Corporate Law - Corporate Lingo - Corporate FAQ -
I - What Is A Corporation ?
A corporation is the most common form of business organization, and one which is chartered by a state and given many legal rights as an entity separate from its owners. Characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern.
A corporation is required to have articles of organization, a board of directors, corporate officers, annual shareholders meetings, and to maintain separate books and records. Failure to observe such formalities may result in the personal liability of shareholders for corporate debts. However, where the corporation has only one shareholder, many states allow that one shareholder to act as director and all officers (President, Secretary, and Treasurer).
II - Important Corporate Terms :
A document, filed with a U.S. state by a corporation's founders, describing the purpose, place of business, and other details of a corporation. also called articles of incorporation.
Chief Executive Officer (CEO) :
The executive who is responsible for a company's operations, usually the President or the Chairman of the Board.
Chief Operating Officer (COO) :
The executive who is responsible for the day-to-day management of a company.
Chairman of the Board :
The highest-ranking officer in a corporation's board of directors. Presides over corporate meetings. Sometimes has executive authority over a firm, sometimes does not. see also Board of Directors.
Board of Directors :
Individuals elected by a corporation's shareholders to oversee the management of the corporation. The members of a Board of Directors are paid in cash and/or stock, meet several times each year, and assume legal responsibility for corporate activities. Also called directorate. The Board of Directors is the equivalent of The Board of Trustees in academia.
III - Articles of Organization (for The Limited Liability Corporation) :
The articles of Organization are the founding documents of the LLC. Once filed, the LLC comes into existence. Next, the LLC must adopt an operating agreement.
The Operating Agreement
Next to the Articles of Organization,The Operating Agreement is one of the most important documents in your LLC. While many states do not require that this agreement be in writing, it's never wise to leave agreements amongst Members to the spoken word, especially once your LLC begins to earn profits and hold assets. The Operating Agreement's length ranges from 12 to 16 pages depending on its complexity and contains the following information: Company name and address information Registered agent information Name and address information for each L.L.C. Member Management structure Items contributed by each Member Fair market value of each item contributed Date of dissolution Accounting method Tax treatment for your LLC Sample LLC resolution Appointment of LLC officers Designation of a final capital pay-in date. While the operating agreement is comprehensive, there is no substitute for sound, qualified legal advice from an attorney licensed to practice law in the relevant jurisdiction.
Opening a Bank Account
Most banks require only a copy of your Articles of Organization and you federal Employer ID Number to open a bank account. Some, however, may also require a resolution passed by the LLC's members and a copy of the Operating Agreement before opening account. To better determine your bank's requirements, you should contact the branch manager and ask about their requirements for New Accounts.
IV - Advantages of Incorporating :
- Separate Legal Entity Status
A corporation is a separate legal entity existing under authority granted by state law. It has its own identity separate and apart from its shareholders/owners.
- Broad Range of Powers
As a separate legal entity, a corporation has the power to act in any way permitted by law and by its own corporate charter. For example, a corporation can enter into contracts, buy and sell both real and personal property, sue and be sued, and can even be responsible for breaking the law (i.e. committing a crime).
- Small Claims Court
In most jurisdictions, any officer or director or employee can appear in small claims court on behalf of the corporation.
- Separate Liability for Corporate Debts
As a separate legal entity, a corporation is responsible for its own debts. Normally, shareholders, directors, and officers are not responsible for corporate liabilities. If the corporation suffers losses, the corporation itself must bear those losses to the extent of its own resources, and not the personal assets of the individual shareholders. In effect, however, shareholders indirectly bear these losses by a decline in the value of the stock they hold in the corporation. Note however, that shareholders, directors, and/or officers may be held liable for the debts of the corporation where the court imposes "alter-ego liability" or where the individual as personally guaranteed the corporate debt.
- Perpetual Duration
A corporation is capable of continuing indefinitely. Its existence is not affected by the death or incapacity of shareholders, directors, or officers of the corporation.
- Duration of Corporation Compared to LLC
An LLC has a limited existence. Absent a contrary agreement, a limited liability company (LLC) is dissolved upon the death, withdrawal, or bankruptcy of a member unless the business is continued by unanimous vote of the remaining members. Although the operating agreement can be drafted to avoid such a result, the life of the LLC is still limited to the termination date in the Articles of Organization.
V - Business Plan:
A Business Plan usually consists of the following sections:
- Table of
VI - What Is an Executive Summary ?
The Executive Summary is the most important document in a Business Plan. It is the crsutallization of the BP presented in an overview format. The ES encapsulates the entire business plan in a few paragraphs by giving the most succinct statement possible of the nature and objectives of your business. The Executive Summary includes the following:
VII - Useful Links:
VIII - Useful Books:
Business Plans That Get Results" - Michael O'Donnel