form a corporation

Form Your Own Corporation

Certificate of Formation

Owners form a corporation by filing formal documents with the Texas Secretary of State. The document filed is the Certificate of Formation. State statutes provide the items that must be stated in the corporation’s articles. Usually, these are very simple and usually include designation of a registered agent and registered office, purpose, number and identity of initial directors, number and classes of authorized shares and stated or par value of those shares. Certificates may also include additional items, such as duration, preemptive rights, indemnification, restrictions on voting, etc. However, the specific structures and policies for governing the corporation are usually stated in the bylaws, which are not required to be filed with the state and are thus much easier to change. In Texas, the Secretary of State provides a form certificate of formation, which can be filled out online and electronically filed with a fee of a $300. Once the certificate is filed and the fee paid, a new corporation is formed.

Bylaws

The bylaws are the rules for managing the affairs of the corporation. Bylaws usually contain the procedures for shareholders meetings: location, frequency, notice, voting, etc. Bylaws also set out the number, qualification, and procedures for electing directors, and how and when the board of directors will meet and how notice is to be given. Bylaws also set up the officers that the corporation will have, the manner in which they are selected, and usually the duties and powers of the various officers.

Organizational Meeting

After forming a corporation the shareholders must hold an initial organizational meeting to adopt the bylaws, elect directors, elect officers, vote to accept shareholders’ subscriptions and distribute shares. All of these matters need to be recorded in written minutes or resolutions. Very frequently in closely held corporations, there is no actual meeting. Instead, all of the shareholders sign a consent in lieu of meeting with resolutions setting forth all the matters that would have been handled at the meeting.

Minutes and Resolutions

Minutes are brief written summaries showing when and where a meeting of shareholders or directors was held, who attended, what business was discussed, what decisions were made and what the vote was. Decisions by the board of directors or shareholders can also be recorded in written resolutions that are signed by the shareholders or directors. If the shareholders or directors consent in writing, then such resolutions can be passed without an actual meeting.

Stock Ledger

Every corporation that is formed is required to keep a ledger showing the issuance and transfer of all shares, together with the names and addresses of all current shareholders and the number of shares held by each.

Corporate Book

All of these materials should be kept together in a “book” – usually a three ring binder – and maintained at the headquarters of the corporation. Many closely held corporations neglect to create and maintain their corporate book. This is a big mistake and is always regretted if a dispute breaks out among the shareholders.

It's Easy to Form a Corporation

But it's hard to run one and make it successful. Operating a business through the corporate form of business structure requires careful record keeping and annual filings with the federal and state government.