© 2013 Delmar Cengage Learning CHAPTER 8 INCORPORATIONS © 2013 Delmar Cengage Learning

Preincorporation Matters DECIDING ON INCORPORATING Income tax implications Capital requirements Applicable statutory requirements Desired management structure The importance of limited liability Transferability of ownership Ease of forming and dissolving the entity Business continuity © 2013 Delmar Cengage Learning

Preincorporation Matters CHOOSING A DOMICILE The incorporators can choose the most advantageous state in which to file the articles or certificate of incorporation and that becomes the state of domicile. © 2013 Delmar Cengage Learning

Preincorporation Matters INCORPORATING IN DELAWARE Delaware has been a very popular state for incorporating due to its liberal corporate laws and user-friendly Division of Corporations. © 2013 Delmar Cengage Learning

Preincorporation Matters The founders of a corporation may enter into a preincorporation agreement to set forth their understanding. Individuals may enter into stock subscription agreements for the purchase of stock in a corporation once it is formed. It is important to gather all relevant information from the client before drafting and filing incorporation documents. © 2013 Delmar Cengage Learning

Promoters and Incorporators The formation of certain corporations is facilitated by a promoter. Brings interested parties together, obtains subscriptions for stock, and handles the incorporation Actions ratified by the corporation once it is formed The incorporator usually signs the articles of incorporation. Minimal role, often ends once the corporation is formed © 2013 Delmar Cengage Learning

CORPORATE NAME REQUIREMENTS   Must include words indicating the business is a corporation, such as corporation, incorporated, company, limited, corp., inc., co., or ltd. Must not be the same as or similar to name already in use in the state of domicile Must not be a deceptive name © 2013 Delmar Cengage Learning

Articles of Incorporation MANDATORY PROVISIONS Name of the corporation Number of shares the corporation is authorized to issue Street address of the corporation’s initial registered office and the name of its initial registered agent at that office Name and address of each incorporator © 2013 Delmar Cengage Learning

Articles of Incorporation OPTIONAL PROVISIONS The incorporators may choose to include additional information concerning the governance of the corporation in the articles of incorporation, so long as the provisions are not contrary to law. © 2013 Delmar Cengage Learning

Articles of Incorporation STATUTORY PROVISIONS THAT MAY BE AMENDED IN THE ARTICLES OF INCORPORATION State statutes generally include several default provisions that will apply to the corporation unless the articles of incorporation provide otherwise. In some states, there are requirements for publishing a notice of incorporation or recording the articles at the county or local level. The corporate existence begins when the articles of incorporation are accepted for filing with the proper state authority or at a later date stated in the articles.   © 2013 Delmar Cengage Learning

Organizational Meeting ACTIONS TAKEN AT THE ORGANIZATIONAL MEETING Elect the first board of directors and officers Adopt bylaws Ratify the acts of incorporators and promoters Accept stock subscriptions and issue shares of stock Approve a form of stock certificate Reach an agreement on accounting arrangements Authorize securities filings Approve S Corporation status (if desired) © 2013 Delmar Cengage Learning

Bylaws: Rules and Guidelines for Internal Corporate Control The corporation’s office address(es) Procedures for giving notice and holding shareholder meetings Procedures for giving notice and holding board of director meetings Guidelines for the board of directors Guidelines and qualifications for officers The corporation’s fiscal year Guidelines for paying dividends Provisions approving a form of stock certificate Provisions for amending bylaws Guidelines for keeping the corporate records © 2013 Delmar Cengage Learning

Formation of Special Types of Corporations There may be additional requirements for incorporating special types of corporations such as: Statutory close corporations Professional corporations Nonprofit corporations S Corporations © 2013 Delmar Cengage Learning

TASKS PERFORMED BY PARALEGALS WORKING ON INCORPORATIONS The Paralegal’s Role TASKS PERFORMED BY PARALEGALS WORKING ON INCORPORATIONS Attend attorney/client meeting to collect information Check name availability, prepare and file application for name reservation and articles of incorporation Check for compliance with any publication or county-recording requirements Draft corporate documents Assist client with obtaining required licenses Order and organize corporate minute book, seal and stock certificates; prepare stock certificates and stock ledger Follow up with client concerning corporate formalities and procedures to be followed © 2013 Delmar Cengage Learning