Basics of Forming a Corporation

Basics of Forming a Corporation

If you have decided that the limited liability and the tax structure of a corporation are right for your business, the next step is actually forming the corporation. The law of the state in which you incorporate will dictate exactly what you need to do, but the steps are basically the same. The following outlines what steps you’ll need to take to form a corporation.

Articles of Incorporation

The Articles of Incorporation set out the basic information about the corporation. This includes the name of the corporation, the purpose of the business, the number and type of shares authorized, the names of shareholders, the names and addresses of the initial officers and directors, the name of the authorized agent, and the name of the incorporator. The Articles of Incorporation are filed with the State, usually the Secretary of State’s office.

Bylaws

Bylaws are the document that regulates how the corporation will be run. It covers things such as how often and when shareholders’ and board of directors’ meetings will be held. It will provide for how much notice should be given prior to a meeting and in what manner notice will be given. This document also sets forth the rules regarding how many shareholders or directors are needed to establish a quorum and how much of a majority vote will be required to take certain actions. For example, the Bylaws may state that a simple majority is all that is necessary to take most actions, but that a two-thirds majority is required to amend the articles of incorporation. The bylaws will also provide for the mechanism by which the bylaws may be changed. For example, bylaws may be changed with the approval of a two-thirds majority of the shareholders.

First Director’s Meeting Minutes

The Minutes of the first meeting of the Board of Directors should be prepared in advance. They will cover all of the business that needs to be conducted at that first meeting. The bylaws of the corporation will be adopted. Shares in the corporation will be issued. Authority will be granted to open a bank account and to conduct business in the name of the corporation.

Those are just the basic steps to forming a corporation. Depending on how you want ownership of your business to be structured, there may be other steps you should take. You may want stock transfer agreements that set out who can own stock in the corporation and how and under what circumstances stock can be sold. You may also want shareholder voting agreements that specify how certain shares of stock will be voted at shareholder meetings. These types of arrangements should be made concurrently with the formation of the corporation.

We hope you found this article about “Basics of Forming a Corporation” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.  Unfortunately, we no longer give advice to other tax professionals gratis.

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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

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