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THE MYTHS OF CORPORATE FORMATION AND COMPLIANCE - Part I of IIWritten by: Tamara Lynn Harper Reputation Level 10
Posted over 2 years ago. Applies to California, 0 helpful votes, 0 comments
It is not true that a corporate entity is fully formed with the filing of the Articles of Incorporation. There are formation requirements and annual requirements that are commonly referred to as corporate governance. Reaching through the corporate entity to attach personal assets may occur.
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Myth: In order to form a corporation, I only need to file the Articles of Incorporation.It is not true that a corporate entity is fully formed with the filing of the Articles of Incorporation (or in the case of a Limited Liability Company, the Articles of Organization). Many times the question is asked, âI formed my new corporation by filing the Articles of Incorporation, now what do I need to do?â Filing the Articles of Incorporation is just the beginning of setting up and establishing a corporation. There are many further actions to take and documents to prepare including the preparation and adoption of the Bylaws and the many transactions that occur prior to the stock issuance and exempting the stock from registration with the Department of Corporations. Some of those transactions are outlined below. 2
1. Prepare Bylaws.Bylaws are regulations that a corporation makes for its internal government, the management of its property, the regulation of its affairs and the transfer of stock. The bylaws cover issues such as a) Directors powers; b) Number of directors; c) Election and tenure of directors; d) Compensation and expenses of directors; and e) Indemnification of directors. 3
2. Conduct and document the Organizational Meeting.The purpose of the First Organizational Meeting is to attend to such matters as the ratification of the Articles of Incorporation, adopt the Bylaws, elect officers, authorize the establishment of bank accounts, adopt a fiscal year, ratify actions of the incorporator, and authorize the issuance of stock certificates. 4
3. Apply for Federal Employer Identification Number.Prepare and file Form SS4 with the IRS. 5
4. Make âSâ Corporation election, if applicable by filing Form 2553.There are strict and immediate deadlines, which if missed, can have adverse financial implications. Immediately upon filing the Articles such should be discussed with your Attorney or CPA. Please see Choosing From Alternative Forms of Business Entities © 2008 Tamara L. Harper. 6
5. Capitalize the corporation e.g. fund the company with money and/or property.Under capitalizing a company can lead to problems further down the road. Shareholder loans, capital contributions and amortization of startup costs need to be documented by your CPA and by corporate resolution. 7
6. Order Corporate Records Book and stock certificates.Order corporate records book, if not done so already. Issue stock certificates with the appropriate stock restriction legends. Complete Stock Transfer Ledger. Exempt stock from registration with Department of Corporations by electronically filing the Notice of Exemption Under Section 25102(f). 8
7. Discuss drafting appropriate agreements with corporate counsel unique to your situation.Prepare Buy Sell Agreement and discuss âKey Manâ Insurance. Prepare Close Corporation Agreement, if applicable. Prepare Medical Reimbursement Plan, if applicable. Prepare Shareholder Management Agreement, if applicable. 9
8. Calendar Annual DeadlinesCalendar annual filing deadlines for the Statement of Information and Board of Director and Shareholder meetings as set forth in Bylaws or Organizational Meeting. Related Questions1 Attorney answers: 
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