Business professional use these documents every day to operate their businesses.
Step 1
Directors' Resolution
A Directors' Resolution can be used to record minutes at a director meeting or to describe director resolutions in lieu of a corporate meeting.
Step 2
Share Purchase Agreement
A Share Purchase Agreement is a contract used for the sale of stock or shares between an existing shareholder of a corporation and another individual ...
Step 3
Shareholder Agreement
A Shareholder Agreement is a contract between shareholders of a corporation. It specifies shareholder rights and responsibilities, and includes terms ...
Last Updated July 4, 2024
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Forming a corporation and unsure about where to start? A successful corporation requires competence at the top that trickles down to the rest of the company. Creating a solid foundation of decision-makers who know their roles and responsibilities can put you on a profitable trajectory.
The best way to ensure your corporation gets off on the right foot is to be disciplined, organized, and follow the proper procedures. This starts with having all the necessary documents.
Here’s everything you need to know about managing your corporation and the many documents you will need along the way.
A corporation is a legal entity owned by its shareholders and operated by its board of directors.
This business structure allows a company to act as a separate entity from its shareholders, providing limited liability for them. In other words, the owners aren't personally responsible for the corporation's debts or obligations, including legal liabilities. Corporations even possess many of the rights and responsibilities a person does. They can enter contracts, hire employees, own assets, pay taxes, sue or be sued, and borrow or lend money.
Corporations are created when a group of shareholders (people who share ownership in a company) file Articles of Incorporation with the state government in its location. The shareholders then elect a board of directors to carry out the corporation's Business Plan. Part of this responsibility includes hiring and overseeing a senior management team that handles the day-to-day operations and keeping the shareholders up to date on the corporation's successes and failures.
Essential documents you'll need when forming and organizing your corporation's structure include, but aren't limited to:
Corporations also require having the right people in the proper roles, and there are many roles to fill.
The incorporator is the person who organizes the corporation and files the Articles of Incorporation. The incorporator’s role is usually complete once the filing is complete.
A director manages the corporation's affairs after incorporating. They act as agents for the corporation, and their actions are binding. Directors also need to use due diligence when conducting their duties because they are liable to shareholders and affected third parties if any negligence or fraud occurs.
A shareholder is a person, business entity, or organization that owns at least one share in a corporation. They're the actual owners of the corporation.
The Chairman of the Board is a director elected to act in a leadership role for the board of directors. The Chairman's role is to serve as a liaison between the board, the shareholders, and the company's management.
The president is an executive officer of the corporation, usually responsible for the corporation's day-to-day operations. The president reports to the board of directors.
The treasurer is responsible for keeping accurate and current financial records and supervising the corporation’s accounting functions.
The secretary is responsible for maintaining records, such as minutes of meetings, shareholders lists, etc.
There are also several types of corporations you can form. They all have their advantages and disadvantages, but which one you ultimately choose will come down to what you’re trying to accomplish with your business.
When most people think of the typical structure for a large corporation, they're usually thinking of a C corporation. These are among the most common types because they come with many advantages and freedoms that aren't available with other kinds.
C corporations can have unlimited shareholders and ownership is based on stocks. The stocks can be bought and sold relatively easily, creating an opportunity to raise capital.
With a C corporation, the company is also taxed as a separate entity, providing personal liability protection for shareholders. They're taxed on their individual dividends from the company but aren't responsible for its debts or other liabilities.
An advantage you'll find with the C corporation structure is that it's less likely than Limited Liability Corporations(LLCs) and sole proprietorships to be audited thanks to its tax structure. Employees can also have benefits, like health plans, that are tax-free.
S corporations are similar to C corporations, except they have different tax structures and more restrictions you need to consider when forming one.
An S corporation is called a "pass-through entity." This means the company is able to avoiding double taxation by passing credit, deductions, income, and losses onto the shareholders, which are then reported and taxed on their tax returns rather than the company's. In this scenario, the corporation isn't taxed as a separate entity.
For example, a company's income can be taxed at different rates by splitting it between the business and shareholders. Owner salaries are subject to a self-employment tax, while business dividends are taxed at a different rate. This structure is favorable compared to the double taxation C corporations face, where income is taxed at a corporate level and then again at the shareholder level.
