The planning stage of incorporation is vital to the success of any corporation. The structure of a new corporation, including the number of directors, number of shares of stock, and other matters, must be carefully tailored to the specific needs of the business. Attorneys typically use a pre-incorporation worksheet to assemble all of the necessary information needed to plan the incorporation process.
By filling out a Pre-Incorporation Worksheet, potential business owners will be able to have before them all of the basic data to use in preparing the necessary incorporation paperwork. The process of preparing this worksheet will also help uncover any potential differences of opinion among the persons who are desiring to form the corporation. Often, conflicts and demands are not known until the actual process of determining the corporate structure begins. Frank discussions regarding the questions of voting rights, number of directors, and other management decisions often will enable potential associates to resolve many of the difficult problems of corporate management in advance. The use of a written worksheet will also provide all persons involved with a clear and permanent record of the information. This may provide the principals of the corporation with vital support for later decisions that may be required.
All persons involved in the planned corporation should participate in the preparation of the following worksheet. Please take the time to carefully and completely fill in all the spaces. Following the worksheet, there is a Pre-Incorporation Checklist which provides a clear listing of all of the required actions necessary to incorporate a business. Follow this checklist carefully as the incorporation process proceeds. After the Pre-Incorporation Checklist, there is a Document Filing Checklist that provides a listing of the corporate documents that are normally required to be filed with the state corpo¬ration office. Finally, there is a discussion and form for reserving the corporate name with the state corporation department. If required, the name reservation form will be the first form filed with the state corporation department.
Unfamiliar terms relating to corporations are explained in the glossary of this book. As the Pre-Incorporation Worksheet is filled in, please refer to the following explanations:
Name/address of state corporation department: The appendix of this book provides this name and address. You should write to this department immediately, requesting all available information on incorporation of a for-profit business cor-poration in your state. Although the forms in this book are designed for use in all states and the appendix provides up-to-date information on state requirements, state laws and fees charged for incorporation are subject to change. Having the latest available information will save you time and trouble.
Proposed name of the corporation: The selection of a corporate name is often crucial to the success of a corporation. The name must not conflict with any existing company names, nor must it be deceptively similar to other names. It is often wise to clearly explain the business of the corporation through the choice of name. All states allow for a reservation of the corporate name in advance of actual incorpora¬tion. Check the appendix listing for your state.
Parties involved: This listing should provide the names, addresses, and phone num¬bers of all of the people who are involved in the planning stages of the corporation.
Principal place of business: This must be the address of the actual physical lo-cation of the main business. It may not be a post office box. If the corporation is home-based, this address should be the home address.
Purpose of corporation: Many states allow the use of an “all-purpose” business purpose clause in describing the main activity of the business; for example, “to conduct any lawful business.” The Articles of Incorporation that are used in this book provide this type of form. However, a few states require a specific business purpose to be identified in the Articles of Incorporation. Please check in the appendix to see if this is a requirement in your state. If you must specify a purpose, be concise and specific, but broad enough to allow for flexibility in operating your business.
State/local licenses required: Here you should note any specific requirements for licenses to operate your type of business. Most states require obtaining a tax ID number and a retail, wholesale, or sales tax license. A federal tax ID (FEIN) num¬ber must be obtained by all corporations. Additionally, certain types of businesses will require health department approvals, state board licensing, or other forms of licenses. If necessary, check with a competent local attorney for details regarding the types of licenses required for your locality and business type.
Patents/copyrights/trademarks: If patents, copyrights, or trademarks will need to be transferred into the corporation, they should be noted here.
State of incorporation: In general, the corporation should be incorporated in the state in which it will conduct business. In the past, the state of Delaware was regarded as the best state in which to incorporate. This was due to the fact that Delaware was the first state to modernize its corporation laws to reflect the realities of present-day corporate business. This is no longer the case. Virtually all states have now enacted corporate laws very similar to those in Delaware. In the vast majority of situations, it is preferable to be incorporated in your home state.
Corporate existence: The choices here are perpetual (forever) or limited to a cer-tain length. In virtually all cases, you should choose perpetual.
Proposed date to begin corporate business: This should be the date on which you expect the corporation to begin its legal existence. Until this date (actually, until the state formally accepts the Articles of Incorporation), the incorporators of your corporation will continue to be legally liable for any business conducted on behalf of the proposed corporation.
Incorporators: This should be the person (or persons) who will prepare and file the Articles of Incorporation. Most states allow for one incorporator. However, a few require more than one. Please check the appendix for the requirements in your particular state.
Proposed date of first directors meeting: This will be the date proposed for hold¬ing the first meeting of the board of directors, at which the corporate bylaws will be officially adopted.
Proposed bank for corporate bank account: In advance of incorporation, you should determine the bank which will handle the corporate accounts. Obtain from the bank the necessary bank resolution, which will be signed by the board of directors at the first directors meeting.
Cost of incorporation: The state fees for incorporation are listed in the appendix. This cost should also reflect the cost of obtaining professional assistance (legal or accounting); the cost of procuring the necessary supplies; and any other direct costs of the incorporation process.
Proposed number of directors: Most states allow a corporation to have a single director. A number of states require three directors unless there are fewer than three shareholders, in which case the state allows for the number of directors to equal the number of shareholders. Please check the appendix for the requirements in your particular state.
