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Operating a Corporation

Page history last edited by PBworks 15 years, 8 months ago

To fully retain the benefits of incorporating, you must observe corporate formalities, even where the corporation is operated by a single shareholder / director / officer. To ensure you are maintaining corporate formalities, ask yourself the following questions:

 

1. Are meetings of the Board of Directors regularly scheduled and conducted?

2. Are Shareholder meetings regularly scheduled and conducted?

3. Do such meetings adequately cover the business that is currently being conducted in the corporation?

4. Do meetings provide Shareholders and/or Directors with agendas and goals along with the necessary background information necessary to make an informed decision? Are these materials provided to the Shareholders and/or Directors in advance of the meeting?

5. Do Directors have a reasonable opportunity to add items of concern to the meeting's agenda before the directors meet?

6. Are agenda items acted upon; or, rather, are they postponed and advanced to future meetings?

7. Does the meeting provide adequate time for Board members or Shareholders to discuss each agenda item?

8. Is each Director and/or Shareholder afforded a reasonable opportunity to discuss each issue?

9. Are Corporate Minutes of each meeting accurately recorded by the Secretary?

10. Does the Board meet with and/or receive direct reports from legal counsel, accountants, or other outside advisors? Are these reports included with the Corporate Minutes?

11. Are the Corporate Minutes of Board meetings reviewed at subsequent meetings?

12. Are the Corporate Minutes amended or corrected for clarity and accuracy?

13. Are the dissents to the Corporate Minutes duly recorded?

14. Do Board meetings adequately cover substantive policy issues involving the corporation rather than only trivial or administrative detail?

15. Is the Board Chairperson effective in conducting Board meetings?

 

 

Corporate Officers

 

allow you to name up to 6 officers for your corporation. While most jurisdictions allow the same person to act in all capacities, that person has different responsibilities depending on the capacity in which he or she is acting.

 

* President

* Vice President

* Treasurer

* Secretary (or clerk)

* Assistant Secretary

* Assistant Treasurer

 

 

Although most jurisdictions allow one person to serve in all three capacities, the person's responsibility and authority changes through the different officerships the person assumes. For example, the President is typically responsible for entering into contracts on behalf of the corporation, the Treasurer is responsible for maintaining and accounting for corporate funds, and the Secretary is responsible for observing corporate formalities and maintaining corporate records.

 

In addition to these required officer positions, a corporation may also have vice presidents and/or assistant secretaries or assistant treasurers.

 

Typically, the authority and responsibilities of each officer is described in the corporate bylaws and may be further defined by an employment contract or job description.

 

The President. The President has the overall executive responsibility for the management of the corporation and is directly responsible for carrying out the orders of the board of directors. He or she is usually elected by the board of directors.

 

The Treasurer. The Treasurer is the chief financial officer of the corporation and is responsible for controlling and recording its finances and maintaining corporate bank accounts. Actual fiscal policy of the corporation may rest with the Board of Directors and be largely controlled by the president on a day-to-day basis.

 

The Secretary. The Secretary is typically responsible for maintaining the corporate records.

 

 

 

Corporate Directors

 

he Board of Directors is essentially the management body for the corporation. Responsibilities of the Board of Directors include establishing all business policies and approving major contracts and undertakings. In addition, the Board may also elect the President. Ordinary business practices of the corporation are carried out by the Officers and employees under the directives and supervision of these Directors.

The Board of Directors is essentially the management body for the corporation. Responsibilities of the Board of Directors include establishing all business policies and approving major contracts and undertakings. In addition, the Board may also elect the President. Ordinary business practices of the corporation are carried out by the Officers and employees under the directives and supervision of these Directors.

 

The Directors must act collectively for their votes and decisions to be valid. That's why Directors may only act at a Board of Directors meeting. This, however, requires certain formalities. One such formality is that the Directors must all be notified of a forthcoming meeting in a prescribed manner, although this can be waived or provided for in the corporation's Articles of Incorporation or Bylaws.

