8 Corporate Formalities to Consider
When you research the different legal entities you can choose from to form your business, you are probably overwhelmed with information. Each entity provides a different management structure and unique tax consequences. Some entities offer more flexibility than others in terms of profit sharing. Choosing a legal entity when you are building your business requires a great deal of forethought and care. After all, whether you choose to be a partnership, corporation, or limited liability company affects how you run your business on a daily basis. For instance, corporations have a number of formalities you must adhere to. This is often a turn off for owners who want less rigidity in structure and rules and more time to be creative and sell their goods or services. But while corporate formalities may seem like a pain, they are intentionally created to help a corporation function and succeed as a separate entity from its owners.
Here are eight formalities you should consider before forming a corporation:
File the Articles of Incorporation: To create a corporation in Florida, you must file your Articles of Incorporation with the Department of State. This document includes the corporation’s name, place of business, purpose, the stock structure, name of incorporators, and the registered agent.
Incorporators hold an organizational meeting: After filing the Articles of Incorporation, the incorporators must meet to elect the corporation’s initial directors. All corporations must have at least one director, but most have a number to form a board of directors. Directors for a Florida corporation do not have to be Florida residents or shareholders of the company. They must be at least 18 years old. If the incorporators have already chosen the directors, then these individuals can be listed on the Articles of Incorporation.
Create bylaws: The incorporators and/or directors should determine the bylaws of the corporation. While all corporations have shareholders, directors, and certain corporate officers, there is flexibility in the daily management of the business. The bylaws lay out provisions for how the company will be managed and regulated.
Arrange the corporate records: All corporations must maintain their business records. It is recommended that the business create a binder or file that contains important documents such as a copy of the Articles of Incorporation and bylaws, stock certificates, and minutes for annual and special board of director and shareholder meetings. These records should be maintained at the primary office.
Hold the first annual board of directors meeting: Once the corporation is created and the initial directors appointed, the directors should hold their first board meeting. If bylaws have not yet been created, they should do so now. The directors can also create the official corporate seal and stock certificate and then issue shares of stock. The board will meet at least once a year, usually right after the annual shareholders meeting. All of the business conducted each meeting must be recorded in the minutes.
Issue stock certificates: Once the directors have approved the corporate stock certificate, a paper certificate can be granted to each shareholder.
Hold the first annual shareholders meeting: Shareholders must meet every year – the date for which is laid out in the bylaws. At the first meeting, shareholders may vote on who will become directors. After the initial appointments, shareholders vote on directors for the corporation. Minutes for this meeting should be taken and recorded.
File an annual report with the state: Corporations must file a yearly report with the state and pay an annual fee to ensure they remain active.
Corporations have many initial and annual formalities to follow, but that does not mean that this structure is not right for your business. Call the experienced West Palm Beach business formations attorney Larry E. Bray for more information.