Some restrictions to keep in mind when forming an S corporation include:
A B corporation, also known as a certified benefit corporation, is a corporation that makes a legal commitment to benefiting the environment and society.
They differ from C corporations in accountability and transparency, but are taxed the same way. In theory, a B corporation’s shareholders hold the company accountable and ensure that it’s fulfilling its commitment to benefiting society. Some states even require B corporations to submit an annual benefit report as evidence of their contributions. In the United States, 37 states recognize B corporations.
To qualify as a B corporation, a company needs to:
A corporation can receive a B corporation certificate from a third-party service, such as Bcorporation.net, but it isn’t a legal requirement. In addition, receiving a B corporation certificate from a third-party service does not automatically make the company an official B corp. For a company to be a legitimate B corporation, it needs to state in the Articles of Incorporation that it’s a B corporation and be recognized by the state government.
Close corporations are privately held companies that provide limited liability and are made up of a smaller number of shareholders (usually around 35). This means the company’s stocks aren’t for sale publicly.
An advantage of a close corporation is that it comes with fewer formalities. For example, annual shareholder's meetings aren't always necessary because the shareholders likely have an active involvement in the company. With fewer shareholders, each shareholder also has more control over share sales and a more significant say in the company's management.
Close corporations are also known as family corporations, incorporated partnerships, or private companies.
A nonprofit corporation is precisely like it sounds. It's a corporation that exists for a purpose other than making profits for its shareholders. This structure can be used to form a corporation for charitable, educational, religious, political, scientific, or social purposes.
Although directors, members, and officers are prohibited from receiving any profits, they’re still entitled to wages and fair compensation for providing services.
Nonprofits also come with tax breaks. A corporation can choose 501(c)(3) tax-exempt status, which allows the company to be exempt from federal and state taxes. By not paying these taxes, it lets the company put more money towards the causes they support.
Many of the most significant advantages of forming a corporation conveniently relate to the most critical aspects of running a business.
As previously mentioned, corporations provide reduced liability for owners. Because the company is a separate entity, creditors don't have a claim to the shareholders' personal assets. Instead, they only have a claim to assets held in the company's name. This makes doing business significantly less risky for shareholders than if the company was a partnership or sole proprietorship, where the shareholders are liable to creditors.
Transferring shares (or stock) is another advantage because it essentially allows a company's ownership to change or evolve without interrupting business activities. For example, if a member of a partnership leaves, they likely need to submit a Notice of Withdrawal from Partnership, and the business may even dissolve. However, if a shareholder wishes to exit their involvement with a corporation, they can transfer or sell their shares to another shareholder or new buyer, and business will likely continue as usual (depending on the corporation's size).
Publicly selling stocks is an easy way to gain capital, and it isn't an option available to other entity types. This can grow a business and may even save it from going under in desperate times.
A corporation's structure also increases the company's chances to head in a direction reflective of the ownership group's views and goals. Because the shareholders elect the board of directors, and the directors oversee the company's management, those elected directors are responsive to ownership and can make decisions that align with their desires.
Before you can manage your corporation, the corporation first needs to exist.
Start by choosing a name, if you haven't already. Ideally, the name will be memorable, and it must be distinguishable from other businesses. You'll want something that makes an excellent first impression.
Many states require a name that makes it clear the business is a corporation by including words like Company, Corporation, Incorporated, or Limited. Abbreviations like Co., Corp., Inc., and Ltd. are also acceptable. Each state has its own rules, so check with your local government before settling on a name.
The name you choose also doesn't have to be the name you do business under publicly. A corporation can have a legal name and an assumed or fictitious name. For example, you're probably aware of the search engine called Google. However, its legal name is Alphabet Inc.
Once you decide on and register your corporation’s name with local, state and federal agencies, you can also file a Trademark registration request with the United States Patent and Trademark Office to help protect your brand and intellectual property.
The corporation's initial owners (the shareholders) appoint the directors before incorporating. Although owners aren't required to be on the board of directors, they will often select themselves.
Generally, state laws allow a corporation with multiple owners to have one director. However, some states also require corporations with two owners to have at least two directors and corporations with three or more owners to have at least three directors. Check with your local state government to see if these rules apply to you.
Once you’ve formed a board of directors, your incorporator can get started on filing Articles of Incorporation. Once the documents are filed, the company is officially a corporation and can begin doing business.
