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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 ___