO County, CALIFORNIA and that resolution has neither been modified nor rescinded and is on the date of this certificate in full force and effect.
IN WITNESS WHEREOF, I have hereunder set my hand and affixed
the seal of the Corporation this 25TH day of JUNE 2015 .
Joan A. Doe, Secretary
**** end of sample view of chapter ****
AFTER INCORPORATING 328
ANNUAL STATEMENT OF OFFICERS 331
EMPLOYEE IDENTIFICATION NUMBER 329
ESTIMATED TAX 330
FEDERAL 330
STATE 330
FICTITIOUS NAME FILINGS 333
LOCAL LICENSES 329
PERSONAL PROPERTY TAX 330
SALE AND USE TAXES 331
STATE LICENSES 328
SUBSEQUENT ACTS OF NOTICE 332
UNEMPLOYMENT TAX 330
UNEMPLOYMENT COMPENSATION 330
WITHHOLDING 329
WORKER'S COMPENSATION 331
AMENDMENT OF ARTICLES 345
CERTIFICATE BEFORE STOCK ISSUED 347
CERTIFICATE AFTER STOCK ISSUED 348
CERTIFICATE FOR NEVADA 352
ARTICLES OF INCORPORATION 92
AGENT FOR SERVICE 94
CLOSE CORPORATIONS 99
CONTENTS 92
NAME 93
NUMBER OF SHAREHOLDERS 108
PURPOSE 93
\STATEMENT OF DIRECTORS 97
STOCK 95
TERM 99
BASIC ARTICLES FOR THESE STATES AND JURISDICTIONS: 109
ALABAMA ARIZONA ARKANSAS CALIFORNIA
COLORADO DIST. OF COL. GEORGIA HAWAII
IDAHO INDIANA IOWA KANSAS
KANSAS KENTUCKY MAINE MARYLAND
MICHIGAN MINNESOTA MISSISSIPPI MISSOURI
MONTANA NEBRASKA NEVADA NEW HAMPSHIRE
NEW MEXICO N. CAROLINA N. DAKOTA OHIO
OREGON PUERTO RICO RHODE ISLAND S, CAROLINA
S, DAKOTA TEXAS VERMONT VIRGINIA
VIRGIN ISLANDS WASHINGTON WYOMING
BASIC ARTICLES FOR ALASKA 144
BASIC DOCUMENTS FOR INCORPORATION FOR THESE JURISDICTIONS: 130
CONNECTICUT DELAWARE NEW JERSEY
OKLAHOMA TENNESSEE
BASIC CERTIFICATE OF INCORPORATION FOR FLORIDA 149
BASIC ARTICLES FOR ILLINOIS 125
BASIC ARTICLES FOR MASSACHUSETTS 139
BASIC CERTIFICATE FOR NEW YORK 154
BASIC ARTICLES FOR PENNSYLVANIA 159
BASIC ARTICLE FOR UTAH 164
BASIC ARTICLES FOR WEST VIRGINIA 169
BASIC ARTICLES FOR WISCONSIN 174
BYLAWS 247
ADOPTION 248
BASIC BYLAWS 252
CONSTRUCTION 250
LOCATION 251
WAIVER 250
BULK SALE 296
NOTICE TO CREDITORS 300
CORPORATE MEETINGS 355
BASIC MINUTES FOR
ANNUAL MEETING OF SHAREHOLDERS 358
ANNUAL MEETING OF DIRECTORS 362
SPECIAL MEETING OF SHAREHOLDERS 364
SPECIAL MEETING OF DIRECTORS 368
CORPORATE RESOLUTIONS 379
BASIC FORM FOR CERTIFICATE RESOLUTION 380
SAMPLE MINUTES FOR MEETING AUTHORIZING ACT 383
SAMPLE CERTIFICATE 388
FIRST MEETING OF DIRECTORS 181
ADOPTING STOCK CERTIFICATE 185
AUTHORIZING BANK ACCOUNTS 182
AUTHORIZING PRINCIPAL EXECUTIVE OFFICE 182
CORPORATE SEAL 184
ELECTION OF OFFICERS 181