Articles of Incorporation, also known as a certificate of incorporation, are legal papers you file with your state’s government when incorporating a business. The articles need to detail:
The articles can also include details like the names of initial directors, the corporation’s primary activities or purpose, and provisions that govern the management of the corporation.
The registered agent included in your Articles of Incorporation is someone with a legal street address (not just a PO box) in the state where the company will be incorporated. They're responsible for receiving government documents relating to the business' taxes and any official papers concerning legal actions. In other words, if someone needs to contact your corporation, they'll go through the registered agent.
Arizona, Nebraska, Pennsylvania, and Georgia have a publication requirement. This means the corporation needs to announce in local papers that they’ve filed Articles of Incorporation.
A Director's Organizational Meeting is usually a one-time meeting that takes place after the company is incorporated to do some important housekeeping regarding how it will run. The meeting's agenda typically includes:
After the initial organizational meeting, shareholders typically hold scheduled annual meetings to review the year and discuss new business and plans for the corporation.
Corporate Bylaws are a vital part of a corporation because they set the rules it uses to organize its internal management. They outline meeting rules, voting rights, and the policies and responsibilities of the corporation's directors, officers, and shareholders. The bylaws are then in effect once the board approves them. If the company wants to change the document, they can use either a Directors' Resolution or Shareholders' Resolution.
In addition to the bylaws, the board of directors appoints corporate officers during the meeting. This typically refers to the company's president, treasurer, and secretary. Their role is to carry out the board's decisions.
The approval of share certificates refers to a written document that proves that a shareholder owns a specific number of shares. Think of share certificates as receipts for purchasing shares.
Appointing a bank or financial institution is also essential in the organizational process. By opening a bank account in the corporation's name, the board proves that the corporation is a separate legal entity from its shareholders.
Finally, approving a corporate seal is necessary because it's used to mark documents as official, authentic, or both. They're used on many documents, including share certificates, invoices, and contracts.
After the organizational meeting has concluded, the directors can take care of issues more specific to their roles. On the agenda for the first directors meeting should be corporate minutes and Directors' Resolution.
Corporate minutes are used during a directors meeting to record what happens during the session. This includes legal, tax, and financial decisions and any votes regarding these decisions. This recordkeeping creates a paper trail and reduces the chance of future disputes.
A Directors' Resolution is a document used to record the board of directors' decisions during the meeting. This sounds similar to corporate minutes, but the difference is that corporate minutes record what happens during a session, while a Directors' Resolution records the decisions that result from the meeting.
Decisions that a Directors’ Resolution can record include:
A Directors' Resolution is also called a Consent to Action Without Meeting because the directors can use it in place of a corporate meeting as long as all directors agree and authorize the resolution.
Like the directors, the shareholders need to hold their own Shareholders’ Organizational Meeting to do their own housekeeping. It doesn’t necessarily need to take place after the directors’ meetings. There’s a good chance that the directors will attend the meeting because they are likely shareholders as well.
The meeting's purpose is to ratify the directors' and incorporators' actions and decisions, appoint or elect new directors, appoint or waive the appointment of auditors, and also resolve any other business brought before the meeting.
Any resolutions during a shareholders’ meeting are recorded in a Minutes of Meeting document.
There are a few other documents the shareholders will need to discuss before the corporation gets down to business.
A Shareholder Agreement is a contract between a corporation's stock owners that addresses its rights, responsibilities, and ownership. By addressing important issues, such as transferring shares and the rights of shareholders and officers, the agreement increases the chances the corporation runs smoothly. It might even be referenced to resolve future disputes between owners.
If the Shareholder Agreement doesn’t include an end date, you’ll need a Termination Agreement to formally end it.
A Shareholder Loan Agreement is another valuable document to have on hand. Shareholders use it when lending money to the corporation, which allows the corporation to avoid seeking a loan on the market or selling more stock to raise capital. The contract spells out loan conditions like:
There are many different ways to run a shareholders' meeting. How aspects like attendance and voting play out is determined by how you choose to use the following documents.
For a large corporation with many shareholders, it isn't always realistic to expect shareholders to attend every meeting. This can make it challenging in some cases to hold votes because the minimum required voters (called a quorum) might not be in attendance. A Shareholder Proxy is helpful in these situations.