 

For a Directors' meeting to be valid, there must also be a Quorum of Directors present. A Quorum is usually a majority of the Directors then serving on the Board; however, the Bylaws may specify another minimum number or percentage.

 

The Board of Directors must meet on a regular basis (monthly or quarterly), but in no case less than annually. These are the regular Board meetings. The Board may also call Special Meetings for matters that may arise between regular meetings. In addition, boards may call a special shareholders' meeting by adopting a resolution stating where and when the meeting is to be held and what business is to be transacted.

 

The first meeting of the Board of Directors is important because the Bylaws, the Corporate Seal, Stock Certificates and Record Books are adopted.

 

Board members, like officers, have a fiduciary duty to act in the best interests of the corporation and cannot put their own interests ahead of the corporation's. The Board must also act prudently and not negligently manage the affairs of the corporation. Finally, the Board must make certain that it properly exercises its authority in managing the corporation and does not abrogate its responsibilities to others.

 

This means that the board must be very careful to document that each Board action was reasonable, lawful and in the best interests of the corporation. This is particularly true with matters involving compensation, dividends and dealings involving Officers, Directors and Stockholders. The record or Corporate Minutes of the meeting must include the arguments or statements to support the Board action and why must detail why the action was proper.

 

 

Corporate Shareholders

 

Because Shareholders are the owners of the corporation, the corporation's Officers and Directors must ultimately serve the interests of the Shareholders.

While a Shareholder's role is not typically managerial, Shareholders are not powerless concerning the affairs of their corporation. The rights of the Shareholders are governed by the Bylaws of the corporation as well as by prevailing state laws.

 

Generally, (NOTE: laws may vary by state) the shareholders vote on the following matters:

 

--Appointment of the President

--Election of the Board of Directors

--Major changes in the basic organization of the corporation.

 

Major changes in the basic organization of the corporation is also referred to as "Fundamental Corporate Changes" and may include the following:

 

--Change of name or address

--Change in the nature of business

--Change in bylaws

--Change in type and number of shares of stock issued

--Change in size or composition of board

--Encumbering corporate assets

--Dissolution or winding down of the corporation

--Selling, consolidating or merging the corporation.

 

Shareholder Meetings

Shareholders, like Directors, cannot act unilaterally. They must act either at a regular Shareholders' Meeting (ordinarily held annually after the end of the fiscal year) or at a Special Meeting of the Shareholders (ordinarily called at the request of the Board of Directors).

 

There must be notice of the meeting and notice of the agenda (items to be discussed and voted upon). Most states require 10 days' notice and not more than 50 or 60 days' notice be provided. You can specify a time period in the corporation's Articles of Incorporation. Waivers of notice are allowed if the Board fails to notify Shareholders of the meeting or an emergency prevents adequate notice.

 

Shareholders may typically vote in person or vote by proxy. Voting by Proxy means having another person vote in the stockholder's place. It is important to remember that Shareholders vote their shares; i.e. it is the number of shares not the number of Shareholders that decide a vote. For example, if Shareholder A holds 500 shares, and Shareholder B holds only 100 shares, there will be a total of two Shareholders present with a total of 600 shares represented. Obviously Shareholder A has much more voting power than does Shareholder B.

 

As with Directors, there must also be a complete and accurate record or Minutes of a Shareholders' Meeting.

 

Some states allow certain actions, e.g., amending the Articles of Incorporation, to be taken without holding a Shareholders' meeting if (1) the corporation obtains a written consent to the action from ALL the Shareholders, AND (2) the written consent states what action the Shareholders have consented to. Check with your state to find out how many Shareholders must sign a consent for it to be valid.

 

Occasionally, there will be a combined meeting of Shareholders and Directors. This is perfectly permissible, however, you still need complete Corporate Minutes for each of the meetings.

 

 

**Further resources: mycorporation.com

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