Corporation Formation

in Corporation

A business will usually form a corporation to protect itself and its owners against claims and lawsuits.  By definition a corporation is a legal entity that is created under the laws of the state of North Carolina designed to establish the entity as a separate legal person having its own privileges and liabilities distinct from those of its members.  Having a business can be risky, and the corporate legal structure provides protection against financial and legal liabilities.  The structure of a corporation keeps business dealings, assets and bank accounts separate from personal assets. Forming a corporation is not easy, nor is the maintenance; there is a lot of work involved in forming a corporation.  But the ultimate goal is to protect you in financial crisis, and prevent you from losing personal assets like your home.  So let's take a look at some of the more manageable tasks of forming a corporation.

Naming your Corporation

There are a few rules to follow when naming your corporation.  First you need to choose an available name that complies with your state's corporation rules. Every state is different so contact your state's office for specific rules.  General rules are:

  1. The name cannot be the same as any other corporation on file, it must be original.  We can help you can find out whether your proposed name is available for you to use during our first call.
  2. You have to end the name with a corporate designator or abbreviated version of one.  The designator options are "Corporation" or "Corp.", Incorporated" or "Inc.", or "Limited" or "Ltd.". 
  3. The name you've chosen cannot suggest association with the federal government or restricted types of businesses.  Cooperatives, Banks and Reserves are some of those businesses.
  4. You also have to be mindful of other trademarks.  Your name cannot violate the
    trademark of another company.
  5. Your name cannot be deceptively similar to the name of another company.

Appointing the initial directors of your corporation

The directors of a corporation help make major policy and financial decisions for the corporation, like setting salaries, electing officers, approving loans and issuance of stocks. They are usually appointed by the initial owners, if they've not already appointed themselves as the directors. In North Carolina the number of directors must be equal to or greater than the number of owners.

Filing Articles of Incorporation

The Articles of Incorporation is the basic document that creates the corporation.  The next step is to Prepare and file the "articles of incorporation" with your state's corporate filing office.  In North Carolina all corporations are filed with the Secretary of State Office.  Articles of incorporation don't have to be complicated; but it needs to cover the basic building blocks for the corporation.  Think of it as the "foundation" for the corporation.  You can't have a strong building without a strong foundation. But there are a few specific details required, like the name, the office address, and the names of directors.  When the corporation has only one owner, he or she simply prepares, signs, and files the articles of incorporation. When the corporation has multiple owners, they may all choose to sign the articles or they can choose to appoint a single person to sign them. In either case, the person that signs the articles is then known as the "incorporator" or "promoter."  Most of our clients prefer that the attorney serve as the incorporator.

Drafting "bylaws"

Bylaws are simply the operation rules that govern the day-to-day operations of your corporation. The bylaws will state rules like voting requirements and where meetings will be held.  Bylaws are important to the governing of the business and you should hire a lawyer to assist you with the draft.  The bylaws are usually adopted by the corporation's directors at their first board meeting.

Create a Shareholders' Agreement

A shareholders' agreement can help regulate many aspects of a corporation like voting rights and intellectual property rights.  But it's most useful when an owner retires, leaves the corporation, dies, or becomes disabled, because it will have guidelines that help decide what needs to be done in those events.  Any time that there are two or more shareholders it is a good idea to have a shareholder's agreement.

Holding the First Meeting

It is not enough to simply file papers with the secretary of state's office.  Before a company does business if must have a first meeting.  There are some important decisions to make and a few corporate formalities to take care of and the board of directors must hold an organizational first board meeting.  Many financial aspects should be handled at this meeting, like setting the corporation's fiscal or accounting year and authorizing the issuance of shares and stock.  Drafting the bylaws and adopting a corporate seal and official stock certificate, are some of the agenda items that need to be handled at the first meeting.

Issuing stock certificates to initial shareholders

Before conducting any business as a corporation it is very important to formally issue the shares.  This will divide up the ownership interests between the shareholders and is legally required. 

This is a little more complicated than it sounds.  There are securities laws that need to be followed while dividing the stock.  Stock Offerings of certain corporations have to be registered with the federal Securities and Exchange Commission (SEC) and the state securities agency.  This usually involves accounting and legal counsel, and takes time.  Small corporations have it a little easier and many qualify for exemptions from securities registration. 

When you're involving passive investors, people that aren't involved in running the company, it's wise to hire a business attorney to help guide you through the process.  Issuing stock to these investors is much more complicated.

When it finally comes time to issue the actual shares you'll need to document shareholders names, number of shares each shareholder will buy and the manner in which they will pay for their shares.  Stock certificates must be properly prepared and issued to each shareholder when this is all done.

Obtaining licenses and permits

You have just one last step, you're almost finished.  There will be required licenses and permits to start a new business.  Business licenses, zoning permits, and seller's permits are a few examples.  All of this depends on the type of business you are running. In North Carolina you will also need an employer identification number from the IRS.

Incorporating a business helps protect you and your investors, and helps you decide just how you want to operate your business.  It's also a fairly complicated process.  A well planned incorporation is worth the protection, the benefits and the potential success of your business.  Hiring an experienced business attorney can give you the peace of mind that your incorporation was filed correctly rather than worrying about the potential mistakes.

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Perry Fisher has 1 articles online

Fisher Stark Cash, P. A. is a personal injury law firm located in Asheville, NC. We are court room lawyers. Our personal injury lawyers handle car accidents, construction accidents, premises liability, wrongful death and much more. Our practice includes product liability, Traumatic brain injuries, anoxic brain injuries, and bodily injuries arising from the acts of others. Don't settle for what the insurance company wants or claims is their "policy." Instead, be fairly compensated for the injuries and inconvenience caused by someone's bad driving judgment or other negligent behavior.

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Corporation Formation

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This article was published on 2012/03/14