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The most important thing to know about operating a corporation is to leave a paper trail of the important business activities. Below are some of the most common issues to consider when maintaining your corporation.
- Keep things separate
As previously mentioned, it's important to keep the business and affairs of the corporation separate from the personal affairs of the stockholders, directors and officers. This means setting up a separate bank account, maintaining separate records, and keeping separate books for accounting purposes.
- Meetings
Directors need to hold periodic meetings, and shareholders must meet once per year to elect directors. Meetings can take place in person or by telephone. Either way, you need to make a written record of the items discussed and actions approved at the meetings. Alternatively, you can just get all the directors (or a majority of the stockholders) to sign a statement approving corporate actions. This is known as "written consent."
- Transfer of ownership interests
Generally, as long as all applicable laws are followed, a stockholder is free to sell or transfer shares to anyone. However, with small corporations in which the stockholders act more like partners and each is integral to the success of the company, you may wish to consider placing restrictions on the transfer of shares.
Stockholders sometimes enter into a buy-sell agreement which sets the terms for when shares can be transferred or sold. A typical buy-sell agreement would state that if one stockholder seeks to sell shares to any third party, the other stockholders have a right of first refusal; that is, the other stockholders may purchase those shares at the same price. Only if the other stockholders do not purchase those shares can a stockholder sell to a third party.
Additionally, certain professional corporations can only have shareholders that are licensed professionals, limiting the transferability of shares.
- Tax forms and licenses
Every corporation must obtain a federal tax identification number, which is similar to an individual's social security number. Some states also require a separate state tax number. In addition, state, county and city business licenses may be required. Please check with your city and county to see which types of licenses you need.
Other Corporation Articles:
- Alternative Forms of Incorporation Not every corporation is a C-Corporation or an S-Corporation.
- Checklist for New Corporations
- Choosing Between Corporation and Limited Liability Company LLCs allow a business to have the limited personal liability of a corporation as provided by state law, while being treated as a partnership for purposes of Federal tax laws.
- Conducting Your Business as A Corporation The limited personal liability of a corporation isn't iron clad.
- Corporations compared to LLCs
- Corporations Compared to Sole Proprietorships and Partnerships
- Forming A Corporation: The Basics This article outlines what steps you'll need to take to form a corporation.
- Forming a Corporation
- Operating a Corporation
- The Pros & Cons of S-Corporation Status If the number of shareholders in your corporation is small, you may think that becoming an S-Corporation is the right move, but you should weigh the advantages and disadvantages first.
- S Corporations
- S-Corporation or C-Corporation - Which Should You Choose? Each has different advantages and requirements. Find out more.
- What is a corporation?
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