Reference no: EM13840878

Creating a Corporation-

A corporation is created, or incorporated, under the laws of the state in which it incorporates. The individuals creating the corporation are known as incorporators. Each state has a specific procedure, sometimes called chartering the corporation, for incorporating a business. Most states require a minimum of three incorporators; thus, many small businesses can be and are incorporated. Another requirement is that the new corporation's name cannot be similar to that of another business. In most states, a corporation's name must end in "company," "corporation," "incorporated," or "limited" to show that the owners have limited liability. (In this text, however, the word company means any organization engaged in a commercial enterprise and can refer to a sole proprietorship, a partnership, or a corporation.)

The incorporators must file legal documents generally referred to as articles of incorporation with the appropriate state office (often the secretary of state). The articles of incorporation contain basic information about the business. The following 10 items are found in the Model Business Corporation Act, issued by the American Bar Association, which is followed by most states:

1. Name and address of the corporation.

2. Objectives of the corporation.

3. Classes of stock (common, preferred, voting, nonvoting) and the number of shares for each class of stock to be issued.

4. Expected life of the corporation. (Corporations are usually created to last forever.)

5. Financial capital required at the time of incorporation.

6. Provisions for transferring shares of stock between owners.

7. Provisions for the regulation of internal corporate affairs.

8. Address of the business office registered with the state of incorporation.

9. Names and addresses of the initial board of directors.

10. Names and addresses of the incorporators.

Based on the information in the articles of incorporation, the state issues a corporate charter to the company. After securing this charter, the owners hold an organizational meeting at which they establish the corporation's bylaws and elect a board of directors. The bylaws might set up committees of the board of directors and describe the rules and procedures for their operation.