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Things You Need To Know Before Seeking Help From A Lawyer
Creating the business entity is another area where terminology is often abused. To create a corporation, one “incorporates” by filing articles of incorporation with the relevant Secretary of State. To create an LLC, one “organizes” it by filing articles of organization with the secretary. It sounds like a simple distinction, but it is important because filing the wrong paperwork can result in the voiding of the business entity, a total disaster.
According to “experts”, using a corporation has one bid advantage over other entities. The advantage is the ability to freely transfer shares without impacting the business or viability of the corporate structure. Consider the following example.
Corporate minutes are never filed with any government entity. The corporate minutes are an internal corporate matter and only come to light if there is a shareholder dispute or a claim by a third party that the corporation is a sham. Corporate minutes are typically taken during the board meeting by the Secretary, who subsequently files them in the corporate book.
Although each state has different records requirements, all require you to keep the following records.
In many states, the only business entity available to a professional is a “professional corporation.” This corporation is a hybrid business entity that is created by state law. Every state handles the issue differently, but there are some general aspects that almost always appear.
There are many advantages to a close corporation. For small business, one of the best is that corporate formalities are often disregarded, meaning you don’t have to hold board meetings and such. Another advantage is the ability to restrict share sales, which lets you avoid a situation where a shareholder sells their shares to someone you don’t know and don’t want in the business.
Investors are looking for the best deal, to wit, the most stock possible in an entity. If you are asking them for cash, they have the leverage. Don’t be so desperate that you give away the farm. All to often, I speak with individuals who started a business on a whim and have become disillusioned because they have lost equity in the business.
This liability protection comes with a price. To maintain the protection, the corporation must be run in a formal manner. Meetings must be held, and certain positions must be filled or the entity can be considered a sham. A sham corporation loses the ability to protect its shareholders from liability.
When you form a corporation and take on investors, you must be ready to let your baby go. The corporate entity is now the owner of the idea, which means all shareholders have a say in how things are run. The fact that you were the one that came up with the idea is absolutely irrelevant. If this sounds unfair, you may want to consider other ways to raise money instead of selling shares in the entity.
To gain the protection of a corporation, the business must be run in a particular way. This is known loosely as corporate compliance. If the entity is in compliance, the corporate shield protects the shareholders. If it is not, the shield can fall and the personal assets of the people involved can be exposed to liability. There are a lot of factors that go into corporate compliance. A simple, but misunderstood, one is the designation of a resident agent for service of process.
Typically, the bylaws will be the biggest document in your corporate book. If you are a single shareholder entity, they tend to be fairly straightforward since there isn’t really any dispute possibility unless you have a split personality. If there are two or more shareholders, however, the document is going to be a key item because it is going to detail voting rights and so on.
