M. Hedayat & Associates, P.C. Copyright 2007 INCORPORATION BASICS Mazyar M. Hedayat, Esq.

M. Hedayat & Associates, P.C. Copyright 2007 Election of Officers (1 of 2) Illinois does not require a corporation to have officers (President, VP, Treasurer) -- leaving it up to the Bylaws instead 805 ILCS 5/8.50 The Bylaws provide the number of officers, if any Election of officers is carried out by the Board of Directors as prescribed in the Bylaws

M. Hedayat & Associates, P.C. Copyright 2007 Election of Officers (2 of 2) Bylaws are the first and last word as to duties and authority of each Officer President typically has implied authority to enter into contracts and act on behalf of Corporation VP has implied authority to step into President’s shoes when not available and assist with such matters as President may designate Secretary typically certifies Bylaws and Resolutions of shareholders or the Board. Secretary is also the record keeper of the Corporation Treasurer’s duties and authority typically include receiving, keeping and accounting for funds

M. Hedayat & Associates, P.C. Copyright 2007 Meetings & Annual Reports (1 of 3) While they seem like mere details, Illinois law thinks differently! According to Illinois law, Annual Meetings are to be held at such time or times as may be provided in the Bylaws While failure to hold such annual meetings at the designated time will not dissolve the Corporation, such failures make it vulnerable piercing the corporate veil and derivative suits Accordingly, it is good practice and good sense to make sure that Annual Meetings take place on the specific date set forth in the Bylaws

M. Hedayat & Associates, P.C. Copyright 2007 Meetings & Annual Reports (2 of 3) Annual Reports must be filed by each and every domestic and foreign corporation authorized to transact business in Illinois 805 ILCS 5/14.05 and must contain the following information: Name of Corporation; Address of Registered Office Name and Address of Registered Agent Principal Office Address Names and Addresses of Officers and Directors Number of issued and authorizes shares, along with classes and series (if any) Amount of “Paid-In Capital” with notation of any changes from last year Amount of business transacted and assets located in Illinois See

M. Hedayat & Associates, P.C. Copyright 2007 Meetings & Annual Reports (3 of 3) Annual Report, along with all fees and taxes due, shall be delivered to the Secretary of State 60 days before first day of anniversary month of the Corporation Secretary of State will file the Report if it conforms strictly to the requirements of the Business Corporation Act: otherwise the IL Secretary of State will mail it back to be corrected and returned in 30 days Failure to follow the rules of the Illinois Secretary of State may and repeated failure will, result in Involuntary Administrative Dissolution 805 ILCS 5/12.35

M. Hedayat & Associates, P.C. Copyright 2007 Issuing Stock Certificates (1 of 4) Authorized Shares are those the Articles of Incorporation permit the Corporation to issue – that is, a corporation may not issue more stock than the Articles authorize 805 ILCS 5/6.05 Issued Shares are those recorded and sold to shareholders. A corporation may issue various classes of stock conferring different rights on shareholders e.g. Common Stock Preferred Stock

M. Hedayat & Associates, P.C. Copyright 2007 Issuing Stock Certificates (2 of 4) Common Stock no priority in distribution of assets upon dissolution no right to payment of dividends no preference over any other shares every holder entitled to pro rata payment every holder has rights equal to every other member of that class

M. Hedayat & Associates, P.C. Copyright 2007 Issuing Stock Certificates (3 of 4) Preferred Stock Holder of Preferred Stock entitled to priority payment in the event of liquidation and also entitled to dividends Number of preferred shares, classes, series, rights and preferences are determined by Articles of Incorporation or Resolution of the Board pursuant to authority contained in the Articles 805 ILCS 5/6.10

M. Hedayat & Associates, P.C. Copyright 2007 Issuing Stock Certificates (4 of 4) Authorized, un-issued shares of stock remain the property of the Corporation to be issued following a resolution of the Board Stock Certificates shall be signed by appropriate Officers of the Corporation and may bear the Corporate Seal 805 ILCS 5/6/35 Par Value: consideration paid for the Issued Shares. Traditionally, this was the minimum one could pay to purchase stock and was set forth in the Articles of Incorporation. Note that in the past shares sold for less than par were considered watered and the Directors and/or the Corporation itself could be held responsible to Shareholders for difference in value between par and sale price However, based on 805 ILCS 5/6.25 and 805 ILCS 5/6.30 Illinois has done away with this concept in favor of allowing the price of stock to float and letting the Board determine a price under the auspices of the Business Judgment Rule

M. Hedayat & Associates, P.C. Copyright 2007 Maintaining Corporate Records Corporate Books: Public policy requires that the records of a corporation shall be kept faithfully in order to protect the rights of stockholders and persons doing business with the Corporation. Ford v Ford Mfg. Co. 222 Ill.App. 76 (1st App. Dist. 1921) Voting Rights: It is important the Corporation maintain and keep its records current so that its Officers are aware of the voting rights of Shareholders. If, for example, there are Shareholder Agreements and Voting Trusts, a copy of those documents should properly be kept with the Corporate books. Quorum Requirements: The Corporation should maintain its Record Book along with a current copy of the Bylaws so that the proper Officers are aware of quorum requirements. If quorum requirements are not observed the Corporation may subject itself to a derivative action