Corporation rules
require that all corporations establish a board of directors, write bylaws, hold
"recorded" board meetings, appoint officers, meet legal requirements for
paperwork, and file Articles of Incorporation with state agencies. For profit corporation must separate directors from shareholders (directors from stock-owning shareholders),
maintaining a stock ledger, and holding an annual shareholder meeting.
Creation - Create by filing articles of
incorporation with the Secretary of State.
Maintenance of corporate status -- Must comply
with statutory formalities.
Ownership -- Shareholders own the corporation
and elect the Board of Directors
Government - The Board of Directors governs the
corporation elect the officers
Management - The officers manage its day to
day activities. Shareholders manage the corporation in some case of
extraordinary circumstances.
Corporate structure: Corporations in California
may have only one shareholder who can be the sole director, and have three
capacities as an officer. He or she can be all three: the president, the
treasurer (chief financial officer) and the secretary officer of the
corporation. Of course, as the sole shareholder, he elects himself to be the
sole director, and subsequently, as a director, he elects himself to be all
three officers: president, treasurer, and secretary.
If a corporation has a total of two shareholders, the law requires two
corporate directors, and if a corporation has a total of three or more
shareholders, there must be at least three directors. This helps in creating a
balance in the corporation. For example, if there are three shareholders, and
one has the majority of the shares, he can still be outvoted from the other two
directors -- since all three directors are required when there are three
shareholders. This helps shareholders with smaller # of shares to make
important decisions such as the sale of stock and / or the election of
officers.
Tax considerations: The current maximum
federal corporate tax rate is 35%. The California corporate tax rate is 9.3%.
Tax savings: If the business fails, individual
shareholders may offset up to $50,000 ($100,000 on a joint return) from their
ordinary income.
Limitation of Liability: To limit their
liability to the initial investment capital, the shareholders must follow
statutory formalities, such as meetings of the shareholders and directors, etc.
If they fail to follow these formalities, the shareholders may be personally
liable for the debts or other claims against the corporation. The liability of
the directors to shareholders may be limited by a certain procedure included in
the bylaws and/or other legal documents.
Additional investment: To attract more
investors, the corporation may sell or issue additional shares of stock to new
investors or to a venture capitalist ( preferred stock).
reholders meetings may take place
anywhere (even via telephone)