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Proposed first board of directors: You should list the names and addresses of the proposed members of the first board of directors. Although not a requirement in every state, the Articles of Incorporation used in this book provide that these persons be listed. It is not possible to keep the names of the directors of a corporation secret.
Corporation’s registered agent and office address: You should list the name and actual street address of the person who will act as the registered agent of the corporation. All states (except New York) require that a specific person be available as the agent of the corporation for the service of process (i.e., to accept subpoenas or summonses on behalf of the corporation). The person need not be a shareholder, director, or officer of the corporation. The registered agent need not be a lawyer. Normally, the main owner, chairperson of the board of directors, or president of the corporation is selected as the registered agent.
Proposed first officers: This information is not provided in the Articles of Incorpora-tion and need not be made public. You should list here the persons who are proposed as the first officers of the business.
Qualification in other states: If the corporation desires to actively conduct busi-ness in a state other that the main state of incorporation, it is necessary to “qualify” the corporation in that state. This generally requires obtaining a Certificate of Authority to Transact Business from the other state. In this context, a corporation from another state is referred to as a “foreign” corporation. If you desire that your corporation qualify for activities in another state, you are advised to consult a competent business attorney.
Required quorum for shareholders meeting: This is the percentage of ownership of shares of issued stock in the corporation that must be represented at a shareholders meeting in order to officially transact any shareholder business. This is normally set at a “majority” (over 50 percent), although this figure can be set higher.
Annual shareholders meeting: The place, date, and time of the annual shareholders meeting should be specified.
Required vote for shareholders action: Once it is determined that a quorum of shareholders is present at a meeting, this is the percentage of ownership of shares of issued stock in the corporation that must vote in the affirmative in order to officially pass any shareholder business. This is normally set at a “majority” (over 50 percent), although this figure can be set higher and can be made to be unanimous.
Fiscal year and accounting type: For accounting purposes, the fiscal year and accounting type (cash or accrual) of the corporation should be chosen in advance. Please consult with a competent accounting professional.
Amendments to Articles of Incorporation: Under this item should be the deter¬mination of which bodies of the corporation will have the authority to amend the Articles of Incorporation. The forms in this book are designed to allow the articles of the corporation to be amended by the board of directors only upon approval by the shareholders.
Amendments to Bylaws: The determination of which bodies of the corporation will have the authority to amend the bylaws should be decided. The forms on this site are designed to allow the bylaws of the corporation to be amended by the board of directors only upon approval by the shareholders.
Annual directors meeting: The place, date, and time of the annual board of di-rectors meeting should be specified.
Required quorum for directors meeting: This is the percentage of directors that must be present at a board of directors meeting in order to officially transact any directors business. This is normally set at a “majority” (over 50 percent), although this figure can be set higher.
Required vote for directors action: Once it is determined that a quorum of direc-tors is present at a meeting, this is the percentage of directors who must vote in the affirmative in order to officially pass any board of directors business. This is normally set at a “majority” (over 50 percent), although this figure can be set higher and can be made to be unanimous.
Initial total investment: This figure is the total amount of money or property that will be transferred to the corporation upon its beginning business. This transfer will be in exchange for the issuance of shares of stock in the corporation. This is also referred to as “paid-in capital.” A few states require a minimum amount of “paid-in-capital” before beginning corporate business. Please check your state’s listing in the appendix.
Initial indebtedness: If there is to be any initial indebtedness for the corporation, please list here.
Initial authorized number of shares: This figure is required to be listed in the Articles of Incorporation. The number of shares of stock to be authorized should be listed. For small corporations, this number may be influenced by the incorporation fee structure of the state of incorporation. For example, some states allow for a minimum incorporation fee when only a certain minimum number of stock shares are authorized. Please see the appendix for the requirements in your state and check with your state corporation department.
Par value or no-par value: This refers to an arbitrary indication as to the value of the stock. The designation of stock as having a certain “par” value is not an indication of the actual value of the shares of stock. Shares must be sold for a price at or below par value. If no-par value is assigned, the shares are issued for the actual price paid per share. The choice of par or no-par value stock may affect the issuance of dividends and should be referred to the corporate accountant.
Proposed sales of shares of stock: Here should be listed the names, cash or prop¬erty, and value of potential sales of shares of stock which may be approved by the board of directors once the corporation is officially authorized to issue stock.
Following the Pre-Incorporation Worksheet is a Pre-Incorporation Checklist and a Document Filing Checklist. Please use these checklists to be certain that you have completed all the necessary steps for incorporation. Once all the persons involved have completed the Pre-Incorporation Worksheet, agreed on all of the details, and reviewed the Pre-Incorporation and Document Filing Checklists, the actual process of incorporation may begin. If the choice for a corporate name may be similar to another business, or if the incorporators wish to insure that the name will be available, an Application for Reservation of Corporate Name may be filed. This is a simple form requesting that the state corporation department hold a chosen corporate name until the actual Articles of Incorporation are filed, at which time the name will become the official registered name of the corporation. There will be a fee required for the filing of this form and some states prefer that preprinted state forms be used. Please check in the appendix and with the specific state corporation department for information. In any event, the information required will be the same as is necessary for this sample form.
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