A Shareholder Proxy, also known as a Shareholder Appointment of Representative, lets a shareholder give another person full authority to represent them in shareholder meetings when they can’t attend for themselves.
There will also be instances where a matter is so minor that holding a formal meeting is a waste of time and resources. In these situations, shareholders can use a Shareholders' Consent to Action Without Meeting document to resolve the matter without a face-to-face or digital meeting.
If the corporation or its shareholders wish to take specific actions, but don't want to wait for the next shareholders' meeting, they can request written consent from the shareholders remotely. If a resolution receives the necessary votes, a Shareholders' Consent to Action Without Meeting is created to make the action official.
A Shareholders’ Consent to Action Without Meeting is also commonly known as a consent resolution.
The number of shares a shareholder has determines their ownership percentage in a company and the dividend payments they'll receive from a company (if the company pays out dividends). Two ways of acquiring shares in a corporation are to use either a Share Purchase Agreement or a Share Subscription Agreement.
A Share Purchase Agreement transfers ownership of shares from a seller to a buyer. It's used whenever an individual or corporation sells or purchases existing shares in a company to or from another person or business entity.
For example, suppose you and two business partners all have equal shares in a company, and one partner wishes to withdraw. In that case, they can use a Share Purchase Agreement to purchase the withdrawing partner's shares.
A Share Subscription Agreement is slightly different. Instead of purchasing shares from a current shareholder, a purchaser uses the document to buy new shares from a corporation. When a person purchases shares in a corporation, they become a shareholder and part-owner.
Being diligent with your paperwork can go a long way towards your company reaching its goals, and proper record keeping might even save you some money in the long run too. By staying organized and creating a wealth of information about your company, you can measure trends, pinpoint areas succeeding or lagging, and keep track of deductibles for tax season.
Financial statements like income statements and balance sheets are an excellent place to start. Income statements show your company's income and expenses during a specific period, while balance sheets are used to record assets, liabilities, and equity.
It’s also a good idea to record your corporation’s sources of income and deductible expenses as they occur for your tax return. Knowing your sources of income is obviously valuable information for business planning, but it also helps you divide taxable income from the nontaxable. Furthermore, documenting deductibles eliminates the risk of forgetting about expenses that you can use to save money on your tax return.
Forming and managing a corporation requires many different documents that sole proprietorships or partnerships don’t have to deal with. While it may seem like a lot, all the documents explained above are necessary and serve a specific purpose.
Take the time to do things correctly. Ensure you choose the right corporate structure for your company and learn the advantages and importance of each document. Utilizing all the proper documents and procedures will help put your corporation on the right path, and will make it much easier for your company when it comes to hiring employees, filing taxes, or selling your business in the future.
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Use these additional documents to manage the behind-the-scenes operations of a business.
Minutes of Shareholders' Meeting
A Shareholders' Minutes of Meeting records decisions taken by a corporation at a meeting of its shareholders.
Shareholder Loan Agreement
A Shareholder Loan Agreement is used when a corporation is borrowing money from one of its shareholders; a shareholder is lending money to its corpora...
Share Repurchase Agreement
A Share Repurchase Agreement is used when a corporation wishes to repurchase shares from one of its shareholders.
Directors' Organizational Meeting
A Directors' Organizational Meeting document records the initial resolutions and actions of the directors to organize the corporation.
Shareholders' Consent to Action Without Meeting
A Shareholders' Consent to Action Without Meeting, or a consent resolution, is a written statement that describes and validates a course of action tak...
Certificate of Incumbency
A Certificate of Incumbency is used to confirm the identity of the officers of a corporation. It may also be used to confirm the names of directors an...
Consent to be Director and Officer
A Consent to be Director and Officer is completed when a corporate director or officer is first appointed.
Share Subscription
A Share Subscription is used when new common shares/stocks are issued by a corporation and sold to a purchaser, also known as a subscriber. The subscr...
Shareholder Proxy
A Shareholder Proxy allows an individual or corporation to appoint a representative to vote at a shareholder meeting.
Shareholder's Appointment of Representative
A Shareholder's Appointment of Representative allows a representative to vote at all shareholder meetings and make decisions that a corporate sharehol...
Minute Book Rights of Inspection
A Minute Book Rights of Inspection states who has the right to inspect corporate documents, and which documents can be inspected.