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| Forming A Closely Held Corporation |
| Resources >>Closely Held Corporations>>Forming a Closely Held Corporation |
Articles of Incorporation
Owners form a corporation by filing formal documents with the state government. Usually, it is the Secretary of State that is responsible for
corporate filings. The papers filed are called Articles of Incorporation, or sometimes Certificate of Incorporation or Certificate of Formation.
State statutes provide the items that must be stated in the corporation’s articles. Usually, these are very simple and usually include
designation of a registered agent and registered office, purpose, number and identity of initial directors, number and classes of authorized
shares and stated or par value of those shares. Articles may also include additional items, such as duration, preemptive rights,
indemnification, restrictions on voting, etc. However, the specific structures and policies for governing the corporation are usually stated in
the bylaws, which are not required to be filed with the state and are thus much easier to change.
Bylaws
The bylaws are the rules for managing the affairs of the corporation. Bylaws usually contain the procedures for shareholders meetings:
location, frequency, notice, voting, etc. Bylaws also set out the number, qualification, and procedures for electing directors, and how and
when the board of directors will meet and how notice is to be given. Bylaws also set up the officers that the corporation will have, the manner
in which they are selected, and usually the duties and powers of the various officers.
Organizational Meeting
The shareholders must hold an initial organizational meeting to adopt the bylaws, elect directors, elect officers, vote to accept shareholders’
subscriptions and distribute shares. All of these matters need to be recorded in written minutes or resolutions. Very frequently in closely
held corporations, there is no actual meeting. Instead, all of the shareholders sign a consent in lieu of meeting with resolutions setting forth
all the matters that would have been handled at the meeting.
Minutes and Resolutions
Minutes are brief written summaries showing when and where a meeting of shareholders or directors was held, who attended, what business
was discussed, what decisions were made and what the vote was. Decisions by the board of directors or shareholders can also be
recorded in written resolutions that are signed by the shareholders or directors. If the shareholders or directors consent in writing, then
such resolutions can be passed without an actual meeting.
Stock Ledger
Every corporation is required to keep a ledger showing the issuance and transfer of all shares, together with the names and addresses of
all current shareholders and the number of shares held by each.
Corporate Book
All of these materials should be kept together in a “book” – usually a three ring binder – and maintained at the headquarters of the
corporation. Many closely held corporations neglect to create and maintain their corporate book. This is a big mistake and is always
regretted if a dispute breaks out among the shareholders.
Owners form a corporation by filing formal documents with the state government. Usually, it is the Secretary of State that is responsible for
corporate filings. The papers filed are called Articles of Incorporation, or sometimes Certificate of Incorporation or Certificate of Formation.
State statutes provide the items that must be stated in the corporation’s articles. Usually, these are very simple and usually include
designation of a registered agent and registered office, purpose, number and identity of initial directors, number and classes of authorized
shares and stated or par value of those shares. Articles may also include additional items, such as duration, preemptive rights,
indemnification, restrictions on voting, etc. However, the specific structures and policies for governing the corporation are usually stated in
the bylaws, which are not required to be filed with the state and are thus much easier to change.
Bylaws
The bylaws are the rules for managing the affairs of the corporation. Bylaws usually contain the procedures for shareholders meetings:
location, frequency, notice, voting, etc. Bylaws also set out the number, qualification, and procedures for electing directors, and how and
when the board of directors will meet and how notice is to be given. Bylaws also set up the officers that the corporation will have, the manner
in which they are selected, and usually the duties and powers of the various officers.
Organizational Meeting
The shareholders must hold an initial organizational meeting to adopt the bylaws, elect directors, elect officers, vote to accept shareholders’
subscriptions and distribute shares. All of these matters need to be recorded in written minutes or resolutions. Very frequently in closely
held corporations, there is no actual meeting. Instead, all of the shareholders sign a consent in lieu of meeting with resolutions setting forth
all the matters that would have been handled at the meeting.
Minutes and Resolutions
Minutes are brief written summaries showing when and where a meeting of shareholders or directors was held, who attended, what business
was discussed, what decisions were made and what the vote was. Decisions by the board of directors or shareholders can also be
recorded in written resolutions that are signed by the shareholders or directors. If the shareholders or directors consent in writing, then
such resolutions can be passed without an actual meeting.
Stock Ledger
Every corporation is required to keep a ledger showing the issuance and transfer of all shares, together with the names and addresses of
all current shareholders and the number of shares held by each.
Corporate Book
All of these materials should be kept together in a “book” – usually a three ring binder – and maintained at the headquarters of the
corporation. Many closely held corporations neglect to create and maintain their corporate book. This is a big mistake and is always
regretted if a dispute breaks out among the shareholders.
Author:
Eric Fryar
Eric Fryar
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| Last Updated: 2/20/2011 |