Corporations Must File with the State to Be Officially Formed

By Business Filings Incorporated

Unlike sole proprietorships and general partnerships, which come into existence immediately and without any governmental approvals, business owners basically must request permission from the state in order to form a corporation. The appropriate paperwork, typically called the articles of incorporation or certificate of incorporation, must be filed with and approved by the state in order for a corporation to officially come into existence.

Corporations also differ from sole proprietorships and partnerships due to the corporate requirements imposed. The states often require corporations to submit annual or biannual reports, which often have a fee associated with them.

These reports are the states’ way of keeping accurate information, such as director names and addresses, for the corporations formed or qualified to transact business there. Some states also impose franchise taxes on corporations. A franchise tax is a tax imposed for the privilege of existing. Delaware is one state that imposes an annual franchise tax on all corporations formed or qualified there.

Corporations must also hold and document a number of meetings. The very first meeting required to take place is the organizational meeting, where the board of directors ratifies bylaws (the document that outlines the internal governance for a corporation), issues stock to the shareholders, and appoints officers. An initial meeting of shareholders is also often held to formerly approve the formation of the corporation, the appointment of the directors, and accept the bylaws ratified by the directors.

On an annual basis, corporations are required to hold annual meetings of directors and shareholders. These meetings must be documented, and the minutes kept with the corporate records. Corporations must follow a formal procedure for calling these meetings as well.

The importance of holding annual meetings, properly documenting major business decisions, and complying with other corporate formalities cannot be understated. Because corporations exist separately from their owners, they offer limited liability to their shareholders, meaning that the shareholders’ personal assets typically cannot be used to satisfy the debts and liabilities of the corporation. To maintain the limited liability, corporations must satisfy the annual requirements and formalities imposed on them. Otherwise, this limited liability can be lost. Also, possible disputes among the owners can be easily resolved, if good corporate records document what decisions were made.

As noted above, it is possible for a corporation to lose its corporate status, and therefore the shareholders lose their limited liability. This is often called “piercing the corporate veil.”

The following is a list of some formal documents that should be maintained with the corporate records:
• Minutes from the organizational meeting of directors
• Notice of and minutes for all annual meetings of directors
• Notice of and minutes for any special meetings of directors
• Notice of and minutes for all annual meetings of shareholders
• Notice of and minutes for any special meetings of shareholders
• Corporate bylaws
• All resolutions made to change the bylaws, approve major business decisions (such as to seek a loan or to buy real-estate), and to approve salary changes for officers

Please note, the list above in not all-encompassing, but is meant to demonstrate items that should be documented and kept. The documents noted above are not required to be filed with the state. But by keeping these records in the corporate minute book, business owners will always have quick access to important corporate records, should they ever be asked to produce them.

Often, when business owners are incorporating a business, they can purchase a “corporate kit” or “corporate minute book” that proves useful in helping comply with corporate formalities. Most incorporation service providers and attorneys offer these kits. They can also often be purchased at office or legal supply stores. These kits typically contain the necessary forms and also instructions on how to conduct meetings properly.