After one starts a small business, he or she usually chooses to operate it as a corporation. If one doesn’t do this, the business is operated as an individual, and the owner’s personal assets are not shielded from business creditors.
However, in order to maintain S-Corp status (a business’ corporation status), one must do more than just file articles of incorporation. The process may seem overwhelming, but one’s attorney will be present for the entire process. Essentially, a small business must keep their files with the State up to date, maintain Shareholders and establish corporate documentation. Here are the required steps, organized by category:
Filing with State
- File Articles of Incorporation.These must be filed with the Secretary of State and will officially create the corporation and keep a record of shareholders.
- File Annual Reports.Required by the Secretary of State, this updates the corporation’s information and requires an annual fee to complete.
- Begin with a Meeting. As the attorney drafts minutes from the meeting to file into the corporate book, bylaws should be adopted and directors should be elected at this meeting. This meeting is important and needs to happen, even if there is only one shareholder.
- Meet Annually.It is required that one meeting with shareholders occurs each year. The requirements established in the corporation’s bylaws must be followed and a lawyer should once again draft minutes to file into the corporate book.
- Hold Additional Meetings.In opposition to director consent, some decisions, as dictated by the corporation’s bylaws, require a shareholder vote. If the Annual Meeting of Shareholders is not scheduled for the near future, a Special Meeting must take place, once again following the corporation’s bylaws.
Establishing Corporate Documentation
- Draft Bylaws. In order to function as a corporation, establishing bylaws must happen immediately. Bylaws are basically the rules a company follows, mapping out operation and shareholder interaction. When there is only one shareholder, this may seem unnecessary. However, in order to demonstrate the division between the corporation and the shareholder, bylaws must be drafted.
- Create a Stock Ledger.This may seem superfluous when there is only one shareholder, but creating stock ledger, a document that records the issuance and transfer of shares and the names, contact information and number of shares for all shareholders, is required.
- Create a Corporate Book.This book is chiefly the attorney’s responsibility. It holds all corporate documents including the aforementioned bylaws and meeting minutes, as well at notices.
- Follow the Bylaws.Any given decision can require shareholder vote or consent, Directors vote or consent, or neither. It is necessary to follow the procedure established in the bylaws before taking corporate action.
Some of the steps required seemingly superfluous tasks for a corporation with a small number of shareholders. While some of it is required, there is an option, depending on the operational procedures and number of shareholders, to file one’s Articles of Incorporation as a Close or Closely Held Corporation. As a result, some decision-making formalities would become more lenient.