FISCAL YEAR 184
ISSUANCE OF STOCK 182
SUBCHAPTER S ELECTION 183
MINUTES FOR FORMATION OF A NEW BUSINESS ELECTING SUBCHAPTER S STATUS 187
FORMATION OF A BUSINESS NOT ELECTING SUBCHAPTER S STATUS 212
INCORPORATION OF AN EXISTING BUSINESS 221
ELECTING SUBCHAPTER S STATUS
INCORPORATION OF AN EXISTING BUSINESS 234 NOT ELECTING SUBCHAPTER S STATUS
MEDICAL PLAN 370
BASIC MINUTES FOR SPECIAL MEETING OF 380
ADOPTING THE MEDICAL PLAN
QUESTIONS
ACCUMULATED EARNINGS CREDIT 22
ANNUAL STATEMENT OF OFFICERS 36
BULK TRANSFER ACT 30
BLAWS 35
CLOSELY HELD CORPORATION 26
CORPORATION DEFINITION 8
FOR PROFIT CORPORATION 10
NONPROFIT CORPORATION 9
S CORPORATION 23
CORPORATE KIT 34
CORPORATE POWERS 10
CORPORATE TAX RETURNS
REGULAR TAX RETURN 40
S CORPORATION RETURN 41
CORPORATE VEIL 21
COST OF FORMATION 20
DIRECTORS 12
EMPLOYEES 43
DUTIES 12
DISSOLUTION OF CORPORATION 31
DISTRIBUTION OF PROCEEDS 31
DIVIDENDS 27
ESTIMATED TAX PAYMENTS 42
FEDERAL IDENTIFICATION NUMBER 37
FICTITIOUS NAME STATEMENT 36
FIRST MEETING OF DIRECTORS 35
FRINGE BENEFITS 19
INCORPORATOR 11
LIABILITY FOR PRIOR BUSINESS DEBTS 29
LIABILITY OF EMPLOYEES AND OFFICERS 16
FOR CORPORATE TAXES
LIMITED LIABILITY COMPANY 14
OFFICERS 13
REGISTRATION OF STOCK 32
SECURITIES AND EXCHANGE COMMISSION 32
STATE 33
S CORPORATION 23
ELECTION 25
DIFFERENCES FROM PARTNERSHIPS 25
TAXATION 25
SHAREHOLDERS 15
SALARY 22
SHAREHOLDER DERIVATIVE ACTION 16
STATE TAXES 43
STOCK 26
SECTION 1244 STOCK 28
TAXATION 17
S CORPORATION 23
TAX-FREE EXCHANGE FOR STOCK 29
TERM 19
UNEMPLOYMENT TAX 40
WITHHOLDING 42
ANNUAL WAGE AND TAX STATEMENT 46
DIRECTOR'S COMPENSATION 38
PAYROLL TAXES 38
QUARTERLY RETURN 45
WITHHOLDING CERTIFICATES 41
SECURITY LAWS AND COMPLIANCE 302
FEDERAL EXEMPTION 302
INTRA-STATE EXEMPTION 303
INVESTOR'S CERTIFICATE 317
REGULATION D 303
RULE 504 303
RULE 505 304
RULE 506 304
STATE EXEMPTION 306
SHAREHOLDER AGREEMENT 337
STEPS FOR INCORPORATION
AFTER FORMATION 50
CHOOSING CORPORATE NAME 47
FILING FEES 50
ISSUANCE OF STOCK 49
PREPARING ARTICLES 48
STOCK 49
CERTIFICATE 284
REGISTER 283
SUBCHAPTER S CORPORATION
DEFINITION 56
BASIS FOR STOCK 69
FRINGE BENEFITS 69
METHOD OF MAKING ELECTION 60
MINUTES FOR MEETING ELECTING S STATUS 76
TAX TREATMENT 58
FEDERAL LAW 58
STATE LAW 58
TERMINATION AND REVOCATION OF ELECTION 62
MINUTES FOR MEETING REVOKING S STATUS 91
TAX RETURNS 63
SHAREHOLDERS' AGREEMENT 81
SHAREHOLDERS 65
RESIDENT 65
NON-RESIDENT 65
WHERE HOME STATE HAS NO INCOME TAX 67
STATE TAX CREDITS 67